Indirect tax - Nigeria

Value Added Tax (VAT) is the main type of indirect taxation in Nigeria.
Value Added Tax (VAT) is a tax levied on goods and services consumed in Nigeria. It is an indirect tax wherein the burden of the payment is borne by the final consumer of the goods and services.
The tax was created by the VAT Act No. 102 of 1993 which became effective from January, 1994. The tax is collected only by Federal Inland Revenue Service at the rate of 5% of the value of the goods and services supplied.
Business owners are made compulsory agents (non- commission-earning agents) to the Federal government in the collection and rendition of the returns.
VAT is invoiced-based. That is, the computation and payment of VAT is not done on cash receipt but rather on the total invoices raised.
Nigeria operates a VAT exclusive system. This system requires that the VAT element of transaction is openly stated on the face of the invoice.
The VAT Act (VATA) requires all taxable persons to register for VAT within six months of the commencement of the Act (in 1993) or within six months of the commencement of business, whichever is earlier, with the Federal Inland Revenue Service for the purpose of the collection of the tax.
All taxable persons are required to register for VAT notwithstanding that they may be dealing in exempt items. In this connection, it should be pointed out that exemption status as contained in the VAT law is conferred on goods and services and not on persons or institutions.
‘Taxable person’ includes an individual or body of individuals, family, corporations sole, trustee or executor or a person who carries out in a place an economic activity, a person exploiting tangible or intangible property for the purpose of obtaining income there from by way of trade or business or a person or agency of government acting in that capacity.
Vat-able goods imported into Nigeria through the custom area are subject to VAT at the rate of 7.5%.
The VAT is payable by the importer at the port of importation, where the imports are goods for sale or form the stock-in-trade used for the production of any new product on which output tax is chargeable, such VAT paid on import is an allowable input tax to be deducted by the importers registered for VAT purpose in Nigeria on its output VAT.
The 7.5% of the value of goods and services sold is called the Output VAT while 7.5% of the goods bought for resale is called the Input VAT. The following principles must be observed in arriving at the VAT payable:
The input VAT to be allowed as deduction from the output VAT shall be limited to the tax on goods purchased or imported directly for resale and goods which form the stock-in-trade used for the production of any new product on which output tax is charged.
VAT incurred on administrative expenses or overheads does not qualify as allowable input VAT. Such VAT are expensed in the profit or loss account with the appropriate expense heads.
VAT paid on purchases of capital items or assets does not qualify as input VAT; rather they are capitalized (taken as part of the capital expenses of the business and capital allowances claimed).
There is no provision in the VAT Act for input tax claims on supplies of services.
VAT on inputs for the production of exempt goods is written off to profit or loss accounts.
VAT on input for the production of zero-rated products is reclaimed from FIRS through refund claims application.
Where allowable input tax exceeds the output tax, a refund can be claimed from the FIRS upon application.
Reimbursable expenses (where applicable) not forming part of the fees should be clearly and separately disclosed on the invoice and VAT would not be applicable to it.
VAT rendition and payment is monthly and this has to be done not later than the 21st day of the month following the month in which the transaction occurred.
In any month where there is no transaction, the law requires that a nil return is rendered.

No.

An individual or a corporate body intending to or carry on business in Nigeria is required to register within six months of the commencement of business.

A penalty shall be imposed if a business fails to register for VAT at the stipulated time frame provided by the tax law. A penalty of N10, 000 for the first month and N5,000 for every subsequent month the failure continues.

No.

The Nigerian customer is required to register the non-resident company it deals with using its address for the purpose of corresponding with the tax authority. This can also be done through a representative.

Not exactly, although there is a provision in the Finance Act 2021 recognizing non-resident companies having significant economic presence in Nigeria for taxation purposes.

A non residents or non established business may appoint a VAT representative/Tax Consultant to act on his behalf for VAT purpose with the tax authority.

VAT rendition and payment is monthly and this has to be done not later than the 21st day of the month following the month in which the transaction occurred.

Yes. Failure to submit VAT return attracts a penalty of N5,000 for every month in which failure continues.

Yes.
• Schedule of Turnover.
• Schedule of Allowable Input VAT.
• Schedule of VAT Returns.

Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules.

• Failure to register for VAT: N10, 000 for the first month and N5,000 for every subsequent month.
• Failure to remit VAT: 7.5% per annum of the amount of tax not remitted plus interest at bank lending rate.
• Failure to issue tax invoice: Fine of 50% of the cost of the goods or services for which tax invoice was not issued.
• Failure to register is an offence liable upon conviction to a fine of N5, 000 and sealing of the business premises if no registration is done after one month.
• Failure to keep proper records: Fine of N2, 000 for every month in which failure continues.
• Failure to collect VAT: penalty of 150% of the amount not collected plus 5% interest above the CBN Monetary Policy Rate.

No. 

A VAT invoice must show:
• A Taxable person who makes a taxable supply shall in respect of that supply, furnish the purchaser with a tax invoice containing the following:
– taxpayer Identification Number (TIN)
– name and address
– VAT Registration Number (VRN)
– date of the supply
– name of the purchaser or client
– gross amount of the transaction
– tax charged and rate applied

Nigeria – Yes. VAT returns are now done through e-filing on monthly basis.