Value Added Tax (VAT) in Nigeria
Value-added tax (VAT) in Nigeria is set at a standard rate of 7.5%, which was increased from 5% on February 1, 2020.
- Certain items are zero-rated under VAT regulations, such as goods and services bought by diplomats and those acquired for use in humanitarian donor-funded projects. Exempt from VAT are items like plants and machinery destined for use in export processing zones (EPZs) or free trade zones (FTZs), essential food items specified on a designated list, medical services and products, pharmaceuticals, educational materials, and exported services.
- Entities like MTN, Airtel, governmental bodies, banks, and oil and gas firms are mandated to deduct VAT charged by their suppliers at the source and then remit it to the tax authority. Conversely, other organizations are required to collect VAT charged on their invoices from their customers to file and pay it to the tax authority.
- With the implementation of the Finance Act 2019, a reverse-charge mechanism has been introduced for services where no tax invoice was received. VAT returns are filed on a cash basis.
- The Federal Inland Revenue Service (FIRS) has introduced an automated platform called FIRS VAT-Collect for efficient tracking and remittance of VAT. Some users of this system include domestic airlines, which use it for immediate remittance of VAT on their ticket sales, and various retailers.
Furthermore, non-resident digital companies designated by the tax authorities, offering services to Nigerian customers, are obligated to charge, collect, and remit VAT to the FIRS in the currency of the transaction.
The Value Added Tax (VAT) system in Nigeria operates under the governance of the Value Added Tax Act Cap V1, LFN 2004 (as amended). VAT is levied on the consumption of goods and services, payable at the point of purchase or when services are provided. It functions as a multi-stage tax, ultimately shouldered by the end consumer.
Almost all goods and services, whether domestically produced or imported, are subject to VAT unless specifically exempted by the provisions outlined in the VAT Act. The standard VAT rate stands at 7.5%, with certain exceptions like non-oil exports which are zero-rated.
Under Nigerian VAT regulations, there are three primary categories of taxpayers entrusted with deducting VAT at the source and remitting it directly to the tax authority:
- Nigerian companies engaged in taxable transactions with non-resident entities within the country.
- Government ministries, statutory bodies, and other governmental agencies.
- Companies operating within the oil and gas sector.
Additionally, all taxable entities are mandated to submit VAT returns on a monthly basis, ensuring compliance with deadlines set not later than the 21st day following the month of the transactions.