What is VAT and how does it affect my Nigerian business?
Most consumers know VAT as that extra payment they have to make for a item or service purchased, for business owners however, it is more of a legal concern. This article will shed more light into what a VAT is and what you should know about it as a business owner.
Value Added Tax (VAT) is a tax levied on an item (subsequent use of an item in this article will mean “a vatable item”). It is based on consumption rather than income meaning that a VAT is charged equally on every purchase of an item. VAT percent rate varies between countries.
For Nigeria, a 7.5% rate is charged on all goods and services provided within Nigeria to a person in Nigeria or provided outside Nigeria (imported goods or services) to a person or business registered in Nigeria. This law was implemented on 1 February, 2020 under the new finance act.
As a business owner registered in Nigeria, it is important to charge VAT in order to stay compliant with the law.
Who needs to register for VAT?
A taxable person shall upon commencement of business register with the FIRS and failure to register within the period specified is liable to pay a penalty of 50,000 for the first month, and 25,000 for each subsequent month. This was stated in Section 8 of the Value Added Tax Act which was amended by the Finance Act 2020. Certain goods and services are exempted and they are-
- Baby products.
- Medical services
- All exports
- Books and educational materials
- Basic food item
- Fertiliser and farming machinery
- Charitable fund raising
- Selling or letting commercial properties
- Insurance and finance services
- Postage stamps
- All medical and pharmaceutical products etc
How to register for VAT in Nigeria
Go to the FIRS website and select an office that is close-by your location. Take these documents along with you to ensure a smooth registration process:
If your business is only a registered business name-
- Business name registration certificate
- Utility bill
- Filled and officially stamped VAT form
- Application letter on business letter-headed paper
If your business is a limited liability company-
- Memorandum and articles of association
- Certificate of incorporation CAC2, CAC7
- Utility bill
- Duly filled and officially stamped VAT form
- Application letter on company letter-headed paper
VAT Collection & Remittance
The law in Nigeria requires that VAT returns are filed on a monthly basis on Form 002. This is due on the 21st of the month following the reporting period. Any VAT due should also be paid by this date. This should be done through a payment or transfer from an approved bank. Returns may be filed online as well as by paper.
A return must be accompanied with a listing of all VATable supplies received and provided.
Failure to file a return may incur a fine of NGN 5,000 per month. Failure to remit any VAT due will incur a fine equal to 5% of the liability, plus interest.
Penalty for Non-deduction of VAT
Non-deduction/failure to collect tax by a taxable person attracts a penalty of 150% of the uncollected tax plus 5% interest above the CBN’s rediscount rate.
How do I file VAT return in Nigeria?
Step 1: Go over your accounts. Before filing your VAT returns, you need to go over your business’ financial records for the duration you will remit tax.
Step 2: Login to TaxPro Max
Step 3: Select Taxes Due
Step 4: Select a payment method and pay
It is absolutely free to register for VAT and you do not need to employ the services of a third party to help you register. Staying VAT compliant is in the best interest of your business.
For more information, read this
NB- As at the 1st of April, 2022, Google and Facebook also began charging 7.5% VAT on all taxable goods and services due to new regulation from Nigeria. More information here.