Value Added Tax (VAT) is a type of consumption multi level tax that is levied on goods and services at every stage of production and distribution. Here, we briefly discuss the basics of Value Added Tax (VAT) in Nigeria.
The VAT rate in Nigeria is currently set at 7.5%. This means that for every N100 spent on goods or services subject to VAT, N7.50 is remitted to the government. The Nigerian Federal Inland Revenue Service (FIRS) is responsible for collecting and administering VAT in Nigeria.
VAT is applied to most goods and services sold in Nigeria, including imports. However, some goods and services are exempted from VAT. These include basic food items, medical and pharmaceutical products, educational materials, exports, and airline tickets sold for international travel.
Registered businesses in Nigeria are required to collect VAT on behalf of the government
Please note that if your annual turnover is above N25 million, you are exempted from charging and payment of VAT.
However, please note that you still have to file returns even if you are exempted.
and remit it to the FIRS.
All businesses operating in Nigeria are eligible to register for VAT, within six months of commencement of business.
VAT returns must be filed on a monthly basis, and payment of the VAT due must be made to the FIRS by the 21st day of the month following the month in which the VAT was collected, i.e. VAT collected in March must be filed before April 21. Failure to comply with these requirements can result in penalties and interest charges.
Procedure to register for VAT / TIN
Process of registering for VAT at the FIRS
Registering for VAT with the Federal Inland Revenue Service (FIRS) in Nigeria is straightforward. Here are the steps:
- Application letter addressed to the Tax controller for applying for TIN and VAT
- Collect the required documents. You will need to provide the following documents:Certificate of incorporation or business registration documents.Evidence of business address (utility bill, tenancy agreement, etc.)Means of IDTwo passport photographs of the business owner or authorized representative
- Complete the FIRS VAT registration form. You can obtain the form from the nearest FIRS office. Fill out the form with accurate information and ensure that all required fields are completed.
- Submit the completed form and accompanying documents to the nearest FIRS tax office close to your registered company address.
- Wait for the FIRS to process your application. Once your application has been processed, you will receive a VAT registration certificate.
- You will be required to fill the tax pro max form. This is an online portal which allows you to pay VAT and other taxes.
- You can apply for Tax Clearance Certificate on the tax pro max portal.
Short Scenario To Explain How Vat Works
Imagine you own a machine assembly plant in Nigeria and you purchase hardware and tools for coupling new machines. The supplier charges you N10,000,000 for the hardware, and adds a VAT of N750,000 (7.5% of N10,000,000) to your bill.
When you sell your newly assembled machine, you charge them N2,000,000 each, which includes the cost of the component parts plus a markup for your profit. Since you are registered for VAT, you must collect VAT from your customers on behalf of the government.
When a customer buys a machine from you, you collect N2,000,000 from them and add VAT of N150,000 (7.5% of N2,000,000) to their bill. You must keep track of the VAT you collect from your customers and the VAT you paid to your supplier for the ingredients.
At the end of the month, you must file a VAT return with the FIRS. You calculate your VAT liability by subtracting the VAT you paid on your purchases: the balance is what you are to pay to the government.
Another Example
When I get a new laptop, and the cost of the laptop is N250,000, I should have paid VAT of 7.5% on the N250,000 I paid. That would be N18,750 (7.5% of N250,000).
So my total bill for the laptop should have been N268,750.
Please note that the N250,000 belongs to the seller of the laptop and the N18,750 belongs to the government and must be remitted to the government by the seller of the laptop.