TAX SESSION V

VALUE ADDED TAX

 OUTLINE

Ø Introduction
Ø Statutory framework
Ø VAT administration
Ø Stakeholders in VAT Collection
Ø FIRS expectation from stakeholders
Ø VAT registration process
Ø Rate of VAT
Ø Output and input VAT
Ø Recoverable input VAT
Ø Supply of goods and services
Ø Exempt goods and services
Ø Zero rated vs exempt goods and services
Ø VAT deducted at source
Ø Consequences of non-compliance
Ø Common pitfall in VAT collection
Ø Right of a Tax Payer
Ø Offences and Penalties
 COURSE OBJECTIVES

At the end of this presentation, participants will be able to

Ø have an understanding of the concept of VAT and its relevance

Ø Calculate VAT using the input/output mechanism
Ø Identify goods and services zero-rated and exempt from VAT
Ø Understand the ‘reverse charge rule’ as it applies to Oil and gas
companies, Ministries, Department, Agencies and Non-resident
companies
Ø Understand the responsibilities of all stakeholders, consequences of non-
compliance and common pitfalls to watch out for.
 INTRODUCTION

Value Added Tax (VAT) is a multi-stage tax charged on the supply of

taxable goods and services except for those specifically exempted or
zero-rated in the first schedule of the VAT Act. The burden of the tax
is borne by the final consumer. VAT is a tax on turnover and is added
at every stage of manufacture or process, based on the value added
at each stage of commerce.

The supplier is, in effect, an unpaid tax collector working on behalf

of government by collecting the tax due which will eventually be
suffered by the final user only.
 STATUTORY FRAMEWORK

VAT was introduced via the Value Added Tax Act of

September 1, 1993 to replace the then-existing Sales Tax
which had been in operation under Federal Government
Decree No. 7 of 1986 but was collected by the state
governments in whose jurisdiction the sales were made.
The VAT Act is currently included in the Laws of the
Federation under Cap V1 LFN 2004.
 VAT ADMINISTRATION
VAT is administered and managed
by the Federal Inland Revenue
Service.
Tax payers are expected to register
with the tax authority within six
months of commencement of
business
All Ministries Departments and
Agencies of Government are also
expected to register as agents of
VAT deduction
A non-resident company that
carries on business in Nigeria is
expected to register with the
Board using the address of the
person it has contracted with
A non-resident shall include the
tax in its invoice and the
beneficiary of the good or service
in Nigeria shall remit the tax in the
currency of transaction
STAKEHOLDERS IN VAT COLLECTION

Ministries,
Tax Payers Departments
& Agencies

Collecting
Banks Contractors &
Suppliers
EXPECTATIONS FROM STAKEHOLDERS
TAX PAYERS
• Registration with the FIRS for VAT
• Charge of VAT on allVATable supplies at 5%
• Filing of VAT returns
• Remittances of VAT
MINISTRIES, DEPARTMENTS AND
AGENCIES
• Ensure that VAT are withheld
when making payment on
supplier’s invoices
• Ensure that all VAT withheld
are remitted to the FIRS

COLLECTING BANKS CONTRACTORS & SUPPLIERS

• Receive all VAT FGN Contractors must provide the
payments from taxable following documents
persons • Certificate of Incorporation
• Ensure VAT paid are • Business Address
uploaded on FIRS pay • Bank Details
direct platform • Tax Identification Number
• Ensure VAT payments
shows TIN of collecting
agent
 VAT REGISTRATION PROCESS
All businesses are required to register as agent for the Collection of VAT whether or not
they deal in Vatable goods and services.

In order to register for VAT, a letter of application for registration should be submitted
with the following documents at the FIRS office closest to a taxpayers business address:

1. Certificate of Incorporation
2. Memorandum and Article of Association
3. VAT registration Form (VAT Form 001)
4. Tax Payer Registration Input Form (for companies)
5. Share allotment Form (Form CO2) and Particulars of Directors (Form CO7)
6.Particulars of Proprietors (for Individuals)

Following which a Tax Identification Number (TIN) is issued to the tax payer.
 VAT RATE

VAT is charged at a flat rate of 5% on the value of all

taxable goods and services. The value of imported
goods, for the tax, is equal to the price of the goods
so imported and include:
• All taxes, duties, and other charges levied either
outside or by reason of importation into Nigeria
• All costs by way of commission, parking, transports
and insurance up to the port or place of
importation
 OUTPUT & INPUT VAT

The tax charged by a supplier of taxable goods

and services on the value of the goods or services
supply is known as output VAT, while the amount
of VAT suffered by the supplier on the purchase of
goods and services is known as input VAT.
Since, VAT is a wash-through tax, the supplier is
expected to be able to recover all input VAT
suffered via his output VAT
For example, say, for manufacturing a drug X, the manufacturer has to
buy inputs A, B, C & D on which he pays VAT. When he ultimately sells
the manufactured product X on which he has to charge VAT, the VAT
on the product will be on a tax base already including the VAT paid by
the manufacturer on products A, B, C & D. Therefore, the only method
by which the VAT paid on commodities A, B, C & D can be offset from
the final VAT on product X is via an input/output system.
 RECOVERABLE INPUT VAT
Section 17 of the VAT Act however restricts the amount of
Input VAT that can be relieved against the output VAT. This
portion, is known as recoverable input VAT. Input tax can be
recovered in the following circumstances only:

• VAT on goods purchased or imported directly for resale.

• VAT on goods that form stock-in-trade used for direct
production of any new product.
Input VAT on administrative expenses and overheads are
required to be expensed to the profit or loss account while
the one relating to fixed asset is to be capitalised along the
fixed asset
 RECOVERABLE INPUT VAT

XYZ is a company involved in the Trading of soft drinks. It purchases

the drinks from a bottling company in Lagos. The following
information is relevant for the month of May 2017

• Stock as at April 31st is valued at N3,588,982

• Stock as at May 31st is valued at N2,800,350
• The company purchased goods worth N5,000,000 during the
month
• Total sales for the month is N7,567,321

Calculate the VAT due for the month.

 RECOVERABLE INPUT VAT
XYZ LIMITED N N VAT @ 5% N

Sales 7,567,321.00 378,366.05

Opening Stock 3,588,982.00

Add Purchases 5,000,000.00

Less Closing Stock (2,800,350.00)

Cost of goods sold 5,788,632.00 (289,431.60)

VAT Payable 88,934.45

 SUPPLY OF GOODS AND SERVICES
What Constitutes Supply of Goods and Service?

This is defined as any transaction which is a sale of goods or the

performance of services for a consideration and will include the following;

• Sale/provision of taxable services

• Sale/delivery of taxable goods
• Appropriation of taxable supplies for own use outside the business
• Letting of taxable goods on hire, leasing or other transfer
 EXEMPT GOODS AND SERVICES
1. Goods exempt • All medical and pharmaceutical products
• Basic food items
• Books and educational materials
• Baby products
• Fertilizer locally produced agricultural and veterinary medicine, farming machinery and farming
transportation equipment.
• All exports
• Plant, machinery and goods imported for use in the export processing zone or free trade zone,
provided that 100% production of such company is for export otherwise tax will accrue
proportionately on the profits of the company.
• Plant Machinery and Equipment purchased for utilisations of gas in down-stream petroleum
operations
• Tractors ploughs and agricultural equipment and implements purchased for agricultural
purposes.

2. Services exempt • Medical services

• Services rendered by Community Banks, Peoples Bank and mortgage Institutions
• Plays and performances conducted by educational institutions as part of learning
• All exported services
 ZERO RATED GOODS
t Schedule also contains a list

VAT@0
rated goods and services.
0 ategory of goods and services
0 exempted from VAT, but VAT
ed on them at 0%. They
the following:
Non-oil exports
Goods and services purchased
by diplomats
Goods purchased for use in
humanitarian donor funded
projects
in producing exempt services cannot
be recovered. Recall that
irrecoverable input VAT is expected to
be treated as part of the cost of
production.
 VAT DEDUCTED AT SOURCE
Section 13 of the VAT Act empowers all Ministries,
Departments, and Agencies of Government, as well as
companies in the oil and gas sector to deduct VAT at
source from all payments to suppliers or contractors. This
mechanism of collecting VAT is also known as ‘reverse
charge rule’.

This means that unlike in other situations where the

supplier is expected to collect the VAT inclusive of his price
for onward remittance of VAT to FIRS, government
establishments and oil & gas companies are to pay the VAT
directly to FIRS.
 VAT DEDUCTED AT SOURCE
Illustration 2
Primux Exploration and Production Limited is an oil and gas company operating in the
upstream sector. The company relies heavily on information technology (IT) infrastructure.
Primux Exploration and Production Limited received supplies from Softfoot Limited an IT
company. The service rendered to Primux E&P is worth N6,500,000.

Calculate the VAT to be remitted by Primux E&P.

Solution:
Invoice amount N6,500,000, therefore VAT due is 5% X N6,500,000 = N325,000. This
amount will be withheld by Primux and remitted to FIRS as VAT withheld at source.
 VAT DEDUCTED AT SOURCE
Note that the above provision applies to Non-resident companies as
well.

This means that any organisation in Nigeria that receives taxable

suppliers from a non-resident company is required to apply the
reverse charge rule in its dealings with the non-resident company.
This means that the VAT due on all purchases from non-resident
companies must be accounted for and paid to FIRS by the Nigerian
recipient of the services.
 PRACTICAL ILLUSTRATION
Price*of*Goods*&*Calculation*of* Calculation*of*VAT*payable*to*
Stage VAT Government

1 Raw%Material%Supplier Sales%Price 10,000 VAT%Collected 500

Price%(N10,000) VAT 500 Less%VAT%Paid 0
Price%VAT%Inc 10,500 VAT%to%be%remmitted 500

2 Manufacturer Sales%Price 12,000 VAT%Collected 600

Price%(N12,000) VAT 600 VAT%to%be%remmitted %%%%%%%%%%5
Price%VAT%Inc 12,600 100

3 Wholesaler Sales%Price 15,000 VAT%Collected 750

Price%(N15,000) VAT 750 VAT%to%be%remmitted %%%%%%%%%%6
Price%VAT%Inc 15750 150

4 Retailer Sales%Price 18,000 VAT%Collected 900

Price%(N18,000) VAT 900 VAT%to%be%remmitted %%%%%%%%%%7
Price%VAT%Inc 18,900 150
CONSEQUECES OF NON-COMPLIANCE

Non-compliance may be in the following forms

(1) Non registration of business for VAT purpose
(2) Non compliance with respect to charge of VAT
(3) Collection of VAT and non-remittance to the FIRS

The Consequences of non-compliance include;

v Imposition of fines, penalties interest etc

v Sealing of business premises
v Denial of tax clearance certificate (For Companies)
COMMON PITFALLS IN VAT COMPLIANCE

v Failure to register and obtain TIN

v Failure to keep proper records
v Failure to charge VAT
v Failure to charge correct VAT rate
v Failure to prepare and file returns
v Failure to remit all VAT collected before due date
v Failure to notify FIRS on change of business address
RIGHTS OF TAX-PAYER

q Right to be given TIN free of charge upon request

q Right to object to VAT assessment
q Right to appeal against a “Notice of refusal to amend”
q Right to claim input VAT (Goods bought for resale, and
goods that constitute stock in trade)
q Right to be granted refund in cases of excess VAT paid
q Right to be issued receipt on all VAT remittances
 OFFENCES AND PENALTIES
S/N
OFFENCE PENALTY REF
1
Furnishing of false information Twice the amount under declared on conviction S. 25
2
Evasion of tax A fine of N30,000 or twice the amount of tax or imprisonment S. 26
for a term not exceeding three years on conviction
3
Failure to make attrition N5,000 S. 27
4
Failure to notify change of address N5,000 S. 28
5
Failure to issue tax invoice 50% of the cost of the goods or services involved S. 29
6
Resisting an authorized officer A fine of N10,000 or imprisonment for six months or both fine S. 30
and imprisonment on conviction
7
Issuing of tax invoice by an A fine of N10,000 or imprisonment for six months on conviction S. 31
authorized person
8
Failure to register N10,000 for the first month in which the failure occurs and S. 32
N5,000 for each subsequent month in which the failure
continues
9
Failure to keep proper records and N2,000 for every month in which the failure continues S. 33
accounts
10
Failure to collect tax 150% of the amount not collected plus (interest at CBN S. 34
rediscount rate + 5%)
11
Failure to submit returns N5,000 for every month in which the failure continues S. 35
12
Aiding and abetting commission of A fine of N50,000 or imprisonment for a term of five yrs; a fine S. 36
offence of N10,000 or four times the amount of tax involved, whichever (1)&(2)
is greater, or imprisonment for a term not exceeding six months
FAQs on VAT
Questions
1 WhatareTaxableGoods?
2 WhatareTaxableServices?
3Whatareexemptedgoods under theVATAct?Exemptedgoods aregoods whicharenotsubjecttoVAT
4 Whatareexemptedservices under theAct?
5 Whatis zeroratedVAT?
6 Whattransactions arezerorated?
7 Whatis theduedatefor filingVATreturns?
Whenasupplier supplies goods thatare
8 exemptedfromtax, shouldVATbepaid?
Answers
All goods manufactured/assembledinor brought/importedintoNigeriaexceptthosespecifically
exemptedunder theVATAct
All services renderedby any personinNigeriaexceptthosespecifically exemptedunder theVATAct
(a) All medical &Pharmaceutical products (b) Basic fooditems (c ) Books &Educational Materials
(d) Baby products
(e) Proceeds fromthedisposal of shorttermFGNsecurities &bond(f) Fertilizer, locally produced
agricultural &Veterinary medicine
Exemptedservices areservices thatarenotsubjecttoVAT
(a) medical Services (b) Services renderedby community banks (c ) play &performanceconducted
by educational institutionas partof learning
(d) All exportedservices
ZeroratedVATmeans thegoods andservices aretaxablebutatzeropercent
Thefollowingtransactions arezerorated
(a) Nonoil export(b) Goods andservices purchasedby diplomats (c ) Goods purchasedfor
humanitariandonor fundedprojects
21stday of every monthfollowingthemonthof transaction
No. Goods andservices exemptedfromVATarenottaxable, butthecontractor/supplier mustfile
VATreturns
FAQs on VAT
Questions Answers
9 Areentertainmentservices taxable? Yes. Theyaretaxableexceptas containedintheexemptedlist
10 Arecateringservices taxable? Yes. Theyaretaxableexceptas containedintheexemptedlist
CanMDAs exemptforeigninvestors from
11 payingVAT? No. Ministries donothavestatutorypower toexemptataxpayer frompaymentof tax
Ataxablepersonunder theVATActis aperson(other thanapublicauthority) whoindependentlycarries
12 Whois ataxableperson? outinanyplaceaneconomicactivityas aproducer, wholesaler, trader etc.
Isitcompulsoryforataxablepersonto
13 register for VAT? Everytaxablepersonhas anobligationtoregister for VAT
This is anagentof collectionwithregards toVAT. AVATagentfacilitates thedeductionandremittanceof
14 Whois aVATAgent? VATtothetax authorityeg. MDAs, Oil andGas coys
IsVATregistrationforindividualsor
15 corporatebodies? Itisforallsolongastheyaretradingongoodsandservicesasdefindedbylaw
Whatarethepenalties for non-registration N10,000inthefirstmonth, N5,000insubsequentmonths, sealingof premises wherethedefault
16 of VAT? continues
Whatarethepenalties for nondeduction
17 of VAT? 150%of uncollectedtaxplus 5%interestaboveCBNrediscountrate
FAQs on VAT
Questions Answers
Whatarethepenalties onnon-remittanceof 5% per annum plus inter estate commercial rate payable withing 30 days of notification by
18 VAT? the FIRS
why is VAToncertaingoods andservices
19 paidinforeigncurrency? Taxes are to be paid in the currency of transaction

ShouldMinistries issuecontractor with

receipts for VATremittanceinplaceof FIRS
20 receipts? Receipt Acknowledgement is only issued by FIRS
Most times organisation make part payment
tocontractors. WhenshouldVATbe At every stage where any payment is made, the corresponding VAT should be deducted and
21 deducted? Remitted e.g. Mobilisation, first payment, second payment etc.
Does FIRS grant refund on VAT to non-
22 citizens who are living the country? All non-oil goods and services for export are zero rated

VATelementongoods soldis deductedandremittedtotheFIRS throughany of theapproved

23 How is VAT on sold goods, treated?
24 What does VAT Inclusive mean?
25 What does VAT exclusive mean?
26 Is it allowable to chargeVATat10%?
collectingbanks onor beforethe21stday of themonthfollowingthemonthof sale
VAT inclusive means that VAT is already included in the cost of the transaction (VAT Form 002 / 002a)
VAT exclusive means that VAT is not included in the cost of the transaction (VAT Form 002 /
002a)
No. The correct rate is 5%
FAQs on VAT
Questions
27 What is Input Tax?
28 What is output Tax?
Aretheservices of amotor mechanic
29 VATable?
30 Domortgageinstitutions pay VAT?
What happens inthecaseof electricity
31consumption? Whodeducts VAT? AndHow?
32 IsVATamultipletaxation?
Whenshouldataxablepersonregister for
33 VAT?
34 ShouldVATbepaidoncommercial rent?
35 IsVATpayableonnon-oilproductexport?
36 Currencies of remittance of VAT
Answers
Input taxis taxpaidonrawmaterials or goods andservices usedfor productionpurposes or
goods purchasedfor resaleor goods importeddirectly for resale
This is taxchargedby taxablepersonongoods andservices soldor supplied. Whereoutput taxis
morethaninput tax, thedifferenceis paidtoFIRS. WhereInput VATis morethanoutput VAT, the
taxablepersonclaims arefund
Services providedby motor mechanic areVATable. Evensparepart usedfor theservices are
subjecttoVAT
VATis exemptedonly onprimary duties of mortgageinstitutions. Any other activity eg. Contract
executionoutsidetheir primary banking functionattracts VAT
VATis chargedontheconsumer by thedistributioncompanies that issuebills totheconsumers.
They aretochargeandreflecttheVATonthebills, collectandalsoremit sametotheFIRS
No. VATis notamultipletaxation, but amulti-stagetax. Theactual burdenis onthefinal
consumer of thegoods or service
A taxablepersonis requiredtoregister for VATwithin6 months of commencement of theAct or
within6 months of commencement of business, whichever is earlier
Yes. VATat 5%shouldbepaidby thetenant onrent paidfor useof property for commercial
purpose
All non-oil export arezeroratedi.e. taxrateapplicableis zeropercent.This means that all input
VATincurredintheproductionprocess uptothepoint of export is refundable.
VAT is remitted in the currency of transaction.
 FEDERAL REPUBLIC OF NIGERIA
TAXPAYER IDENTIFICATION NUMBER (TIN)
REGISTRATION INPUT FORM FOR SMALL AND MICRO ENTERPRISES (SME)/INDIVIDUALS SME/TRIF-01
APP
NO.
For Official Purpose
Registration Details
Instructions: All information should be filled in CAPITAL LETTERS , NO abbreviation is allowed and entries should not spill to neighbouring block.

1) Type of Organization Private Limited Sole-Proprietorship Partnership Individual

2) Registered/Personal Name:

4) Registration Date
3) CAC Registration No:
DD MM YYYY

5) Means of Identification: International Passport National ID Card National Drivers Licence Voter’s Card
(Individuals only)

Identification Number: Issuing Date:

DD MM YYYY

6) Business Commencement Date: Nature of Business:

DD MM YYYY

Contact Details

7) Business Address

8) Contact Address
(If different from above)

9) Name of Principal Officers I.

(Companies only)
Email: GSM No:

Email: GSM No:

Financial Details
12) Bank Name: 13) BVN
II.
14) Account Number:

I certify that the above information is true and correct:

16) Title/Designation:
15) Signature/Seal/Stamp
17) Date:
DD MM YYYY

For Official Use Only

Taxpayer Identification Number

Registration Office

Registration Officer:

IR Number Date:
DD MM YYYY

(Please tear along the line)

Taxpayer Identification Number Acknowledgment / Collection Slip

Tax Identification Number:

Taxpayer Name:

Date:
DD MM YYYY

Registration Office:
 FEDERAL INLAND REVENUE SERVICE
VALUE ADDED TAX RETURN FORM 002A FOR SMALL AND MICRO ENTERPRISES (SMEs)/INDIVIDUALS

THIS FORM MUST BE COMPLETED AND SENT TO THE TAX OFFICE EVEN IF NO VATABLE TRANSACTION OCCURRED

This returns covers M M Y Y Beginning D D M M Y Y Ending D D M M Y Y

Company/ Individual Name TIN

Address

E-Mail Address Tel/GSM No

Currency NAIRA USD GBP Euro

Line No A- SALES/ INCOME Notes Amount

1 Total Sales/Income Inclusive of VAT
2 Sales Adjustments (ii)
3 Sales/Income Subject to VAT Line 1-Line 2

4 TOTAL OUTPUT VAT Line 3 x (5/105)

B- PURCHASES EXPENSES

5 Domestic Purchases used for Sale of Goods (Cost of Sales)

6 Purchases not wholly used in making VATable Sales/Income (iii)
7 Total Purchases Subject to VAT Line 5- Line 6

8 TOTAL INPUT VAT Line 7 x (5/105)

9 VAT Payable/Refundable Line 4 - Line 8

Note: LATE FILING & PAYMENT SHALL BE PENALISED

DECLARATION: I declare that the particulars in this return are correct and complete in accordance with the provisions of Value
Added Tax CAP VI LFN, 2004

FULL NAME:___________________________________________________ DESIGNATION:___________________________________

SIGNATURE:___________________________________________________ DATE:______________________________________

FOR FIRS USE ONLY

Received/Reviewed By:
NAME:___________________________ IR NO:__________________SIGNED:________ DATE:__________________________

NOTE:
i SME for VAT Returns purpose means vatable person with annual tunover of N5m and below
ii Sales adjustments means goods & services used for other purposes other than for the business:
e.g. goods/services taken for private use, fringe benefits provided to employees, bad debt recovered, barter transaction
iii Purchases not wholly used in making VATable supplies means those goods & services used for other purposes than the business
iv. Return and Payment shall be made on or before the 21st day after the month of transaction
 VALUE ADDED TAX RETURN FORM 002
This returns covers M M Y Y Beginning D D M M Y Y Ending D D M M Y Y

Company Name TIN

Company Physical Address Doc No
Postal Address (Including Postal Code) Tel. No

E-Mail Address Corporate Website

Currency NAIRA USD GBP Euro

Line No A- SALES/ INCOME Schedule Amount

10 Total Sales/Income Exclusive of VAT
15 Less: Goods and Services Exempted Included in Line 10
20 Less: Zero Rated Goods & Services Included in line 10
22 Sales Adjustments
25 Sales/Income Subject to VAT
35 TOTAL OUTPUT TAX
B- PURCHASES EXPENSES
Domestic Purchases used for Sales other than Zero Rated and Exempted Goods
40 and services
45 Purchases not wholly used in making VATable Supplies
55 VAT Suffered on VATable Domestic Supplies
60 Domestic Purchases for Zero Rated Sales
65 Purchases not Wholly used in making Zero-Rated Supplies
75 VAT Suffered on Zero-Rated Supplies
85 Purchased Imports
90 Total Purchases Subject to VAT Incurred
95 TOTAL INPUT TAX
100 VAT Balance for Current Period
105 Input Tax on VAT Withheld by MDAs & Oil and Gas
110 Automatic VAT Payment in Current Period
115 Net VAT Balance for Current Period
120 VAT Credit Brought Forward
130 VAT Credit for the Current Period
135 Total VAT Credit
140 Relieved VAT Credit
145 VAT Credit Carry Forward
150 VAT Payable

Note: LATE FILING & PAYMENT SHALL BE PENALISED

DECLARATION: I declare that the particulars in this return are correct and complete in accordance with the provisions of Value

FULL NAME:___________________________________________________ DESIGNATION:___________________________________

SIGNATURE:___________________________________________________ DATE:______________________________________

FOR FIRS USE ONLY

NAME:___________________________ IR NO:__________________SIGNED:________ DATE:__________________________