Frequently asked questions and answers on Value Added Tax
1. What are VATable goods?
All goods manufactured/ assembled in or imported into Nigeria, except those specifically exempted under the law. Examples of VATable goods include jewelleries, shoes, bags, television etc.
2. What are VATable services?
All services rendered by a person in Nigeria except those specifically exempted under the law. Examples of VATable services are; services rendered by Lawyers, Engineers, Accountants, Contractors and Consultants etc.
3. What are exempted goods under Value Added Tax (VAT) Act?
Exempted goods are those goods which are not subject to VAT. These include:
• 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;
• Plant and machinery imported for use in the export processing zone or free trade zone; provided that 100% production of such company is for export;
• All commercial aircraft and aircraft spare parts imported for use in Nigeria;
• Amorphous pet chips (H S Code 3907.6000.00)
4. What are exempted services under VAT Act?
Exempted services are services that are not VATable. i.e. not subject to 5% VAT. These include:
• Medical services;
• Services rendered by Community Banks;
• People’s Banks and Mortgage Institutions;
• Plays and performance conducted by the educational institutions as part of learning;
• All exported services.
5. What is Zero-rated VAT?
Zero-rated VAT means whereas the goods are VATable, the applicable rate is zero percent (0%).
6. Which transactions are zero-rated?
The following transactions are zero-rated:
• Non-oil exports
• Goods and services purchased by diplomats
• Goods and services purchased by humanitarian donor-funded projects
7. What is the due date of filing VAT returns?
The due date for filing VAT is 21st day of every month following the month of transaction.
8. When a contractor/ supplier supplies goods that are exempted from VAT, should VAT be paid?
Goods exempted from VAT are not VATable.
9. Are entertainment services VATable?
Yes. They are VATable services except as contained in the exempted services list.
10. Are catering services VATable?
Yes. Catering services are VATable.
11. Can Ministries, Departments, Agencies (MDAs) exempt foreign investors from paying VAT?
No. Ministries do not have statutory powers to exempt a taxpayer from payment of tax or to amend the tax laws.
12. Who is a VATable person?
A VATable person under the VAT Act is “a person (other than a public authority acting in that capacity) who independently carries out in any place, an economic activity as a producer, wholesaler, trader, supplier of services (including mining, and other related activities) or person exploiting tangible or intangible property for the purpose of obtaining income by way of trade or business”. In other words, a VATable person is one who trades in VATable goods and services for a consideration.
13. Is it compulsory for a VATable person to register for VAT?
Every VATable person has an obligation to register for VAT payment.
14. Who is a VAT agent?
VAT Agents are agents of revenue collection with regards to Value Added Tax. They facilitate the deduction and remittance of VAT to the Revenue Office e.g. Ministries/ Government Agencies/Parastatals and Oil companies.
15. Is VAT registration for individuals or corporate bodies?
It is for all so long as they are trading in goods and services as defined by law.
16. What are penalties for non-registration of VAT?
Failure or refusal to register with the Board within the specified time, the taxpayer shall be liable to a penalty of N10,000 for the first month in which the failure occurs and N5,000 for each subsequent month in which the failure continues. If this persists, the premises where the business is carried on shall be sealed up.
17. What are the penalties for non-deduction of VAT?
Non deduction of or 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.
18. What are the penalties for non-remittance of VAT?
Failure to remit tax shall attract a penalty of a sum equal to 5% per annum plus interest at a commercial rate payable within 30 days of notification by the tax authority.
19. Why is VAT on certain goods and services paid in foreign currency?
Taxes are to be paid in the currency of transaction.
20. Should Ministries issue contractors with receipts for VAT payment in place of FIRS receipt?
No. Receipt acknowledging payments is only issued by FIRS.
21. Most times, organisations make part payment to contractors. When should VAT be deducted?
For any payment made, the corresponding VAT should be deducted and remitted.
22. Does FIRS grant refund on VAT to non-citizens who are leaving the country?
Section 23 of FIRS Establishment Act allows for refunds. Goods consumed in the country for which VAT was paid is not refundable.
23. How is VAT on goods sold treated?
VAT element on goods sold is deducted and remitted to the FIRS through any of the approved collecting bank or before the 21st day of the month following the month of sales.
24. What does “VAT Inclusive” mean?
VAT inclusive means that VAT is already included in the cost of transaction (i.e. goods and services contract). However, the term is being discouraged as it is always advised that VAT be isolated and not included as part of the total invoice value.
25. Some contractors charge 10% for VAT. Is it allowable?
No. The 10% charged as VAT is wrong. The correct rate is 5%. The contractor should not assume 10% to mean 5% for VAT and 5% for Withholding Tax (WHT). The two should be treated separately. WHT is deducted from the contract sum and therefore paid by the contractor, while VAT is paid as an addition to the contract sum by the consumer of the goods/services.
26. What is input VAT?
Input VAT is VAT paid on raw materials or goods and services used for production purposes or goods for resale or goods imported directly for resale.
27. What is output VAT?
Output VAT is charged by taxable persons on goods and services supplied. Where output VAT is more than the input VAT, the difference is paid to FIRS. But where input VAT is more than output VAT, the taxable person claims a refund.
28. How can input/output VAT be resolved at the Ministry or Parastatal level?
The issue of input/output VAT cannot be resolved by Government Ministries/ Department/ Agencies. However, for further clarification, FIRS should be consulted.
29. Are the services of a motor mechanic VATable?
Service provided by mechanics are VATable. Even the motor or vehicle spare parts used for the services are subject to VAT.
30. Do Mortgage Institutions pay VAT?
VAT is exempted only on the primary duties of mortgage institutions. Any other activity (e.g. contract execution) outside their primary banking function attracts VAT.
31. What happens in the case of electricity consumption? Who deducts VAT and How?
VAT is charged on the consumer by PHCN or the electricity company and is collected also by the company who is expected to remit same to FIRS.
32. Is VAT a multiple taxation?
No. VAT is not a multiple taxation, but a multi-stage tax. It is a consumption tax.
33. When should a Taxable person register for VAT?
All companies/ organizations that have been in existence before the VAT Act came into operation in 1993, were expected to register for VAT within six months from the date of commencement of the Act. New companies that came into operation after the commencement of the Act are expected to register for VAT within six months of commencement of the business.
34. Should VAT be paid on commercial rent?
Yes, VAT at 5% should be paid by the tenant on rent paid for use of property for commercial purposes.
35. Is VAT payable on non-oil product export?
All exports are zero rated i.e. tax rate applicable is 0%. This means that all input VAT incurred in the production process up to the point of export is refundable.
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