Synopsis of Value Added Tax Administration in Nigeria – Part 2
Exported service in this case means a service performed by somebody or company residing in Nigeria to a person outside Nigeria. Note the condition of residency for the service supplier, and the condition that the service must be rendered to a person outside Nigeria. Services performed and consumed in Nigeria, on the order of non-resident persons, therefore, do not qualify as exported service
VAT Exempt Items
The Value Added Tax Act (VATA) specifically exempts certain goods and services from Value Added Tax (VAT). The list of exempt goods and services are:
a) Basic foods items
b) All medical and pharmaceutical products sold/ supplied
c) Books and educational materials
d) Baby products
e) Locally produced fertilizer, agricultural and veterinary medicine, farming machinery and farming transportation equipment
f) Plant, machinery and goods imported for use in the free trade zones
g) Plant, machinery and equipment sold to oil and gas companies in the downstream sector for utilization of gas.
h) Tractors, ploughs, agricultural equipment and implements sold to farmers
a) Medical services
b) Services rendered by community banks, people’s bank and mortgage institutions
c) Plays and performances conducted by educational institution, as part of learning
d) According to the VAT modification order gazette of January 2012, all government bonds, government securities and corporate bonds
Zero-Rated Goods and Services
a) All non-oil exported goods and services1
b) Goods and services purchased by diplomats or embassies
c) Goods purchased for use in humanitarian donor funded projects
The law requires that a taxable person who makes a taxable supply shall in respect of that supply, furnish the purchaser with a tax invoice containing the following: the taxpayers tax identification number, name and address, VAT registration number, date of supply, name of client or customer, gross amount of transaction and tax charged.
Where goods and services are supplied to government ministries, departments or agencies, or companies operating in the oil and gas sector, the VAT charged which should ordinarily be paid to the supplier is required to be withheld by these organizations and remitted by them on behalf of the taxpayer in the prescribed format.
VAT on imported goods are levied at the point of importation and payment of customs duties is based on the original costs of such goods plus all costs incurred in bringing the goods to the port or place of importation into Nigeria. These costs include all other taxes, duties, levies, transportation, shipping, insurance, parking and commission.
VAT on imported services are to be withheld by the Nigerian company having a subsisting contract with the foreign company (which carries on business in Nigeria) and remitted on behalf of the non-resident company using the Nigerian company’s own address and in the currency of the transaction.
VAT returns are done on VAT form 002, available in all FIRS tax offices.
Offences and Penalties
Some of the offences and related penalties in the Act includes the following:
i) Failure to submit returns. This attracts a fine of N5,000 for each month the failure continues.
ii) Failure to collect VAT has a penalty of 150% of the amount not collected plus 5% interest above CBN monetary policy rate (MPR).
iii) VAT evasion. It attracts a penalty of N30,000 or twice the amount of tax evaded whichever is greater or imprisonment for a term not exceeding 3 years.
iv) Failure to keep proper records of accounts, attracts N2,000 fine for every month the failure continues.
v) Failure to issue tax invoice. A fine of 50% of the cost of goods and services for which an invoice was not issued.
vi) Failure to notify the Board of any change of address within one month of such change, is liable to pay a penalty of N5,000.
vii) Resisting, etc., an authorized officer. Any person who:
a) resists, hinders or obstructs or attempts to resist or hinder an authorized officer;
b) fails to comply fully with any requirement;
c) makes any statement in response to a requirement which is false or incomplete;
d) procures or attempts to procure by any means any other person to act as per the fore-goings, is guilty of an offence and liable on conviction to a fine of N10,000 or imprisonment for a term of six months or to both such fine and imprisonment.
viii) Offences by body corporate for which every officer, manager, secretary and other similar officers including partner in partnership shall be severely guilty of an offence under the Act, etc.
It should be pointed out that where penalties as specified in the VAT Act, and indeed any other provision, are in conflict with the provisions of the Federal Inland Revenue Service Establishment Act, the provisions of the FIRS Establishment Act will supersede.
The era of absolute dependency on oil proceeds is over and FIRS is now looked upon to generate government’s revenues through taxation to fund Government’s activities and projects. FIRS recognizes that it can only achieve this goal with a robust partnership and voluntary compliance of all stakeholders within the Nigerian tax system. One area where voluntary compliance is surely required is with respect to VAT, which holds significant potential for raising revenues. Nigerians are therefore enjoined to show their patriotism and love for the country, by ensuring that they close up on all knowledge gaps and comply fully with their obligations under the VAT Act. Consequently, the need to grow the tax base before increasing the rate cannot be over-emphasized.
1 Exported service in this case, means a service performed by somebody or company residing in Nigeria to a person outside Nigeria. Note the condition of residency for the service supplier, and the condition that the service must be rendered to a person outside Nigeria. Services performed and consumed in Nigeria, on the order of non-resident persons, therefore, do not qualify as exported service.
Babatunde Fowler is the Executive Chairman of the Federal Inland Revenue Service (FIRS) and this article is part of FIRS’ Tax Discourse series, initiated to enlighten and educate taxpayers on important tax technical topics. It is designed to be an interactive platform where readers are encouraged to send in their comments/enquiries to firstname.lastname@example.org. Vi-M Professional Solutions is the official partner to FIRS on the Tax Discourse series and enquiries can also be sent to email@example.com. Archives of publications are available on www.firs.gov.ng or on www.taxdiscourse.vi-m.com/FIRS