VAT is a tax levied on the supply of taxable goods and services. However, not all goods and services are vatable, some goods and services are VAT exempted while some other goods are Zero Rated. VAT is a multi-stage levy on value-added on each production or distribution stage of goods or services. In the case of a manufacturing company, the value-added begins from the first stage until the final stage. VAT is a type of indirect tax, as the tax burden is passed to the final consumer. According to the Finance Act 2020, the new VAT rate is 7.5%. VAT is paid and filed monthly and the deadline for the payment is on the 21st day of every month preceding the month of the Transaction. Failure to file VAT will attract a penalty of fifty thousand Naira for the first month and twenty-five thousand Naira for the subsequent months of default.
A Vatable person deals in VATable goods and services(or commodities). VATable commodities refer to all tangible assets or goods traded for consideration while services mean all activities performed for consideration.
Example of VATable Persons include:
- Limited liability companies
- Sole traders
A taxable person shall register for VAT upon commencement of business in Nigeria or within 6 months of Company Registration with the Corporate Affairs Commission which ever is earlier. Under the new law, a taxpayer will start operations on the earliest date :
- it advertises its products or services for sale
- obtains an operating license in Nigeria
- makes its first sales or purchase for resale
- performs its first trading contract after incorporation
- sends or receives its first invoices or set of goods or renders services to its customers.
GOODS AND SERVICES EXEMPTED FROM VAT
Not all goods are VATable, some are exempted from paying and filing VAT. These goods and services include:
-Services rendered by community banks, peoples bank, and mortgage institutions
-Plays and performance conducted by the educational institutions as part of learning.
– All exported services. Exported services is a service rendered within and outside Nigeria by a person resident in Nigeria to a non-resident person(NRP) . However, a service provided to a fixed base or permanent establishment of a company of an NRP is not an exported service.
-Lease or rent on a residential accommodation
-Public road transportation service
-Tuition of a nursery, primary, secondary, and tertiary education.
Apart from the goods and services mentioned above, small businesses with an annual turnover of below 25million are exempted from accounting for VAT. Please note that companies who haven’t started earning up to a 25million are still expected to file their monthly VAT as NIL.