INTRODUCTION:

value-added tax is a 7.5 per cent flat tax liability charge on all vatable goods and services. see section 34 finance act 2019. it’s an advancement by the Nigerian government to go more of indirect taxation as one out of the key revenue sources to the country’s economy.

VAT is provided for under value-added tax decree 102 of 1993 see section 1. it came into factual existence in 1994. this decree requires all manufacturers, wholesalers, importers and suppliers of VATable goods and service to be registered within six months of commencement of business or within six months of commencement of the 1993 decree. SEE SECTION 8(1) VAT ACT. this tax is administered and managed by federal inland revenue service. SEE SECTION 7 VAT ACT.

Value-added tax is collected from two-channel addressed as vat input and VAT input. The manufacturer, wholesaler, importers and supplier of VATable goods and services, who is registered as the law prescribed, are expected to charge and collect VAT on those goods and services. this is what that constitutes the VAT output. On the other hand, the purchaser of those VATable goods and services supplied also on their part, pays VAT and this constitutes VAT input. see section 10(2) VAT ACT.

VAT input in a strict sense, represent VAT paid on VATable goods and services purchased from the supplier of the same. under the 1998 Amendment to the decree, VAT input that will be treated as allowable deductions against VAT output are spelt out. SEE SECTION 13A (1) VAT ACT.

However, in the new provision, the allowable deduction is strictly where the same tax is already imposed on goods purchased or imported directly for resale, goods which form the stock-in-trade used solely for direct production of new product on which the output tax are already or will be charged. VAT input on any overhead, services and general administration of any business which otherwise can be expanded through the income statement for the year of assessment, on any capital item and asset shall not be allowed as deductible VAT input. see section 13A (2) VAT ACT. Once items qualify as allowable VAT input deductions, it is worthy to note that, there is no statute of limitations as to when such allowable VAT input should be claimed.

VATABLE PERSONS UNDER THE ACT.

Since VAT is a tax payable on the value of goods and services rendered, a taxable person is duty-bound to upon supplying of taxable goods or services to his accredited distributor, agent consumer etc., collect the tax on those goods or services at the rate specified. SEE SECTION 11 VAT ACT. These vatable persons include but not limited to the following;

a Limited liability company,
firm,
sole trader
resident and non-Resident entities etc.
It is worthy to note here that VATable person is not the same as Taxable persons. taxable person is person/individuals liable to pay VAT to the supplier of goods and services rendered to him and this as earlier said, constitutes the VAT input.

GENERAL CONSIDERATION ON ACCOSSAION OF EXCESS VAT PAYABLE.

VAT payable is the excess of VAT output paid over the VAT input collected and remitted to federal inland revenue service through the designated bank.

this is different from vat refund which means, an excess that arises from the collection of VAT input. this excess is on the majority of accossions carried forward as a credit against future VAT payable. The federal inland revenue service (ESTABLISHMENT) Act 2007 provided for a cash refund (as preferred policy) within 90 days subject to an appropriate audit by federal inland revenue service.

VAT payable (being excess arising from collection of VAT input) are recoverable in any of the following ways.

⦁ the credit method, or

⦁ the direct cash refund method,

⦁ or where possible, a combination of the two methods.

whichever is the case, application of credit method has been in major cases, adopted by the federal inland revenue service. this is due to the difficulty posed by the cash refund method. see specifically section 39 finance act.

MONTHLY RETURN AND REMITTANCE:

every registered person or businesses that qualify with the new minimum threshold requirement under the finance act 2019, are required to file monthly return to the local office designated by the federal inland revenue service. filing of this return is to be done not later than 21 days from the date of the transaction using VAT form 002. see section 15 of the VAT ACT.

the finance act in section 38 upon substituting section 15 of VATA with a new section providing thus;

“a taxable person who, in the course of a business, has made taxable supplies or expects to make taxable supplies, the value of which, either singularly or cumulatively in any calendar year, is #25,000,000 or more shall render to the service, on or before the 21st day of every month in which this threshold is achieved and on or before the same day in successive months thereafter, a return of the input tax paid and output collected by him in the preceding month in such a manner as the service may prescribe”.

default in rendering this monthly return attracts fine of #50,000 in the month of default and #25,000 for every subsiding month in which the default continues. see section 44 finance Act.

THE CONCEPTION, EXEMPTION AND ZERO-RATED ITEM PRACTICE.

Though VAT is chargeable but not in all items, this is to avert the danger of unfair practice. some of these items, which will be listed below, are exempted whereas some of which are zero-rated.

good or service is said to be exempted when a particular list of items is not chargeable. but in the way round, where the practice is zero-rated, then VAT is chargeable in Zero per cent.

Note that this practice has its distinct implications, for where an item enjoys VAT exemption, VAT input is not refundable. where the practice is zero-rated, all paid VAT input is refundable.

CATEGORY OF EXEMPTED AND ZERO-RATED ITEMS UNDER THE ACT.

these include all goods and services produced, imported or exported to a Nigerian consumer, rendered or carried out in which qualifies to exemption from VAT, or though Vatable but on zero per cent (as to zero-rated items).

under the finance act, the word goods mean,

al form of tangible properties that are movable at the point of supply, but does not include money or securities; and
any intangible product, asset or property over which a person has ownership or rights, or from which he derives benefits, and which can be transferred from one person to another excluding interest inland.
Service on the other hand means, “anything other than goods, money or securities which are supplied excluding services provided under a contract of employment”.

Having defined what goods and service mean under the act, below are the various exempted goods;

medical and pharmaceutical products
basic food items
books and educational materials
baby product
all export to non-Nigerian consumers
commercial vehicles and their spare parts
agricultural implements and equipment purchased and used for agricultural purpose
all agricultural produce and veterinary medicine. etc, etc.
Exempted services on the other hand includes;

service of a community bank, people bank, microfinance bank and primary mortgage bank.
pays and performance conducted by education institutions solely for learning.
Zero-rated items include but not limited to viz;

all non-oil exports
goods and services purchased by diplomats.
goods and services purchased by humanitarian donors for executing specific funded projects.
see amended first schedule, part I, II & III of VAT Act and section 47 Finance Act.

ISSUANCE OF TAX INVOICE:

since value-added tax is an indirect taxation policy, collected by registered persons/businesses and remitted to the appropriated authority designated by the “Service”. there is due need for issuance of tax invoice as to;

⦁ enable the tax authority charged for assessment and collection of remitted output, determine actual VAT liability.

⦁ notify the general public who is been charged for VAT of the existence of this, the percent rate too. This encourages transparency.

it is on this note that the registered person is required by the Act to issue a tax invoice on all collected VAT. The issuance of this invoice could be done electronically but mustn’t be on an electronic form. such an invoice should contain the tax charged and rate applied, total VAT payable, rate of cash discount offered, the quantity of goods and extent of service, etc.

failure to issue this tax invoice for goods sold or services rendered is guilty of an offence and liable on conviction to a fine of 50 percent of the cost of the goods or services for which the invoice was not issued. see section 25 of VATA.

Where an authorized person issues tax invoice, such person or persons is guilty of an offence and is liable on conviction to a fine of #10,000 or imprisonment for a term of 6 months.

RELEVANT VAT FORMS:

throughout the stage of registration down to remittance of vat output collected and re-assessment, there are prototype forms designated by the service, for use. These forms are (for best appreciations) classified into two categories as the form in use by the tax authority and those in use by taxpayers. they are;

form vat 001 which is the value-added tax registration form.
form VAT 002, value-added tax return.
form VAT 003: monthly return of VAT reconciliation statement.
form VAT 004: monthly return of VAT reconciliation statement from zonal VAT office to headquarter Abuja.
form VAT 005: monthly return of vat collection to the federation.
form VAT 006: monthly return of VAT collection by the Nigerian custom services.
form VAT 007: VAT re-assessment notice.
OBSERVABLE RED TAG AND COMPLIANCES:

the VATA provides various compliances to be observed by the vat taxpayer to include registration with their service for the purpose vat, filing of monthly return, collection and remittance of vat output, issuance of invoice, notify change address or permanent cessation of business. see part IV of the VAT ACT. contravention of any of those requirements has a distinct liability attached.

Take for instance, failure to submit return attracts fine of #50,000 in the month of default and subsequently, #25,000 for every month in which the defaults continue. section 35 VATA, see also section 44 finance act.

a taxable person who fails to notify the service of any change of address within 30 days of such change, or fails to notify of permanent cessation of business or trade is liable to pay the fine of #50,000 for the first month in which the failure occurs and subsequently pay #25,000 for each preceding month in which the failure continues.

another instance is where a taxable person, for the purpose of paying VAT, fails to register with the service within 6months of commencement of business, is liable to pay as a penalty an amount of;

⦁ #50,000 for the first month in which the failure occurs; and

⦁ #25,000 for each subsequent month in which failure continues,

see section 8(2) VAT Act.

CONTEMPORARY ISSUES ARISING FROM THE PASSING INTO LAW THE NEW FINANCE ACT:

the new finance act introduced vat on cellular network supply and the charge remains 7.5%. at first, Nigerian’s raised alarm on the new inclusion to their tariff network charge per calls and SMS.

there is no point to say that such charge is wrong. this is because service as defined in the new finance act didn’t exclude services of telecommunication business.

another interesting area is donation made to any approved pension fund. These are contribution to education Tet fund, approved intervention fund and covid-19 special intervention fund. neither of these donations are vatable.

CONCLUSION:

It’s to be noted that the flat rate of 7.5% of VAT are now been imposed on both telecommunication service and other VATABLE services.

the importance of this VATABLE tax charge is to aid in the economy of the country and service render able by the federal government. The incriminate rise on the VAT rate is proper and necessary for economic development and nation-building.

Written By Kingsley ThankGod Nwedukwu, [email protected]