Nigeria: Things To know about Value Added Tax

 

A value-added tax (VAT) is a consumption tax that is levied on a product repeatedly at every point of sale at which value has been added. That is, the tax is added when a raw materials producer sells a product to a factory, when the factory sells the finished product to a wholesaler, when the wholesaler sells it on to a retailer, and, finally, when the retailer sells it to the consumer who will use it.

In Nigeria, The current rate of VAT is 7.5% of the total value of the goods and services except items specifically stated as exempt or zero-rated. 

The 7.5% VAT has been criticized in many quarters because it is considered as an effort to enrich the thieving politicians in government while further impoverishing the masses.

Many people have wondered why a sensible government will increase the VAT rate even after its failure to implement the proposed minimum wage in the country.

The VAT system in Nigeria is administered by the Federal Inland Revenue Service (FIRS). All existing manufacturers, distributors, importers and suppliers of goods and services are required to register for VAT. The prospective VAT payer will obtain and complete VAT registration (and return it to the nearest FIRS Tax Office. A permanent VAT registration number is then issued to the tax payer.

Liability to VAT arises when the output VAT is more than the input VAT. The net VAT in a tax period is the amount to be remitted to the FIRS. Output VAT is the VAT that is due on VAT-able supplies. It is derived by multiplying the value of the aggregate supply by the tax rate, while Input VAT is what is charged on business purchases and expenses. These include goods and services supplied in Nigeria or imported.

The VAT system in Nigeria has an in-built refund or credit mechanism which eliminates the cascading effect that is a feature of the retail sales tax. The input-output tax mechanism in VAT also makes it self-policing. In essence, it is the Output tax less Input Tax that constitutes the VAT payable and it is the equivalent of the VAT paid by the final consumer of the product that will be collected by the government.

The aforementioned subject is brought to you, courtesy of National Mail.

National Mail is an online news platform of Globe Chamber of Commerce and Trade Nigeria that focuses on business development, Investment, trade, economic exchange and development. 

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