Recently, a Client approached me and complained about what she considered as government’s shenanigans; a government tax officer approached her company uninvited, rudely and without courtesy and mannerism of words, shouted “YOU DON PAY YOUR VAT” without any further enquires to know if the company is a newly incorporated entity, unregistered company or fully incorporated company with profit based.
My Client was confused and demand for clarity of VAT from me. In the cause of advising, I also thought of friends out there that are in the same quagmire, prompted my write up on Why Value Added Tax (VAT) In Nigeria.
Value Added Tax is a tax levied by the Federal Government of Nigeria on consumption of goods and services, professional services and banking transactions which are high profit-generating sectors by individuals and companies. It is a tax on spending levied at every stage of a transaction but eventually borne by the final consumer of such goods and services.
The VAT system in Nigeria is administered by the Federal Inland Revenue Service. The FIRS is charged with the function of assessment and collection of the tax. Although, it is administered and controlled by the federal government using the existing tax machinery of the federal Inland Revenue Services in close co-operative with the Nigeria custom service and the State Inland Revenue Service.
The governing law is the VAT ACT CAP. VI LFN 2014.
VAT ACT CAP. VI LFN 2014 requires that individual and company pay VAT on all goods manufactured/assembled in or imported into Nigeria, and all services rendered by any person in Nigeria except those specifically exempted under the Law as follows: basic (raw) food items, baby products, medical services and services rendered by community banks and mortgage institutions, medical and pharmaceutical products; books and educational materials; newspapers and magazines; agricultural equipment and products and veterinary medicine; plays and performances conducted by educational institutions as part of learning etc.
The Vat rate is chargeable by 5%. The due rate of filing VAT return to the Federal Government through the Federal Inland Revenue Service is on or before the 21st day of the month following the month of transaction. The relevant documents required for filing Vat returns are as follows:
- Evidence of payment such as bank teller, E-ticket, E-acknowledgement etc. from FIRS designated revenue collecting banks
- Completed vat returns form 002 (for individuals, enterprises and companies)
- Schedule of VAT collected indicating the name, taxpayer identification number (TIN) of company or individual on whose transaction the vat was charged and related amount.
Once a company is incorporated with the Corporate Affairs Commission (CAC) and register with the FIRS by completing taxpayer registration input form, submit copies of prescribed documents and obtain taxpayer identification number (TIN), you are automatically registered and authorized to collect VAT
All taxable persons are expected to register for VAT immediately they are registered with CAC or commencement of business.
The implication for non-registration of vat, is that a default penalty of N10,000.00 (Ten Thousand Naira Only) for the first month in which the failure occurs and N5,000.00 (Five Thousand Naira Only) for each subsequent month. If the defaults persist, the company business premises will be sealed up after a considered reasonable period and non-remittance of vat, a default penalty of a sum equal to 5% per annum plus interest at a commercial rate payable within 30days of notification by the tax authority.
The impact of VAT on government revenue is significant currently; attempt can be made to increase revenue from this source to broaden the nation’s revenue base thereby making it less dependent on oil export.
The dishonest practices by some tax officials, pose a serious threat to effective tax administration in Nigeria especially, when such practices are capable of having demoralizing effect on the honest tax payers.
The language must be simple and clear so an average person can understand it. A tax law, which cannot be read and understood, does not serve any useful purpose.
For further information or enquiries contact
Bolaji Ogungbemi Esq.