What is VAT?
Value Added Tax, popularly referred to as VAT, is a consumption tax levied on the supply of goods and services in Nigeria. The charge is levied at the rate of 7.5% of the value of the taxable goods and services supplied. Businesses involved in supplying goods and services must charge VAT to customers and then pay the VAT charged to FIRS.
Let’s say a business sells a pair of sneakers for a value of ₦10,000. The VAT at 7.5% is ₦750. The total selling price of the sneakers, inclusive of VAT, would be ₦10,750. The business keeps ₦10,000 as the revenue generated, while it has to pay the ₦750 VAT to the FIRS.
Who Must Register for VAT?
Under Section 8 of the Value Added Tax Act as amended by the Finance Act 2020, every taxable person or business is obliged to register for VAT upon commencement.
Failure to register within the time specified attracts penalties as follows:
- ₦50,000 for the first month of default
- ₦25,000 for each subsequent month of non-compliance
Not all goods and services are charged with VAT. Some are exempt from VAT, and these include:
VAT-Exempt Goods and Services
- Pharmaceutical and medical products
- Food stuff
- Books and educational materials
- Baby products
- Agricultural produce obtained in Nigeria, which includes:
- Fertilizers
- Veterinary medicine
- Farming machinery
- Farming transportation equipment
- All exports
- Machinery and equipment in the following industries:
- EPZs and Free Trade Zones
- Gas utilization equipment in downstream petroleum operations
- Agricultural machinery and ploughs
- Medical services
- Financial services provided by:
- Community banks
- People’s banks
- Mortgage institutions
How to Register for VAT
The individual must visit the nearest Federal Inland Revenue Service office closest to the address of the registered business. The addresses of FIRS offices are to be found on their website. firs.gov.ng
Documents Required for VAT Registration
The documents that are required are varied, according to whether one’s business is a Registered company or a Registered Business Name.
A Registered company will need:
- Certificate of Incorporation (CAC2, CAC7)
- Memorandum and Articles of Association
- Duly completed and stamped VAT Form 001
- Utility bill to show the business address
- Application letter on company letterhead
For Registered Business Names, you need:
- Certificate of Business Name Registration
- Duly completed and stamped VAT Form 001
- Utility bill to show the business address
- Application letter on business letterhead
Submission Process
- Take original copies and two photocopies of each document.
- The original copies are only for verification.
- One photocopy is submitted to the FIRS.
- The photocopy of the second is stamped with the FIRS official’s stamp and signature to indicate that an application was submitted.
Cost of VAT Registration
VAT registration is free of charge. There is no money involved in the process of registration. Some businesses get consultants, third-party agents in the registration; this is not required.
How Long Does the VAT Registration Take?
Ideally, this VAT registration would be processed instantly or at the most within one working day. However, due to administrative backlogs in some FIRS offices, it may take to a week or sometimes two weeks.
VAT is a legal obligation for businesses involved in the supply of taxable goods and services in Nigeria. Compliance is essential to avoid penalties and ensure smooth business operations. If your business falls within the taxable category, ensure you register for VAT and remit your payments as required.