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Everything You Need To Know About Value Added Tax (VAT) by AccWizards: 6:36am On Sep 20, 2018
INTRODUCTION

A Value Added Tax is a type of consumption tax levied on products at every point of sale where value has been added to the product. It starts from the raw material stage to the point of sale where it is bought by the final consumer.

Consumption tax is simply defined as a tax levied on the purchase of goods and services. Every seller in the production chain charges a VAT to the buyer, which is then remitted to the government. The amount of VAT levied at each point of sale along the production chain is based on the value added by the seller.

This is provided for by the Value Added Tax Decree 102 of 1993 which actually became effective in 1994. Value Added Tax is charged 5% on all VATable goods and services. The VAT decree requires manufacturers, wholesalers, importers and suppliers of VATable goods and services to be registered within six months of commencement of business. VAT is administered by the Federal Inland Revenue Services (FIRS) through its VAT directorate with offices in almost all the local government areas in the country.

Who are those that should pay VAT?

A VATable person is one that deals in VATable goods and services. Examples of such include:

• A limited liability company e.g. Tunde Limited
• A firm e.g. Law & Co.
• A sole trader e.g. Emeka & Brothers
• An individual e.g. Lawal shops
• A Club or society e.g. Gbaja Social Club

When you register and become a VAT payer, 5% of the money your customers pay for your goods and services is calculated as your OUTPUT VAT.

On the other hand, when you purchase any goods and services, 5% of the money you pay is calculated as your INPUT VAT.

To calculate the amount that goes to the government, you have to subtract your INPUT VAT from the OUTPUT VAT.

That Is; Total VAT payable to the government = Output VAT – Input VAT

Calculating VAT

E.g. 1

In 2001, a phone manufacturer sold a phone to a final consumer for N250,000. The raw materials for this phone was bought at N100,000. Find the:

(i) Output VAT
(ii) Input VAT
(iii) Total VAT payable to the government

Solution

Output VAT = The 5%VAT you charge on goods and services you supply or sell.

Input VAT = The 5% VAT you pay on goods and services that you use.

Since the manufacturer of the product sold the product for N250,000, the 5% of the 250,000 Naira is the output VAT. (This is constant because we assume that 5% VAT is always added on every goods and services sold).

Output VAT = 5% of 250,000 Naira

Output VAT = 12,500 Naira.

While…

Since the manufacturer spent 100,000 Naira to buy the raw materials, 5% of that amount is called the input VAT.

Input VAT = 5% of 100,000 Naira

Input VAT = 5000 Naira.

The total VAT payable = Output VAT – Input VAT

Total VAT payable = 12,500 – 5000

Total VAT payable = 7500 Naira.

E.g. 2

In April 2018, Mr Jide bought goods for N200,000 and sold same for N400,000. Calculate the total VAT he should pay for the month of April.

Solution

Output VAT = 5% of his sales

Output VAT = 5% of 400,000 Naira

Output VAT = 20,000 Naira.

While…

Input VAT = 5% of inventory purchase

Input VAT = 5% of 200,000 Naira

Input VAT = 10,000 Naira.

Therefore…

Total VAT payable for the month of April is;

Output VAT – Input VAT

Total VAT Payable

= 20,000 – 10,000

= 10,000 Naira

This amount is payable where the output tax exceeds the input tax. In a situation where the input tax exceeds the output tax, the deficit can be claimed by refund.

There are three ways to claim your refund:

1. The credit method
2. Direct cash refund method and
3. A combination of the two.

The application of the credit method is the most widely used because of the difficulty that may be encountered with cash refunds.

GOODS EXEMPTED FROM VAT

Certain goods and services are not VATable. The implication is that VAT charges are not applicable to it. On the other hand, certain goods and services are considered zero rates. This implies that the goods are VATable, but the application is zero percent.

Examples of Goods exempted from VAT

• Medical and pharmaceutical products
• Basic food items
• Books and educational materials
• Baby products
• Commercial vehicles and their spare parts
• Agricultural equipment and products and vertinary medicine
• Fertilizers, farming machinery and farming transportation equipment
• All exports
• Plants and machinery used in export processing zone
• Plant, machinery and equipment purchased for utilization of gas in downstream petroleum operations
• Tractors, ploughs, agricultural equipment and implements purchased for agricultural purposes

Services Exempted From VAT

• Services of Community Banks, Peoples Banks and primary Mortgage Institutions
• Plays and performances conducted by educational institutions as part of learning
• Services related to education
• Medical services
• All exported services

Form in use by the Tax Payer

The following forms are in use by the tax payers:

1. Form VAT 001

2. Form VAT 002

Form VAT 001 – VAT Registration Form

This is the standard registration form for VAT. It is supposed to be completed by a potential VAT payer within six months of the commencement of business.

VAT Form 001 usually contains the following information:

• The name of the taxpayer
• The principal place of business of the taxpayer
• Other branches or units where business is carried on
• The date of incorporation of business
• The date of commencement of business
• The registration number of the business
• The nature of business
• Types of goods/services dealt in
• The local VAT office where registration is sought
• The name and designation of a principal officer of the business
• The date application is filled.

The application must also bear the official stamp of the business, a formal written application for registration on the business letter-headed paper as well as the signature of the principal officer. A copy of the registration certificate must be attached but the original would be presented for sighting.

FORM VAT 002 – Value Added Tax Returns

This is the standard value added Tax returns to be filled every month. A typical form 002 contains the following information.

• VAT identification number
• Name and address of the VAT payer
• The local VAT office where the return is being filled
• The month for which return is related
• Total VATable supplied made
• The zero-rated supplied included in the VATable supplies
• The total supplied subjected to VAT
• VAT charged
• Any adjustments
• Total tax output
• VAT on domesticated supplies received
• VAT adjustments on supplies received
• VAT on import
• Total VAT payable
• VAT on purchases not wholly used to be backed out of total VAT payable
• VAT taken at source, also to be backed out of VAT payable
• Total input tax
• Amount payable or refundable
• A declaration by an official of the taxpayer that the particulars in the returns are true and correct.

NOTE: VAT Returns must be filed with the FIRS on or before the 21st day of the month following the month of transaction. Failure to comply will attract the following penalties:

i. For businesses not registered for VAT: A penalty of N10,000 for the first month in which the failure occurs and N5,000 for each subsequent month. An unregistered business that fails to remit VAT after a period of time will be sealed up by the FIRS.

ii. For businesses registered for VAT: A penalty of a sum equal to 5% per annum plus interest at a commercial rate payable within 30 days of notification by the Tax Authority.

Thank you for reading. I hope you learnt one or two things?

SOURCE: Accounting Wizards’ Blog

66 Likes 13 Shares

Re: Everything You Need To Know About Value Added Tax (VAT) by BeingFrank(m): 7:49am On Sep 20, 2018
Tax is a scam, you end up paying tips to some con men in government. Ask Buhari. All the same, op, ur post is really informative.

14 Likes 2 Shares

Re: Everything You Need To Know About Value Added Tax (VAT) by AccWizards: 8:08am On Sep 20, 2018
BeingFrank:
Tax is a scam, you end up paying tips to some con men in government. Ask Buhari. All the same, op, ur post is really informative.

You're not far from the truth, no thanks to our corrupt leaders. I pray we get delivered someday.

4 Likes

Re: Everything You Need To Know About Value Added Tax (VAT) by suyamasta(m): 8:28am On Sep 20, 2018
When the Govt Is doing anyhow with your money you tend to lose hope in paying tax, walaii

10 Likes 1 Share

Re: Everything You Need To Know About Value Added Tax (VAT) by AccWizards: 1:06pm On Sep 20, 2018
suyamasta:
When the Govt Is doing anyhow with your money you tend to lose hope in paying tax, walaii

True.
Re: Everything You Need To Know About Value Added Tax (VAT) by Tankado: 11:56am On Sep 21, 2018
Nice!

1 Like

Re: Everything You Need To Know About Value Added Tax (VAT) by inoki247: 11:57am On Sep 21, 2018
Oyel money we no see the use. Tax money we are not seeing the use. Na only to borrow we they hear what are they doing with the generated income the Govt are not different from Yahoo Boy..

4 Likes

Re: Everything You Need To Know About Value Added Tax (VAT) by itswell1: 11:57am On Sep 21, 2018
Which part of Abuja can one find a market that sells clothes such as trouser and shirt materials and chinos materials similar to the one we have in Lagos @ tinubu square and idumota.
@ the tinubu market, one gets this materials at low prices and am sure there will be a similar market like this in Abuja where one can get this cloth materials at low prices.

Anyone with information on this one should please provide it. thanks
Re: Everything You Need To Know About Value Added Tax (VAT) by Melison(m): 11:57am On Sep 21, 2018
Proud to be an ECONOMIST

3 Likes

Re: Everything You Need To Know About Value Added Tax (VAT) by Blessingmoyo: 11:58am On Sep 21, 2018
Good.
Re: Everything You Need To Know About Value Added Tax (VAT) by derbykol(f): 11:59am On Sep 21, 2018
I remember Taxation.
Re: Everything You Need To Know About Value Added Tax (VAT) by IMASTEX: 11:59am On Sep 21, 2018
VAT or TAX paid in Nigeria is purely free money to the politicians which are never accounted for. I feel sad each time I have to pay TAX in Nigeria even 1 Naira.

I can happily pay even 90% tax oversea seeing.

1 Like

Re: Everything You Need To Know About Value Added Tax (VAT) by miqos02(m): 11:59am On Sep 21, 2018
Cool
Re: Everything You Need To Know About Value Added Tax (VAT) by qanda: 12:01pm On Sep 21, 2018
Thanks OP. I find this explanation abit confusing. Where the phone manufacturer purchased parts worth N100000, why is the N100000 VATable, is the raw material a Value Addition?

1 Like

Re: Everything You Need To Know About Value Added Tax (VAT) by 1x2x3: 12:01pm On Sep 21, 2018
Melison:
Proud to be an ECONOMIST

Oya tell me what the FG is doing with the tax they collect.

1 Like

Re: Everything You Need To Know About Value Added Tax (VAT) by betterAfrica: 12:02pm On Sep 21, 2018
Nigerians are reluctant to pay taxes because our leaders don't use the tax to better the lives of the people. But ubi-wallet hopes to end this.

Ubiwallet hopes to create a decentralized democracy with our own decentralized currency.The currency will peg at 1$ per coin.With this democracy, we make decisions on how our tax is spent. With this currency, we say no to foreign aids that westerners used to exploit our natural resources. We also say no to foreign loans further plunging our country into debt. We say no to politicians, you and I are the politicians. We make decisions together. We plan to launch officially in 2019 but you can read more about us at ubi-wallet.com.

Together we can make Africa the best Continent in the world. Let's not just complain about the government. This is a chance to do something. Contact us to be added to our WhatsApp group:08103411195
Re: Everything You Need To Know About Value Added Tax (VAT) by darocha1(m): 12:03pm On Sep 21, 2018
Very necessary for every entrepreneur to know thos
Re: Everything You Need To Know About Value Added Tax (VAT) by Niyeal(m): 12:07pm On Sep 21, 2018
itswell1:
Which part of Abuja can one find a market that sells clothes such as trouser and shirt materials and chinos materials similar to the one we have in Lagos @ tinubu square and idumota.
@ the tinubu market, one gets this materials at low prices and am sure there will be a similar market like this in Abuja where one can get this cloth materials at low prices.

Anyone with information on this one should please provide it. thanks

oga let us connect 08037451921 WhatsApp

1 Like

Re: Everything You Need To Know About Value Added Tax (VAT) by kumuyijamesss: 12:11pm On Sep 21, 2018
this is enlightening
Re: Everything You Need To Know About Value Added Tax (VAT) by CocoaOla: 12:12pm On Sep 21, 2018
no acountability for the money all will still be looted and mismanage shit hole
Re: Everything You Need To Know About Value Added Tax (VAT) by Bright4(m): 12:13pm On Sep 21, 2018
Very informative...@op
Re: Everything You Need To Know About Value Added Tax (VAT) by mrphysics(m): 12:19pm On Sep 21, 2018
The truth is that VAT is one of the most complicated tax to calculate. In reality, VAT isn't as straight forward as its been said here except for those that render single services. For now, FiRS just want you to pay for tax. Only few countries has automated their VAT payment due to the complexities involved in the automation of VAT. I studied Malaysia' GST Automation in bid to know how FiRS can automate their VAT collections, it turned out it's not a project one should go into currently as many things are involved.


I enjoy researching and automating government tax types however, my solutions has been devoid of VAT as VAT must be collected at the point of consumption.

Nice one OP

4 Likes

Re: Everything You Need To Know About Value Added Tax (VAT) by cupid4ig(m): 12:21pm On Sep 21, 2018
So why is skye bank charging me vat every month ?
Re: Everything You Need To Know About Value Added Tax (VAT) by Triangles1(m): 12:25pm On Sep 21, 2018
This epistle reminds me of Secondary school. Business study, I hate calculation bcs does 2x+6=^ always turned my eyes upsidedown so I used to miss class as a result of that my class teacher curse me that some one like me we miss calculate money when it comes to business, but thank God I know how to calculate money and give changes without business study.

1 Like

Re: Everything You Need To Know About Value Added Tax (VAT) by stanisbaratheon: 12:26pm On Sep 21, 2018
Lol


One governor will just sit and dish out 10 million Naira from Tax payers' money and give to someone that participated in BBNaija for doing absolutely nothing. Nigerian Government lack the capacity to manage her resources.

2 Likes

Re: Everything You Need To Know About Value Added Tax (VAT) by Nobody: 12:26pm On Sep 21, 2018
VAT on beer is shared by the bastard abok1 states bt they have hisba. smh

5 Likes

Re: Everything You Need To Know About Value Added Tax (VAT) by nokatakata: 12:28pm On Sep 21, 2018
Nigerians pay taxes, tenement rates, VATs and all sorts of funny levies yet you see some cursed Idio.ts saying that some politicians are trying. How can anybody with a functioning brain living in Nigeria , working and paying tax open their dirty mouth to praise any Nigerian politician with the way the country is. The roads are terrible, no light, no good medical facilities, poor quality education yet nobody is asking what they use all the taxes, VATs, levies for and even the money they borrow. We just dey Amway look like mumu ..na so so miracle we dey find up and down.

2 Likes

Re: Everything You Need To Know About Value Added Tax (VAT) by Cerberus(m): 12:32pm On Sep 21, 2018
You nailed everything well bros. Why some set of Nigerians(most claim to be educated and enlightened of their rights)will still claim that positive things are coming from our leaders when the odious stench of their corruption had thickly covered all of us in all areas of life as citizens.
nokatakata:
Nigerians pay taxes, tenement rates, VATs and all sorts of funny levies yet you see some cursed Idio.ts saying that some politicians are trying. How can anybody with a functioning brain living in Nigeria , working and paying tax open their dirty mouth to praise any Nigerian politician with the way the country is. The roads are terrible, no light, no good medical facilities, poor quality education yet nobody is asking what they use all the taxes, VATs, levies for and even the money they borrow. We just dey Amway look like mumu ..na so so miracle we dey find up and down.
Re: Everything You Need To Know About Value Added Tax (VAT) by AccWizards: 12:34pm On Sep 21, 2018
mrphysics:
The truth is that VAT is one of the most complicated tax to calculate. In reality, VAT isn't as straight forward as its been said here except for those that render single services. For now, FiRS just want you to pay for tax. Only few countries has automated their VAT payment due to the complexities involved in the automation of VAT. I studied Malaysia' GST Automation in bid to know how FiRS can automate their VAT collections, it turned out it's not a project one should go into currently as many things are involved.


I enjoy researching and automating government tax types however, my solutions has been devoid of VAT as VAT must be collected at the point of consumption.

Nice one OP

Most accountants, myself inclusive find VAT to be the easiest to compute. It's pretty straight forward. I don't know how you came about that.

1 Like

Re: Everything You Need To Know About Value Added Tax (VAT) by Melison(m): 12:38pm On Sep 21, 2018
1x2x3:


Oya tell me what the FG is doing with the tax they collect.
Hahahahahaha my Broda FG the system is Bleep-ed up,all these tax na looters go dey enjoy am na,
Re: Everything You Need To Know About Value Added Tax (VAT) by rafindo(m): 12:45pm On Sep 21, 2018
If we really show concern to our nation then we must see tax the same way we see tithe. If the so called pastor pay tax on properties abroad but come here and preach tithe as mandate for God's blessings only as if Caesar doesn't deserve his own.

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