Ever wondered how the concept of Value Added Tax (VAT) works? or wondered why you have to pay an additional 5% charge on the cost of a good or service?

VAT is a consumption tax payable on the goods and services consumed by any person whether government agencies, business organizations or individuals. The target of VAT is the consumption of goods &services unless an item is specifically exempted by law, the final consumer pays the VAT.

VAT can also be defined as a tax on spending/consumption levied at every stage of a transaction but eventually borne by the final consumer of such goods and services. In Nigeria, it is currently levied at a rate of 5%.

Although VAT is a multiple-stage tax, it has a single effect and does not add more than the specified rate to the consumer price no matter the number of stages at which the tax is paid.

The yield from VAT is a fairly accurate measurement of the growth of an economy since purchasing power (which determines yield) increases with economic growth. The input-output tax mechanism in VAT also makes it self-policing.

Input VAT is paid by any registered person on goods/ services for the purpose of resale. While Output VAT is charged by any registered person on goods and services sold and are borne by the final consumer.

At the moment, there are some categories of goods and services that are exempted VAT. These goods and services are referred to as NON-VATable. The goods and services that are NON-VATable are:

Goods exempt

-All medical and pharmaceutical products.
- Basic food items.
- Books and educational materials.
- Baby products.
- Fertilizer, locally produced agricultural and veterinary medicine, farming machinery and farming transportation equipment.
- All exports.
- Plant, machinery and goods imported for use in the export processing zone or free trade zone: Provided that 100 per cent production of such company is for export otherwise tax shall accrue proportionately on the profits of the company.
- Plant, machinery and equipment purchased for utilization of gas in downstream petroleum operations.
- Tractors, ploughs and agricultural equipment and implements purchased for agricultural purposes.

Services exempt

- Medical services.
- Services rendered by Community Banks, People's Bank and Mortgage Institutions.
- Plays and performances conducted by educational institutions as part of learning.
- All exported services.

Zero-rated goods and services

- Non-oil exports.
- Goods and services purchased by diplomats.
- Goods purchased for use in humanitarian donor-funded projects.

"humanitarian donor-funded projects" includes projects undertaken by Non- Governmental Organisations and religious and social clubs or societies recognized by law whose activity is not for profit and in the public interest".

Every other item not listed above is regarded and treated as VATable goods and services.

VAT Returns

A manufacturer or supplier of taxable goods or services is to render a return to the tax authority on or before 21st day of the month following that in which the supply was made.

Thus, every VATable person must keep records of all supplies made and received. He must also make a return on form VAT 002. He has to fill in details of supplies made and received during the period and pay the net VAT due to the tax authority.

Every importer of goods into Nigeria is required to pay VAT on imports while compliance is to be enforced by the Nigeria Customs Service before releasing the imported goods.

Offences and penalties:

There are various offences with very stiff penalties. Some of the offences are:

(i)failure to register;

(ii)Failure to keep proper records of accounts;

(iii)Failure to issue a tax invoice;

(iv)Failure to collect tax;

(v)Failure to submit VAT returns;

(vi)Failure to notify change of address;

(vii)Furnishing of false documents;

(viii)Resisting an authorized officer.

These offences carry penalties ranging from fines of up to N 10, 000 to various terms of imprisonment. In some cases, the fines or penalties depending on the amount of evasion involved. The law is even stricter in dealing with officers of the Board. Any officer of the Board who aids or abets the commission of any of the offences under the VAT law will be liable to a fine of N 50, 000.00 and/or imprisonment for five years.

VAT RATES AND PENALTIES

The World Corporate and Income Tax Comparison Rates, VAT/GST rates around the world range from 5% to 21%. Nigeria’s VAT rate is one of the lowest in the world at 5%. Entities that charge and receive VAT are expected to file/remit it to the Federal Inland Revenue Service through the tax authority on or before the 21st day of the month following that in which the purchase or supply was made.

Section 35 of VAT Act stipulates a penalty of N 5,000.00 every month that returns are not made.

Failure to register with FIRS within the specified time attracts a penalty of N10,000 for the first month in which the failure occurs & N5,000 for the subsequent months in which the failure continues. If this persists, the premises where the business is carried out may be sealed.

Illustration:

If a product moves from Raw Materials Producer

(A) to Manufacturer

(B) at N1,000.00 then to wholesale

(C) at N1,500.00, then to Retailer

(D) at N2,000.00; and finally, to the consumer who pays N2,500 to the Retailer, VAT payable on the product at 5% is as follows:

The DUE DATE for filing returns and remitting VAT is 21st day of the month following the month of transaction i.e 21st day of every month. Failure to file returns and remit VAT attracts penalties as stipulated in the VAT Act.

A pictorial illustration of how VAT works

SOURCE: https://brandspurng.com/2019/08/14/what-you-should-know-about-valued-added-tax-paying-as-you-consume/

I dedicate this page to all the people trusting God for a breakthrough, don't lose hope , God is faithful to his promises.

Educative. We will appreciate a breakdown analysis like this as well on how the government has been using it judiciously since inception and the penalties given to them. Thanks.

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Quite educative

Ok

Ok

It’s value added tax not valued added tax

Nice expository. Despite we don't pay high VAT in the country as compared to other countries, it still pain me because our government do not make judicious use of such collected taxes. Every month end, i feel saddened by the amount i pay as income tax. No light, no good health facilities, no water, no good roads, no security.......you can go on and on. #Sad!

Not simplified.

Most you write? Make a reasonable research and simply everything not just copying what has already been posted and posting it here.

Quite informative

But they won't PAY for corruption.

Informative

Paid to be stolen

We should be expecting 5% VAT on online transactions too I suppose?

The TAX topic in Nigeria is a dicey Issue

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Ok

Sweetamara2:
I dedicate this page to all the people trusting God for a breakthrough, jdon't lose hope , God is faithful to his promises.

Amen.

Thanks, op.

RonKenoly:
Not simplified.

Most you write? Make a reasonable research and simply everything not just copying what has already been posted and posting it here.

I'm sure there's no tarrif attached to creating a thread yet. Please simplify it on another thread, let's see how easy it is

Blaming others for the little thing they do to help humanity while sitting down in a "hole" to castigate them

Sweetamara2:
I dedicate this page to all the people trusting God for a breakthrough, don't lose hope , God is faithful to his promises.

amen bro

RonKenoly:
Not simplified.

Most you write? Make a reasonable research and simply everything not just copying what has already been posted and posting it here.

Yes, he lifted 90% of the content from second source. It's obvious

Florblu:



I'm sure there's no tarrif attached to creating a thread yet. Please simplify it on another thread, let's see how easy it is

Blaming others for the little thing they do to help humanity while sitting down in a "hole" to castigate them

There's so much ambiguity in what the OP lifted and dumped here.

I'll simply as follows.

1. VAT is to be paid by the beneficiary of a service to the service provider. Good example. DSTV or Startimes subscription may actually be ₦1900. But they need to collect VAT on behalf of FIRS. Hence your subscription would then be ₦1900+(5% of ₦1900)= ₦1995 per month. But in most cases the companies round up the figure to ₦2000.

2. After DSTV collects the VAT from you the subscriber, they're not to include that ₦95 as part of their income, rather they must remit to FIRS(Federal Inland Revenue Services)

3. I'll use myself as an example. I'm a consultant in Real Estate and Legal Professions. Hence, when I charge for a service or court case, I must collect VAT from my client. Here's it. If I'm to charge ₦5,000,000 for a case/service, I'll simply ask the client to pay ₦5,000,000+(5% of ₦5,000,000)= ₦5,250,000.

At the end of the month, I must remit the extra ₦250,000 to FIRS.

4. All companies registered either Business Name, PLC or LTD, they must collect VAT from their clients or consumers of their services and remit same to FIRS.

5. The day you register your company, same day CAC send your details to FIRS and FIRS generates what's called TIN(Tax Identification Number). That number is like and accout. Hence, when you pay or you don't pay, FIRS will just go to your account to see your balance.

6. Can you lie to FIRS that you didn't make money? Yes you can, but you'll be caught. Cos FIRS will go to your bank to show them your Statement of Account, with that you can be sanctioned or jail for either tax avoidance or tax evasion

Nice one

You see Nigeria laws are copy and past.
Goods bought by diplomat is VAT Fred,
so you mean if a diplomat come to my shope to boy something of #210, I should sell #200 for him because he has a diplomatic passport.
The only way this can is if the diplomat should go to the factory and pay buy from their so that they can deduct the amount they are to remit as VAT to the government.
Nigeria just copy laws from country's that has organize data,
And past in their country.
The problem Nigeria is having is data.
Nothing more.

My own problem is the politictians of this country, not with the tax itself. Our politicians are too greedy and the common man can't trust them with these sacrifices they expect us to make. They keep feeding fat from the poor pockets. Other taxes we have been paying what has been the results?



My Take: They should should shove the vat up their ass, we ain't interested.

These are the kind of things we are suppose to read not slay queen with saggy boob's dancing up and down or bbnaija were young men and women Bleep in the house

davodyguy:

There's so much ambiguity in what the OP lifted and dumped here.

I'll simply as follows.

1. VAT is to be paid by the beneficiary of a service to the service provider. Good example. DSTV or Startimes subscription may actually be ₦1900. But they need to collect VAT on behalf of FIRS. Hence your subscription would then be ₦1900+(5% of ₦1900)= ₦1995 per month. But in most cases the companies round up the figure to ₦2000.

2. After DSTV collects the VAT from you the subscriber, they're not to include that ₦95 as part of their income, rather they must remit to FIRS(Federal Inland Revenue Services)

3. I'll use myself as an example. I'm a consultant in Real Estate and Legal Professions. Hence, when I charge for a service or court case, I must collect VAT from my client. Here's it. If I'm to charge ₦5,000,000 for a case/service, I'll simply ask the client to pay ₦5,000,000+(5% of ₦5,000,000)= ₦5,250,000.

At the end of the month, I must remit the extra ₦250,000 to FIRS.

4. All companies registered either Business Name, PLC or LTD, they must collect VAT from their clients or consumers of their services and remit same to FIRS.

5. The day you register your company, same day CAC send your details to FIRS and FIRS generates what's called TIN(Tax Identification Number). That number is like and accout. Hence, when you pay or you don't pay, FIRS will just go to your account to see your balance.

6. Can you lie to FIRS that you didn't make money? Yes you can, but you'll be caught. Cos FIRS will go to your bank to show them your Statement of Account, with that you can be sanctioned or jail for either tax avoidance or tax evasion

Well-done. You are indeed a teacher

Fuckthamods:
My own problem is the politictians of this country, not with the tax itself. Our politicians are too greedy and the common man can't trust them with these sacrifices they expect us to make. They keep feeding fat from the poor pockets. Other taxes we have been paying what has been the results?



My Take: They should should shove the vat up their ass, we ain't interested.

The problem is not the politicians but us who foolishly vote them into power out of sentiment