LECTURE 1
VALUE ADDED TAX
PRELIMINARY INSPECTOR OF TAXES
AN OVERVIEW OF VAT
OCTOBER, 2021
COURSE FACILITATOR:
NAME:
OUTLINE
1. Overview/Synopsis of Value Added Tax (VAT)
2. Explain the VAT rationale
3. Advantages and Disadvantages of VAT
OBJECTIVE
At the end of this session participants should be able to:
o Trace the history of VAT in Nigeria;
o Define VAT;
o Explain the rationale for VAT; and
o State the advantages and disadvantages of VAT
SYNOPSIS: HISTORY OF VAT IN NIGERIA

Value Added Tax (VAT) came into force in Nigeria on the 1st December 1993
by the Value Added Tax Decree 102 of 1993 as a replacement of the sales tax
which had been in operation under the Federal Government Legislated Decree
No. 7 of 1986 but administered by the states and the Federal Capital
territory. Successive amendments have been made which has also been
consolidated, most recently by the Value Added Tax Act 2004 (VATA 2004).

VAT commenced in Nigeria effectively on 1st January, 1994

It is administered by the Federal Inland Revenue Service (FIRS)
SYNOPSIS: KEY POINT IN NIGERIA’S VAT

It is a consumption tax;

It is a multi-stage levy collected at each point of sales of goods and services
from production to consumption;

It is collected on behalf of government by business and organization which
have registered with FIRS;

No individual, business, organization or government agency is exempted from
the tax;

Some goods and services are specifically exempted;

The burden is borne by the final consumer; and

It is invoiced based
SYNOPSIS: GLOBAL

The concept of VAT which is also known as GST (Goods and Services Tax) was
first devised by Wilhelm Von Simens, a German economist during the 18th
Century after the 1920 world-war as a solution to double taxation.

Though, VAT originated by a German, it was Maurice Laure, a Tax Official in
France that first implemented it in 1954.

It has been adopted in about 150 countries in the world with VAT contributing
over 20% of many countries’ annual revenue.

United State of America (USA) is the only advanced country that has not
adopted VAT.
DEFINITIONS OF VAT

“Value Added Tax (VAT) is a tax on the supply of goods and services which
is eventually borne by the final consumer but collected at each stage of the
production and distribution chain” – Statement of Standard Accounting
Practices (SSAP) No. 5 UK.

“VAT is a multi-stage consumption tax levied on the difference between a
firm’s sales and the value of its purchased inputs used in the production of
goods” – Oliver Oldman

VAT is a tax on sales of “taxable goods and services” payable by “taxable
persons”, who are permitted to credit the VAT payable on taxable purchase
bought from other taxable persons.

It is an indirect/impersonal tax mainly imposed on certain transactions, good
and services.
CONCEPT OF TAXING VALUE ADDED
A tax often takes its name from the base on which it is computed. For example,
Personal Income Tax (PIT) is levied against a base of personal income, Company
Income Tax against a base of company’s income/profit, Capital Gains Tax against
a base of capital gain and retail sales taxes are a proportion of final sales. VAT
are no exception being levied in principle, on the added value of newly produced
goods and services.
Value added for a given period is conceptually equivalent to all income - wages &
salaries, rent, interest and profit generated in the production of aggregated output
VAT. Nevertheless, differs from a general tax on income in that firms, rather than
the individuals who ultimately receive income, are responsible for paying the tax to
the government.
FEATURES OF NIGERIAN VAT SYSTEM
A well-designed Nigerian VAT system has the following features:
1) MULTI-STAGE TAX SYSTEM: - VAT is imposed at every stage of
the production and distribution chain from the manufacturer to the
consumer.
2) CREDIT MECHANISM: - VAT paid on imports or purchases of raw
material (input tax) is deductible from the VAT charged on sales
(output tax) and, therefore, the tax payable to the FIRS is the
difference between output tax and input tax. This is to eliminate the
cascading effect of taxation at every stage of the production and
distribution chain.
3) TAX INVOICE SYSTEM: - Our VAT system is invoice-based. Every
taxable person has a duty to issue a tax invoice for every single vatable
transaction carried out by the business.
 Applies to the widest range goods and services: and
 Use credit method to prevent cascading
SYNOPSIS: IN NIGERIA

VAT is a consumption tax which is to be levied on all goods and services, other
than those exempted under the VAT Act.

It is collected at each stage of the production and distribution process by
authorized persons.

VAT is importantly a tax that is charged on a broad range of transactions with
a deduction mechanism allowing businesses to offset VAT paid on inputs
against VAT paid on outputs. It is levied at each stage at which supplies
changes hands. In the case of manufactured items, this would be at the
primary producer, manufacturer, wholesaler and retailer stages. It is
ultimately borne by the consumer who, not being registered for VAT purpose
is unable to reclaim it.
VAT PAYMENT @ EACH STAGE
Producer
Sales
200
VAT @ 7.5%
15
Gross Sales
215
Net VAT at Stage (15-0) = 15*
Manufacturer
Wholesaler
Sales
250
VAT @ 7.5%
18.75
Gross Sales
268.75
Net VAT at Stage
= (18.75-15) = 3.75*
Net VAT paid
Sales
350
VAT @ 7.5%
26.25
Gross Sales
376.25
Net VAT at Stage
= (26.25-18.75) = 7.5*
Retailer
Sales
500
VAT @ 7.5%
37.5
Gross Sales
537.5
Net VAT at Stage
= (37.5-26.25) = 11.25*
= 15 + 3.75 + 7.5 + 11.25
= 37.5 Borne by the final consumer
ESSENTIAL OF VAT DEFINITIONS
 OUTPUT VAT - This is VAT that is chargeable on sales.
ELEMENT OF OUTPUT VAT:
 This is VAT on sales or supply of goods and services to customers
 VAT is collected at a standard flat rate of 7.5%
 VAT must be accounted for properly as the collector is an agent of the
Government.
 INPUT VAT - This is VAT that is chargeable on purchases.
When input VAT is incurred by a taxable person, it is available for credit (i.e.,
included as input VAT on the VAT return for the period in which it arises. It is
deducted from output tax and hence recovered from FIRS.
ELEMENT OF INPUT VAT:
 This is VAT on goods purchased or imported directly for resale.
 Also includes goods that form stock-in-trade used for direct production of
any new product.
 According to Section 17 of the VAT Act, where a taxable person pays Input
tax on goods purchased or imported for resale to customers; or where such
goods are purchased for direct production of any new product on which tax is
charged, such input tax shall be claimable against the Output tax on those
goods.
 Input VAT is not reclaimable on fixed asset. VAT on fixed assets is capitalized
as part of the cost of the asset.
 Input VAT is not reclaimable on overheads, services and general
administration expenses etc. However, all input VAT payable in respect of
services consumed by the taxable person should be regarded as part of the
normal operational expenses chargeable to Statement of Profit or Loss
Account. Under no circumstance should input VAT on such items be claimed or
deducted from output VAT collected.
 The claim for input VAT must be made on the VAT returns form for each
month and attribution must be appropriately made to ensure that only input
VAT that have direct and immediate link to the goods supplied during the
month are claimed.
 NOTE: Failure to make attribution constitutes an offence in line with
Section 27 of the VAT Act.
CONDITIONS PRECEDENT FOR INPUT TAX ALLOWABILITY
There are a number of conditions which have to be met before input tax is available
for credit
 A supply of goods and services is being made;
 The supply must be made to the taxable person and the trader is a taxable
person at the time the supply was made;
 The supply of goods or services must have been made for a business purpose;
 The claimant must hold the required evidence (tax invoice) of their purchase;
 Input tax on the supply must have been correctly charged (e.g., wrong
charge of VAT); and
 The goods or services being supplied must have a direct and immediate link
with a taxable transaction (i.e., an input has to be a cost component of that
supply at the time it is made).
TAX INVOICE
A taxable person who makes a VATable supply (i.e., a supply that is liable to VAT)
is required to furnish the purchaser with a tax invoice which in accordance with
Section 13A (1) of VATA should contain the following:

Taxpayer Identification Number (TIN)

Name and address

The date of supply

Name of purchaser or client

Gross amount of transaction

Tax charged and rate applied
Note: A tax invoice must be issued at the time of supply of taxable goods or services
whether or not payment is made at the time of supply. This implies that the tax is
due at the time when delivery of the taxable goods or services takes place and not
at the time of payment.
ESSENTIAL OF VAT DEFINITIONS (CONT’D)

SUPPLIES: - Any transaction, whether it is the sale of goods or the
performance of services for a consideration, that is, for money or money’s
worth.

SUPPLY OF GOODS: - Any transaction where the whole property in the
goods is transferred or where the agreement expressly contemplates that
this will happen and in particular include the sale and delivery of taxable goods
used outside the business, the letting out of taxable goods on hire or leasing
and any disposal of taxable goods.

SUPPLY OF SERVICES: - Any services provided for a consideration.
PAYMENT/REFUND OF VAT
If VAT collected
> VAT paid, remit excess to Government
If VAT Collected
< VAT paid, request refund from Government
ESSENTIAL OF VAT DEFINITION (CONT’D)
REVERSE CHARGE: It refers to the collection of the VAT by the buyer or recipient
of the goods or services on both input and output side of its business. The buyer is
required to withhold the VAT in the seller’s invoice and remit same to the FIRS. This
is premised on the fact that foreign service provider cannot be relied upon to collect
the VAT for the domestic government; the responsibility for collecting the tax is
shifted, through the reverse charge from the foreign supplier to the domestic
service importer.
NOTE: Section 10 of the VAT act makes it mandatory for a non-resident company
(NRC) that carries on business in Nigeria to register for VAT with the service and
to include the VAT in its invoice, while the person to whom the services are supplied
in Nigeria shall withhold and remit the tax directly to the service in the currency of
payment. S10(5) A non-resident person that makes a taxable supply to Nigeria may
appoint a representative for the purpose of compliance with its tax obligations. This
is commonly used by countries to apply the VAT on imported services.
TAX BASE: The tax base for goods and services is the consideration received or to
be received by the supplier of the supply from the recipient of the supply or from a
third person. For example, the tax base for self-supplied goods and services is their
cost price or value.
APPROACH TOWARDS VAT ALLOCATION
In connection with International Trade otherwise called “Cross-border
transactions”, VAT can be imposed on goods either in the country in which they are
produced or in the country in which they are consumed.
1) DESTINATION PRINCIPLE: Implies that VAT is levied on goods and
services in the country of consumption rather than in the country of
production to prevent or eliminate double taxation or double non-taxation.
This principle assigns the rights to tax consumption of traded goods and
services to the jurisdiction in which the goods and services are destined to
be consumed (The policy Advice Division of the New Zealand Inland Revenue).
At the international context, VAT neutrality is achieved through the
application of “destination principle” according to which export are exempted
and imports are taxed on the same basis and under the same rates as local
supplies. Example of countries that practice this approach through bilateral
trade agreements are Nigeria, Belarus, Russia etc.
2) ORIGIN PRINCIPLE: Implies that VAT is imposed on goods in the country in
which they are produced rather than consumed. This principle imposes tax
according to the origin of supplies and at the VAT rate of the originating
jurisdiction. This means exports are taxed according to the rate of the
jurisdiction of origin, but imports are zero-rated. For example, if the origin
principle is adopted in Belarus, VAT will be levied by the Government of that
country at the county’s rate of VAT on goods produced there and exported to
other countries
TAXABLE PERSON: A taxable person under VAT is a person (other than a public
Authority) who independently carries out in any place an economic activity as
producer, wholesaler, trader, supplier of services for the purpose of obtaining
income by way of trade or business.
PROFESSIONALS AS TAXABLE PERSONS
There are the tax advisers and non-tax advisers as below:
1) TAX ADVISERS AS TAXABLE PERSONS:
Professionals in Tax that Play Advisory roles to taxpayers
 Accountant/Auditors
 Lawyers
2) NON-TAX ADVISERS AS TAXABLE PERSONS:
 Engineers;
 Surveyors/Architects/Estate Valuers;
 Artist/Actors;
 Printers; and
 Painters etc
RATIONALE FOR VAT
To broaden the base of government revenue premised on:

Sales tax in Nigeria which operated under Decree No. 7 of 1986 was narrow.

Only locally manufactured goods were targeted under the sales tax regime.

To boost revenue collectible by government with minimum resistance from
taxpayers.

Information obtain from VAT returns is relevant and useful to enforce income
tax.
NOTE: A VAT is often considered to be essentially a retail sales tax (RST).
However, a VAT differs from RST in that it is collected at each stage of the
production and distribution process, not solely at the stage where the product is
sold to the consumers.
ADVANTAGES OF VAT
A well-structured and designed VAT offers the following advantages
 It has broader coverage
 It is convenient to the taxpayer. Unlike the income tax where the taxpayer
may have to pay a lump sum of money at a time, VAT is paid in small trickles
depending on the value of items purchased.
 The degree of voluntary compliance is high because it is hidden in the price of
goods and services. Many people prefer to be taxed in the dark (Dewett,
2002).
 It’s productive, stable and flexible source of government revenue (i.e.,
secures revenue)
 It is simple to administer compared to other indirect taxes (i.e., minimizes
administration and compliance cost). The tax authority has many unpaid agents
collecting VAT on its behalf. It is operated on the principle of “Pay as You
Acquire” (PAYA).
 It minimizes tax evasion based on the catch-up effect
 It promotes the principle of neutrality: this mean that it has no effect on
free functioning of trade
 Its revenue generating capacity is not affected by inflation and the effect of
rate of changes on revenue is immediately visible
DISADVANTAGES OF VAT
Exemption/Zero-rating:

Greatly erodes revenue base and complicate administration; and

It breaks VAT chargeability and invite carousal frauds (provides tax planning
and fraud opportunities)

It is regressive when the share of consumption in income falls as income rises

It increases compliance costs for small businesses as it introduces burden of
maintaining paper work and records

It favours capital intensive firms.

It is inflationary to the extent of increase in VAT that is passed to consumer.
LECTURE 2
VALUE ADDED TAX
PRELIMINARY INSPECTOR OF TAXES
TYPES OF VAT & METHODS OF
CALCULATING VAT
OCTOBER, 2021
COURSE FACILITATOR:
NAME:
OUTLINE
1. Types of Value Added Tax
2. Methods of Calculating Value Added Tax
OBJECTIVE
At the end of this session participants should be able to:
 Know the various types of VAT;
 Know the different methods of calculating VAT; and
 Know how to Calculate VAT using the different methods
TYPES OF VAT
There are three (3) types of VAT arising through different treatments of input VAT
on capital or investment goods. These are:
 The Consumption VAT
 The Income VAT; and
 The Gross Product VAT
TYPES OF VAT EXPLAINED
 THE CONSUMPTION VAT: This regime of VAT allows for the deduction of
input tax(vat) on capital goods purchase against the firm’s VAT liability (i.e.,
output tax). The input tax on capital goods is refundable in full and
immediately without restrictions. For example, if the VAT on plant purchased
is ₦10,000.00, the amount can be deducted from the output tax at once.
Example of countries that practiced this type of VAT are Kenya, South
Africa, etc.
 THE INCOME VAT: Under this regime, input tax paid on the purchased of
capital goods is spread over the life span of the products or Assets. The input
tax credit with capital purchases against the liability in a particular tax period
will take into account the depreciation portion only. For example, if the VAT
on plant purchased is ₦10,000.00, and the plant is expected to last for five
years, therefore, the VAT of ₦10,000.00 will not be deducted from the
output tax at once as in the case of consumption-type VAT. The amount will
be spread over the expected lifespan of the asset. In effect, ₦2,000.00 will
be deducted from the output tax annually. This type of VAT is practiced in
Argentina and Peru. The tax falls both on consumption and net investment.
The tax base of this type is the net national income (NNI).
 THE GROSS PRODUCT VAT: This type of VAT, does not allow the deduction
of input tax on capital goods purchased against the firm’s VAT liability (output
tax). This simply means that, input tax on capital goods purchased is not
refundable or deductible from the tax base or output tax in the year of
purchase. Therefore, input tax on fixed assets is to be capitalized along with
the cost of the asset for the purpose of capital allowances. For example, if
the purchase price of a plant before VAT is ₦200,000.00, and VAT on the
plant is ₦15,000.00, the VAT of ₦15,000.00, will not be deducted from the
output tax at all in this case. The cost of the asset will be shown as
₦215,000.00 in the books for the purpose of capital allowances. This is the
type practiced in Nigeria. This arrangement saves the FIRS, the problem of
having to make cash refunds.
Note: for Gross product VAT Type: the purchaser is treated as the final
consumer of the capital goods and the VAT paid is capitalized as part of the
cost of the capital good(s).
METHODS OF COMPUTING A VAT
There are three methods of computing Value Added Tax (VAT)

The addition method;

The subtraction method; and

The credit or invoice method.
METHODS OF COMPUTING VAT EXPLAINED

THE ADDITION METHOD: This method of computing or calculating VAT is
to sum the firm’s payments (i.e., untaxed inputs) of wage bills, salaries,
interest, rent, depreciation and profits and apply the VAT rate to the total.
This base multiplied by the tax rate indicates the amount owed the
government in value added taxes. Addition of all expenses +net profit then
apply vat rate (gross profit-expenses=net profit)

THE SUBTRACTION METHOD: This method computes VAT by applying the
tax rate
on sales less
purchases of
material inputs
from
other
businesses;deduct purchases from sale to get figure for vat chargeable

THE CREDIT METHOD: This method computes the tax by applying the tax
rate to sales and then subtracting taxes paid on purchases of components. It
is known as the Japanese method and/or the indirect subtraction techniques
(i.e., Invoice- Credit Technique);deduct imput from output vat
METHODS
P
₦
M
₦
W
₦
R
₦
Total
₦
1
a
b
c
d
e
INVOICE/CREDIT METHOD
Sales
VAT on sales [7.5% of (a)]
Purchases
VAT on purchases [7.5% of (c)]
Net VAT [(b) - (d)]
2000
150
0
0
150
4,000
300
1,500
112.5
187.5
9,000
675
4,000
300
375
15,000
1,125
9,000
675
450
30,000
2,250
14,500
1,087.5
1,162.5
2
a
b
c
d
SUBTRACTION METHOD
Sales
Purchases
Value Added [(a) - (b)]
VAT [7.5% of (c)]
2,000
0
2,000
150
4,000
1,500
2,500
187.5
9,000
4,000
5,000
375
15,000
9,000
6,000
450
30,000
14,500
15.500
1,162.5
3
a
b
c
d
e
f
ADDITION METHOD
Wages
Rent
Interest
Profit
Value Added [(a)+ (b)+ (c)+ (d)]
VAT [7.5% of (e)]
850
500
450
200
2,000
150
1,000
600
500
400
2,500
187.5
2,250
1,125
1,075
550
5,000
375
3,000
1,200
1,100
700
6,000
450
7,100
3,425
3,125
1,850
15.500
1,162.5
Note that the Producer, Manufacturer, Wholesaler and Retailer are merely acting
as agents of the tax authority for the collection of VAT. The tax burden falls on the
final consumer.
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.
LECTURE 3
VALUE ADDED TAX
PRELIMINARY INSPECTOR OF TAXES
THE ADMINISTRATION OF VAT IN
NIGERIA
OCTOBER, 2021
COURSE FACILITATOR:
NAME:
OUTLINE
1. The Administration of Value Added Tax
OBJECTIVE
At the end of this session participants should be able to:

State the regulatory agency for the administration of VAT; and

State the rate of VAT
ADMINISTRATION Of VAT
The tax shall be administered and managed (assess, collect and account) by the
Federal Inland Revenue Service, through the Tax Offices throughout the
Federation. Although VAT is administered centrally by the Federal Government using
the existing tax machinery of the FIRS in close co-operation with the Nigeria
customs Service (NCS).
DISTRIBUTION OF VAT
VAT collected is usually shared to the three tiers of Government in Nigeria. T`he
VAT sharing formula has changed many times since the inception of VAT in Nigeria.
Notwithstanding any formular that may be prescribed by any other law, the revenue
accruing by virtue of the operation of this Act shall be distributed as follows: 1) Federal Government
2) State Government
3) Local Government
-
15%
50%
35%
Note that the net proceeds from the tax accrue largely to the State and Local
Government after making a relatively small percentage to the Federal Government
to cover the cost of administration.
WHO IS REQUIRED TO REGISTER?
The following categories of persons (whether resident or non-resident) are required
to registered for VAT;

Domestic manufacturers

Wholesalers

Distributors and

Importers and suppliers of goods and services
NOTE: There is now a registration threshold of ₦25,000,000.00 and above for
VAT in Nigeria. (Finance Act, 2019)
REGISTRATION OF TAXABLE PERSONS
A taxable person shall upon commencement of business, required to register with
the service for the purpose of the tax. (Fin Act, 2019).
Where the taxable activity of an entity is carried on in branches, divisions or depots
and supplies are made from such outlets, each of the outlets must separately
register for VAT. If, for example, Batsari Rice Mill has a factory in Katsina and
depots in Makurdi, Kano, Enugu, Ibadan and Bauchi, there will be separate
registration for the factory as well as each of the depots. Each of them has to issue
tax invoices, maintain separate VAT records and render separate VAT returns.
After the taxable person has completed the VAT registration form (Form VAT
001) and fulfilled all the registration formalities, the service will issue the person
with a VAT registration certificate which bears the VAT registration
number.(previously, branch registration was the practice, but currently
centralized payment of VAT is what is obtainable).
Ekpang Thomas Odok, opined that, the Taxpromax a newly introduced tax
solution software in FIRS, at a point opted for a decentralized VAT payment
system; where branches of companies register, collect and remit VAT as
separate entities, but this idea was put on hold. If implemented, this will quickly
address the complexities associated with VAT attribution and further establish
accurate statistics for the distribution of VAT among the 3 tiers of government.
In the coming days, the question of who has the juridical right to administer
VAT between the federating states and the Central government in Nigeria will
be history (on the determination of the suit between the Rivers State
government and the federal government on who has the constitutional right to
administer VAT in Nigeria). I strongly believe that appropriate legislation will
be put in place to address the administration of VAT in Nigeria, and the
incorporation of a decentralized VAT payment system will not be an exception
in view of its enormous gains in improved revenue generation against the evasive
tendencies in the centralized VAT payment system.
NON-RESIDENT COMPANY (NRC)
A non-resident company can be defined as a company or an entity that is not
registered or incorporated in Nigeria but derives income or profits from Nigeria,
whereas, other branches of the company in other countries are not liable to payment
of tax in Nigeria.
REGISTRATION AND PAYMENT OF VAT BY NON-RESIDENT COMPANIES

A non-resident person who makes taxable supplies to a person in Nigeria, is
required to register for tax with the service, using the address of the person
with whom it has a subsisting contract, as its address for the purpose of
correspondence relating to the tax and for compliance with registration in
VAT Law.
Section 10 of the VAT Act provides that:

A non-resident person shall include VAT on its invoice for the supply of goods
or services made and remit same to FIRS in the currency of transaction.

A non-resident person may appoint a representative in Nigeria for the purpose
of its tax obligations in Nigeria;

Where a person has been appointed by the Service, the agent shall withhold
and remit the VAT due on the transaction.

Where the non-resident did not collect the tax, the resident person to whom
the supply was made is required to withhold and remit the VAT due to the
Service in the currency of the transaction.
NOTE:

A non-resident company which has a fixed base or a permanent establishment
in Nigeria is required to comply with the provisions of the VAT Act.
REGISTRATION BY GOVERNMENT AGENCIES
Government ministries, department and agencies (MDAs) are also required to
register as agents of FIRS for VAT collection.
Every contractor transacting business with a Government ministry, statutory body
and other agencies of the Federal, State or Local Government shall produce evidence
of registration with the service as a condition for obtaining contract. The services
provider/contractor is to add VAT payable to the invoice and the MDA (the
consumer in this case) is to deduct and remit same to FIRS at the time of payment
or credit, whichever is earlier. The management of this space is done through the
Government Integrated Financial Management Information System (GIFMIS) for all
government MDAs that have subscribed to the platform. It promotes and enforces
compliance.
REGULATORY AGENCY FOR THE ADMINISTRATION OF VAT
The tax is collected on behalf of the Government by businesses and organizations
which have registered with the FIRS’s Tax Office for VAT purposes. Businesses and
organizations who have registered and obtained TINs with the tax authority, are
classified as “registered persons”.
NOTE: No individual, business, organization or government agency is exempted from
the tax.
RIGHT & OBLIGATION OF REGISTERED PERSON
The registered persons have the right:
 for regular visit by the tax inspectors for inspection and advice;
 To file an objection to the FIRS if aggrieved by an assessment; and
 To make an appeal to the Tax Appeal Tribunal.
The registered persons have the following obligations as well:
 Returns
 Payment
 Tax invoice: They are required to supply a tax invoice to the receipt of a
taxable supply
 Debit and Credit Notes: They are to issue a debit or Credit note, as the case
may be, where there is a change in the tax previously charged.
 Records: They are required to keep sufficient record to allow the Service to
assess the persons’ VAT liability.
 Change of Status: They are required to notify the Service if there is a change
in status (e.g., Change of name, address or line of business)
LECTURE 4
VALUE ADDED TAX
PRELIMINARY INSPECTOR OF TAXES
GOODS & SERVICES SUBJECT TO VAT
OCTOBER, 2021
COURSE FACILITATOR:
NAME:
OUTLINE
1. Goods & Services subject to Value Added Tax
OBJECTIVES
At the end of the session participant should be able to:
o List the goods subject to VAT
o List the services subject to VAT
GOODS & SERVICES SUBJECT TO VAT
Taxable goods and services are those goods and services which are not included in
the VAT exemption list in the First Schedule to the Act and are, therefore, subject
to VAT.
TAXABLE GOODS
 All goods manufactured, assembled or installed in Nigeria other than those
goods listed in the First Schedule of VATA e.g., automobile, textile, household
furniture, equipment, beer, spirit, soft drink, mineral water, jewelleries,
petroleum and petroleum products, cigarettes & tobacco etc.
 All goods imported into Nigeria e.g., Vehicles and their spare parts, perfumes,
cosmetics, soaps and detergents, electrical materials etc.
TAXABLE SERVICES
 All services rendered by financial institutions excluding Micro-finance Banks,
People’s Banks and Mortgage Institutions.
 Catering and hotel services
 Professional services such as, insurance, architectural, legal, account and
audit, engineering, homeland securities, business consultancy etc.
 Telecommunication services e.g., MTN, 9Mobile, AIRTEL, GLOBACOM etc.
 Entertainments Services
LECTURE 5
VALUE ADDED TAX
PRELIMINARY INSPECTOR OF TAXES
VAT EXEMPTION & ZERO-RATED
OCTOBER, 2021
COURSE FACILITATOR:
NAME:
OUTLINE
1. VAT exemption; and
2. Zero-Rated
OBJECTIVE
At the end of this session, participants should be able to
 State the rationale for exemption
 List the goods exempted from VAT as listed under part I of the First
Schedule of VATA;
 List the services exempted from VAT as listed under part II of the First
Schedule of VATA and
 Zero rated goods and services
VAT EXEMPTIONS
Goods and Services Exempt: - These items are specifically listed in the Act and
are primarily essentials. Sellers are NOT to charge VAT on their sales. Also, they
cannot reclaim VAT paid on purchase of inputs used in the production of the exempt
goods or services. This simply means that the input VAT suffered is not
recoverable. In addition, exemptions are normally applied to categories of goods and
services which are socially desirable and not necessary run to make profit, such as
healthcare, education etc.
NOTE: Many VAT systems can be described as having a basic rate, special rates for
some goods and services, and exemption status for certain economic activities or
specific goods and services. The features influence the nation’s aggregate effective
tax base.
RATIONALE FOR VAT EXEMPTIONS
Various categories of economic activity have been exempted in Nigeria for the
highlighted reasons:

To simplify administrative procedures

To achieved special effects on price and the distribution of real income in
the economy

The consideration that certain goods or services are necessities
GOODS EXEMPTED FROM VAT
1. All medical and pharmaceutical products;
2. Basic foods items;
3. Books and educational materials;
4. Baby products;
5. Fertilizer, locally produced agricultural and veterinary medicine, farming
machinery and farming transportation equipment;
6. All exports;
7. Plant, machinery and goods imported for use in the Export Processing Zone
(EPZ) or Free Trade Zone (FTZ) provided that 100 percent production of
such company is for export otherwise tax shall accrue proportionately on the
sales of the company;
8. Plant, machinery and equipment purchased for utilization of gas in
downstream petroleum operations;
9. Tractors, ploughs agricultural equipment and implements purchased for
agricultural purposes;
10. Locally manufactured sanitary towels, pads or tampons; (Fin Act, 2019)
11. Commercial aircraft, Commercial aircraft engines, Commercial aircraft spare
parts (Fin Act, 2020).
SERVICES EXEMPTED FROM VAT
1. Medical Services;
2. Services rendered by Micro-finance Banks, People’s Banks and Mortgage
Institutions; (Fin Act, 2019)
3. Plays and performance conducted by educational institutions as part of
learning;
4. All exported services;
5. Tuition relating to nursery, primary, secondary and tertiary education; (Fin
Act, 2019)
6. Airline transportation tickets issued and sold by commercial airlines
registered in Nigeria; (Fin Act, 2020). Note that the commission earned
by Airline booking agents represents fee for service performed by the
agent and thus chargeable to VAT.
7. Hire, rental or lease of tractors, ploughs and other agricultural equipment for
agricultural purpose. (Fin Act, 2020)
ZERO-RATED GOODS AND SERVICES
If a firm’s sales are subject to a ‘zero’ or ‘nil’ rate, then not only are sales free
from tax liability but the firm also entitled to a refund of taxes listed on the
invoice of purchases inputs. Exports are typically subject to a zero rate in VAT
laws. Thus, the zero rate means that exporters do not pay tax on their sales
abroad and received refunds for taxes paid on purchases incurred in the
production of the exported items. This means that the input VAT suffered is
recoverable.
LIST OF ZERO-RATED GOODS AND SERVICES

Non-oil exports;

Goods and services purchased by Diplomats;

Goods purchased for use in humanitarian donor funded projects
NOTE: For an export, a trader must ensure he has sufficient evidence to prove
that the goods were exported.
RATE OF VAT
VAT is chargeable in Nigeria at a standard rate of 7.5% on the value of taxable
goods and services. There are, however, a few goods and services which are taxed
at zero rate (0%).
VAT RATE MODELS
1. SINGLE VAT RATE: This relates to a situation where single rate of VAT is
applied on all VATable goods and services. It is argued that a single VAT rate
will increase prices of essential goods and services, thereby pushing up cost
of living. There is a uniform treatment of competing product and firms. Other
countries that practice single VAT rate model are, Armenia 20%, Botswana
14% reduced to 12% Peru 18%, Saudi Arabia 15%etc.
2. DOUBLE VAT RATE: This explains a situation where there are two (2) VAT
rates for two categories of goods and services. Uruguay22%,10%, Nigeria
7.5%, 0% South Africa 15%,0% Bahamas 10%,0%, Egypt 14%,5%,
Mauritius 15%,0% etc.
3. MULTIPLE VAT RATE: This relates to a situation where there are more than
two or multiple VAT rates for various categories of goods and services. The
use of multiple VAT rates create complexity, and increase administrative and
compliance costs. Venezuela 15%,16%,8%, Brazil 17% to 20% depending on
state, Argentina 27%,21%,10.5%, Andorra 4.5%,1%,2.5%,9.5%etc
LECTURE 6
VALUE ADDED TAX
PRELIMINARY INSPECTOR OF TAXES
RENDITION OF VAT RETURN & VAT
PAYMENT PROCEDURES
OCTOBER, 2021
COURSE FACILITATOR:
NAME:
OUTLINE
1. Rendition of VAT Returns
2. VAT Payment Procedures
OBJECTIVE
At the end of this session, participant should be able to:
 Know the due date for the rendition of returns;
 Know the filing procedure through the TaxPro Max;
 Know how to generate Document Identification Number (DIN) (also called,
Payment Reference Number “PRN”) for payment; and
 Know the relevant tax returns form to use (where applicable).
HOW TO FILE & MAKE VAT PAYMENT
Filing returns and paying VAT due of the preceding month by a taxable person is on
or before the 21st day following the month of transaction. The amount of VAT
payable shall be the excess of outputs tax over inputs tax for the period as may be
determined while filing the returns.
In addition, the remission of tax deducted at source by Ministries, Departments
and Agencies (MDAs) and other appointed agents (e.g., companies in the oils and gas
sector and others recently added in this list on the 7th Nov. 2022 public notice are:
MTN, AIRTEL as well as deposit money banks; effective 1st January, 2023) shall at
the time of making payment to a contractor, remit the tax charged on the contract
to the relevant tax office. The remission shall be accompanied with a schedule
showing the name and addresses of the contractor, invoice number, gross amount
on invoice, amount of tax and the month of return.
Finally, an importer of taxable goods shall, before clearing those goods, pay the tax
on those goods.
NOTE: Taxpayers are required to pay net tax due for each period by the due date
together with the VAT return.
DETERMINATION OF THE VALUE OF IMPORTED GOODS
Where the taxable goods are imported, the value is the amount equal to the price of
the goods so imported and shall include:
 All taxes, duties and other charges levied either outside or by reason of
importation into Nigeria, other than the tax imposed by the VAT Act; and
 All costs by way of commission, parking transport and insurance up to the port
or place of importation.
HYPOTHETICAL ILLUSTRATION
Month
Tax Period
Month
Due Date of Filing Returns
(Including Remittance)
January
June
December
1/01/2021-31/01/2021
1/06/2021-30/06/2021
1/12/2021-31/12/2021
February
July
January
1/02/2021-21/02/2021
1/07/2021-21/07/2021
1/01/2022-21/01/2022
HOW TO MAKE VAT PAYMENT
VAT remittances for each month are supposed to be made through any of the
mediums below:
INTERSWITCH
VHVV
PAYMENT
REMITA
Bank Branch
MODE OF PAYMENT
Internet banking
Card Payments
E-TRANSACT
LECTURE 7
VALUE ADDED TAX
PRELIMINARY INSPECTOR OF TAXES
VAT ACCOUNTING IN NIGERIA
OCTOBER, 2021
COURSE FACILITATOR:
NAME:
OUTLINE

VAT Accounting in Nigeria
OBJECTIVE
At the end of this session participants should be able to;
 Explain the concept of VAT accounting
 Mention additional records to be kept by the taxpayer
CONCEPT OF VAT ACCOUNTING
The VAT account is the summary of the output and input tax in a normal ledger
account form. That is, VAT on purchases, VAT on services, bad debt relief etc. are
debit to the account while VAT charged on sales for the month or VAT charged on
services etc. are credit.
Where there is credit balance, a draft is prepared and paid to the appropriate tax
office through the designated bank. Conversely, a debit balance calls for refund and
would be made by the FIRS after necessary verification by audit officials.
CREDIT NOTES AND BAD DEBT RELIEF

Credit notes which reduce output tax are only valid for VAT purpose when
issued to the customer to correct a genuine mistake or to reflect an agreed
reduction in the value of the original supply. They should not be issued to
adjust bad debts.

Business gift and deemed supplies: if a business asset on which inputs tax has
been claimed are given away, or otherwise put to private or non-business use
free of charge, there is generally a “deemed supply” and output tax is due at
the appropriate rate on the cost of the goods.
PRACTICAL ISSUES IN ACCOUNTING FOR VAT
Value Added Tax (VAT)- The Charging Section
3
or a Services?
1
Is it supply?
5
Where did the supply take
place?
6
When is the
tax payable?
4
Is the good or service
taxable?
2
Is it a good?
PRACTICAL ISSUES IN ACCOUNTING FOR VAT
1. “VAT is payable on the supply of Taxable goods and services”
Meaning of supply

Clarity on tax implication of self-supply, gratuitous transfer and other
deemed supplies
o Is VAT chargeable when a company supplies its staff goods produced by it?
o Is VAT chargeable on gift given by company to its staff?
VAT should not apply as no consideration can be imputed to the transaction.
However, input VAT on such goods and services should be reversed as the staff is
now the final consumer
2. Does every transaction involve either a good or a service?
o Is the sale of interest in an oil block a good or a service?
o Is the sale of shares a good or a service?
o Are insurance premiums goods or services?
o
The FIRS in its Information Circulars has excluded the last two items from VAT. However,
there is still no clarification on whether “interest” is good or a service.
3. ‘How should VAT be accounted for in barter transactions?
Both parties should charge VAT based on the market value of the exchange commodity.
4. “When is a VATable sale deemed to have taken place in Nigeria”?
This is when a sale occurs anywhere in the geographical area covered by the land mass
and territorial waters and all the economic zone excluding the free Trade Zone
5. Should VAT be filed on accrual or cash basis?
Section 13A (1) of the VAT Act
“A taxable person who makes a taxable supply shall, in respect of that supply,
furnish the purchaser with a tax invoice containing, interalia, the following: - TIN,
Name & Address, VAT Reg. Number, Date of Supply, Name of Purchaser, Gross
Transaction Amount and Tax charged and Rate applied.”
Section 14 (1) of the VAT act
“A taxable person shall on supplying taxable goods or services………… collect the
tax on those goods or services………….
Section 15 (1) of the VAT Act
“A taxable person who, in the course of a business, has made taxable
supplies………… the value of which, either singularly or cumulatively in any calendar
year, is ₦25,000,000.00 or more shall, render to the service, on or before the
21st day of every month in which this threshold is achieved……………….”
FA2019 has reduced VAT to cash basis. Emphasis is on accounting for money
collected and threshold mn
nrather than invoices accumulated. The cash basis eliminates instances of
adjustment for bad and doubtful debts in the determination of VAT payable.
6. How should VAT be accounted for in deposit and advance payment
transaction?
The supplier should charge VAT on the invoice for deposits and advance payments.
RECORDS TO BE KEPT BY THE TAXPAYER
Every taxable person must keep such records and information as FIRS requires.
Specifically, these include, business and accounting records, the VAT account, copies
of all VAT invoices and credit notes issued and received, and documentation relating
to imports, exports, and acquisitions of goods.
In summary additional books the taxpayer is expected to keep include:

Cash book;

Sales and Purchases Day book;

Ledger accounts; and

Statement of Financial Position
LECTURE 8
VALUE ADDED TAX
PRELIMINARY INSPECTOR OF TAXES
VAT OFFENCES & PENALTIES
OCTOBER, 2021
COURSE FACILITATOR:
NAME:
OUTLINE
 VAT offences and Penalty
OBJECTIVE
At the end of this session, participants should be able to:
 State the offences under VAT; and
 State the penalties relating to the offences
VAT OFFENCES & PENALTIES
 Failure to collect tax: - Is liable to pay as penalty 150% of the amount not
collected plus 5% interest above the CBN rediscount rate.
 Failure to submit returns: - Is liable to a fine of ₦50,000 for the first
month of default and ₦25,000 for every month in which the default
continues. (Fin. Act, 2019)
 Failure to notify change of address or cessation of trade or business: Failure to notify the service of any change of address within 30 days, or who
fails to comply with the requirement for notification of permanent cessation
of trade or business under S8 of this Act (90 days notice), is liable to pay
₦50,000 for the first month in which the failure occurs; and ₦25,000 for
each subsequent month in which the failure continues. (Fin. Act, 2019)
 Failure to issue tax invoice: - Is liable on conviction to a fine of 50% of the
cost of the goods or services for which the invoice was not issued.
 Failure to make attribution: - Is liable to pay a penalty of ₦5,000.
 Failure to keep proper records and accounts: - Is liable to pay a penalty
of ₦2,000 for every month in which the failure continues.
 Failure to remit VAT: - Failure to remit VAT within the stipulate time limit
is a sum equal to 10% of the tax not remitted plus interest at the prevailing
CBN minimum re-discount rate, shall be added to the tax not remitted and
the provision of this Act relating to the collection and recovery of unremitted
tax, penalty and interest shall apply.(FA2019)
 Evasion of Tax: Is liable on conviction to a fine of ₦30,000 or two times the
amount of tax being evaded, whichever is greater, or to imprisonment for a
term not exceeding three (3) years.
 Furnishing of false document, etc.: - Is liable on conviction to a fine of
twice the amount under-declared.
 Resisting, hindering or obstructing or attempts to resist, hinder or
obstruct an authorized officer: - Is liable on conviction to a fine of
₦10,000 or imprisonment for a term of six (6) months or both.
 Aiding and abetting commission of offence, etc.: - An officer of the
Service or any other person who aids or abets the commission of any of the
offences under this Act, is guilty of an offence and is liable on conviction to
a fine of ₦50,000 or to imprisonment for a term of five years.
 Offence by body corporate, etc.: - Where an offence under this Act is
committed by a body corporate or firm or other association of individuals.
a) Every director, manager, secretary or other similar officer of the body
corporate; or
b) Every partner or officer of the firm; or
c) Every person concerned in the management of the affairs of the
association; or
d) Every person who was purporting to act in any capacity as aforesaid, is
severally guilty of that offence and liable to be proceeded against and
punished for the offence in like manner as if he had himself committed
the offence, unless he proves that the act or omission constituting the
offence took place without his knowledge, consent or connivance.
THANK YOU
&
GOOD LUCK