Value added tax in Nigeria is a significant aspect of country’s tax system, imposing a consumption tax on the value added to goods and services at each stage of production and distribution.
This comprehensive guide aims to provide a detailed understanding of VAT in Nigeria, including its exemptions, and its impact on essential goods and services.
For everyone interested in understanding the country’s tax policies, this guide will equip you with everything you need to know about VAT in Nigeria.
What is Value-Added Tax?
Value-added tax (VAT) is a type of consumption tax that is levied on the value added to goods and services at each stage of production and distribution.
It is a significant aspect of Nigeria’s tax system and is designed to tax consumption rather than income or profits. VAT is ultimately borne by the final consumer and is collected at each stage of the production and distribution chain.
How VAT Works
VAT, or value-added tax, is a consumption tax that is added to the cost of a product at each stage of its production and distribution.
It is a multi-stage tax that is ultimately borne by the end consumer. At each stage, the VAT is calculated based on the value added by that stage of production or distribution, and this tax is then collected.
The process repeats at each subsequent stage of production or distribution until the final sale to the consumer, where the VAT is included in the final price of the product.
VAT Exemption in Nigeria
The VAT Act in Nigeria provides a comprehensive list of exemptions and zero-rated items, reflecting the government’s efforts to make essential goods and services more accessible to the public.
Below are the exemptions:
Exempt Goods from Value Added Tax in Nigeria
Here are list of goods that are exempt from value-added tax in Nigeria:
- All medical and pharmaceutical products
- Basic food items
- Educational Books and materials
- Baby products
- Fertilizers, locally produced agricultural chemicals and veterinary medicines
- All exports
- Plant and Machinery
- Locally produced sanitary towels, pads or tampons
- Commercial aircraft, aircraft engines and aircraft spare parts
- Petroleum products – (aviation turbine kerosene, premium motor spirit, household kerosene, locally produced Liquefied Petroleum Gas (LPG), and crude petroleum oils.
- Renewable energy equipment.
- Raw materials for the production of baby diapers and sanitary towels.
- Raw materials for the production of pharmaceutical products
- Locally produced animal feeds.
- Military hardware, arms, ammunition and locally manufactured uniforms used by the armed forces, paramilitary and other security agencies of governments in Nigeria.
- Gas supplied by gas-producing companies to Generating companies (GENCOs), Electricity generated by GENCOs and supplied to National Grid or Nigeria Bulk Electricity Trading Company (NBET) and Electricity transmitted by Transmission Company of Nigeria (TCN) to Electricity Distribution Companies (DISCOs).
- Agricultural seeds and seedlings.
Services Exempt from Value Added Tax in Nigeria
Here is a list of services that are exempt from Value Added Tax in Nigeria:
- Medical Services
- Services rendered by unit microfinance banks and mortgage institutions
- Plays and performances conducted by educational institutions as part of learning
- All exported services
- Tuition relating to nursery, primary, secondary and tertiary education
- Airline transportation tickets issued and sold by commercial airlines registered in Nigeria
- Hire rental or lease of tractors, ploughs and other agricultural equipment for agricultural Purposes
- Shared passenger road transport service
How To Calculate Value Added Tax in Nigeria
Calculating Value Added Tax in Nigeria can be a crucial aspect of financial planning for businesses and individuals. Understanding the calculation process and the applicable rates is essential for accurate financial management.
For a comprehensive guide with detailed examples and additional insights, be sure to check out our blog on how to calculate VAT in Nigeria for more in-depth information.
Best Practices for Tax Compliance
Ensuring tax compliance is essential for individuals and businesses alike. One of the best practices for tax compliance is to keep accurate and organised financial records throughout the year. This includes maintaining records of income, expenses, and any relevant documentation for tax deductions.
Additionally, staying up to date with changes in tax laws and regulations is crucial to ensure compliance.
For professional assistance and to ensure 100% compliance with taxes, you can sign up with Taxpal today. You can also book a call with our expert team can provide guidance and support to navigate the complexities of tax compliance, helping to avoid potential issues and penalties.
Conclusion
In conclusion, Value Added Tax (VAT) is a crucial component of Nigeria’s tax system, designed to levy a consumption tax on goods and services at each stage of production and distribution. We hope that your new understanding of the calculation process and the applicable rates will help your financial management.