Nigeria’s new 7.5% VAT Rate; How These Affects You.

Value Added Tax (VAT) is a form of tax imposed on the supply of all goods and services. On the 14th of January 2020, Nigerian President Muhamadu Buhari passes the Finance Bill into law. This law according to the finance minister will take effect from February 1, 2020. Below are the implications to you as a business owner, things we will recommend you do and a few adjustments you need to start putting in place.

No Ignorance in law.

Nigerian President, Buhari.

The Nigerian government has made it clear that Taxes will be taken importantly from 2020 and penalities will be issued to faulters. This is simple, if you have not been deducting your VAT and remitting, you may need to start taking it seriously. In your costing model, you must always make provisions for VAT as it is not your money — take it as the rent you have to pay to a government for operating within their jurisdiction. So from February 2020, there won’t be any conversation as; you are not aware of these new developments as a business owner operating in Nigeria.

You Don’t Have to Pay VAT if you Are Doing The Following

Under this new finance bill, some items were added to the list of VAT exempted goods/services. About 20 basic food items, locally manufactured sanitary towels, pads were added. If you operate these kinds of business, you are VAT exempted and not expected to remit anything;

• Medical and pharmaceutical products.
• Unprocessed food items.
• Books and educational materials
• Infant Food.
• Books, Newspapers, and Magazines; Uncoated paper and paperboard, of a kind used for writing, printing.
• Fertilizers locally produced agricultural and veterinary medicine, farming machinery and farming transportation equipment.
• All exports.
• Plant and machinery imported for use in the Export Processing Zone.
• Plant, machinery, and equipment purchased for the utilization of gas in downstream petroleum operations.
• Tractors, plows and agricultural equipment and implements purchased for agricultural purposes.
• Proceeds from the disposal of Short Term Federal Government of Nigeria Securities and Bonds.
• Proceeds from the disposal of Short-Term State, Local Government and Corporate Bonds (including supra-natural Bond).
• Save for Bonds issued by the Federal Government, which shall continue to enjoy tax exemption as provided under the Value Added Tax Act, the tax exemption granted pursuant to order 1 of this order is for a period of 10 years from the date of this order.
• Medical services
• Services rendered by Community Banks, Peoples Bank, and Mortgage Institutions
• Plays and performances conducted by educational institutions as part of learning
• All exported services.

Some goods/services must be VATTED but, the rate is zero. They are;

• Non-oil exports
• Goods and services purchased by diplomats
• Goods purchased for humanitarian donor-funded projects undertaken by NGOs, Religious and Social Clubs that are recognized by law whose activity is not for profit and in the public interest.

ADVISABLE STEPS

Many SMEs do not consider the VAT when doing their cost analysis, they usually get shocked when the accountant calculates how much they are meant to remit for VAT. With this new rate, it is time to sit with an expert and evaluate your pricing place or do it yourself.

1. Decide how you want your pricing to work; Do you want it inclusive of your goods/services prices or exclusive. Meaning, if you see a bottle for 100 Naira, Inclusive means your actual money is 92.5 while 7.5 Naira goes to the local tax office or Your price till remain 100 Naira, but your customers will pay 107.5 Naira.
2. Develop the habit of record keeping; as a business executive or owner, you must always have records of your numbers. Regardless of your business stage, it is important you do. But it's understandable if you really don-t have the time to do that — that is why you should use available tools like Accounteer to just record your expense and sales. As you grow bigger, the need to either outsource the accounting or hire an in-house accountant will come up but because you have your historical record already, it will be easy for the accountant. Meanwhile, you will be able to show the tax person that you monthly sales are just 6,000 Naira.
3. File and Remit your Ta monthly. VAT remittances are monthly. Do not make mistakes of wanting to remit quarterly or in a year. It can be tempting, but you will actually spend the money (not yours to start with). So every month, once you have determined the actual sales that you made, deduct the 7.5% and pay.
4. Be able to defend your Numbers; Tax remittances can be funny as it greatly deals with trust actually. When you claim that you made only 7,000 Naira in sales for 1 month, but the inflow into your bank account is 70,000 Naira, be able to defend the extra 63,000 Naira when asked.

Conclusively, it is an offense to collect VAT and not remit accordingly.