The Essential Value Added Tax (VAT) Handbook

Value Added Tax (VAT) is a multi-stage consumption tax levied on the value added to goods and services at each point in the supply chain. In Nigeria, the current statutory standard VAT rate is 7.5%.

While the economic burden of VAT is borne by the final consumer, businesses act as statutory collecting agents on behalf of the tax authority.

1. Turnover Thresholds and Mandatory Registration

Under Nigerian tax legislation, businesses with an annual gross turnover exceeding N25 Million are statutorily required to:

1. Register with the tax authority for VAT purposes.

2. Charge VAT at 7.5% on all qualifying invoices.

3. Keep comprehensive accounting records of input and output transactions.

4. File monthly VAT returns by the statutory deadline.

Small businesses with annual turnover below the N25 Million threshold are granted statutory relief from charging VAT, though voluntary compliance is permitted under specific conditions.

2. Taxable vs. Exempt Supplies

Not all transactions carry the 7.5% VAT charge. The law establishes clear distinctions:

A. Exempt Goods and Services

• Basic food items (unprocessed agricultural products, raw tubers, fresh grains).
• Medical and pharmaceutical products.
• Educational books and learning materials.
• Baby products and life-essential supplies.

B. Zero-Rated Supplies

• Non-oil exports destined for international markets.
• Supplies of humanitarian donor-funded project goods.

3. Demystifying Input vs. Output VAT

One of the most misunderstood areas of VAT administration is the mechanism for claiming Input VAT:

• Output VAT: The 7.5% tax you charge and collect from your customers on your sales invoices.
• Input VAT: The 7.5% tax paid by your company on purchases of raw materials or stock directly related to goods produced for resale.

Crucial Rule: In Nigeria, Input VAT on overhead expenses (e.g., office rent, administrative software, general consultancy) cannot be offset directly against Output VAT. Instead, these overhead taxes are treated as deductible business operating expenses in the company's annual income tax computations.

4. Monthly Filing Deadlines

All registered taxable persons must submit their VAT returns and remit net collected VAT on or before the 21st day of the following month.

For example, VAT collected during the month of October must be filed and remitted no later than November 21st. Consistent late filing attracts administrative penalties and interest assessments.

Mubarak Aminu

·Founder & Tax Consultant

Mubarak Aminu is the founder of The Tax Cup and of MLAZ Limited. A tax consultant with 3+ years' experience in PAYE, VAT and audit support, and an ICAN finalist, he explains Nigerian tax in plain language.

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