Value Added Tax (VAT): The Major Highlights
A quick question for you.
Have you ever tried to play smart and ended up regretting it? Chances are you have. Well that is exactly how it feels when you fail to remit your taxes by the due date, and it comes biting back.
Let us take a little trip down memory lane. The Value Added Tax (VAT) Decree of 1993 was the first to introduce VAT to the Nigerian economy. Since then, it has witnessed series of amendments including the most recent Finance Act 2019. The amendments are geared towards ensuring simplicity and compliance. The regulation that currently governs the administration of VAT in Nigeria is the Value Added Tax Act CAP V1 LFN 2007 (as amended) and the Finance Act 2019.
VAT simply put is a flat rate levied on taxable goods and services. It is noteworthy that not all goods and services can be taxed as the first schedule to the VAT Act provides a long list of VAT exempt goods and services. More importantly is that this flat rate of tax is levied and collected on taxable goods and services at each stage of production, but the final consumer bears the burden of compliance.
The Sections 10 & 11 of the VAT Act explains the two kinds of VAT which are the Input VAT and Output VAT. Simply put, the Input VAT is the tax paid to suppliers on the purchases of taxable goods and services while Output VAT is the tax received from customers on the value of taxable goods and services sold or rendered. The Act provides that Input VAT (excluding those relating to overheads, services and general administration cost) should be used to offset the Output VAT and only the balance remitted to the Government; however, it seems only few taxpayers are aware of this provision.
Sequel to the introduction of Finance Act 2019, the VAT rate was revised to 7.5%. The Finance Act of 2019 which was signed by the President and became effective on the 13th January 2020, while the date of commencement of the new VAT rate was dated February 1, 2020.
An advantage of VAT is that almost every citizen gets to be taxed and in return the government has a consistent revenue source. At the end of Q3 2020, the Federal Inland Revenue Service (FIRS) recorded a revenue generation of N424.7bn in VAT. No doubt, VAT has become a cash cow as far as Nigeria’s revenue generation is concerned.
Taxpayers are expected to remit and file their monthly VAT with the Federal Inland Revenue Service (FIRS) not later than the 21st day of the month following transaction. However, the FIRS through one of its publications and as a palliative to cushion the effect of COVID-19 pandemic on businesses extended remittance and filing to the last working day of the month, following the month of transaction.
Extended or not, the FIRS has not issued any publication to avert the penalty for non-compliance. In fact, the Finance Act 2019, increased the penalty for late filing to N50,000 in the first month of default and N25,000 in subsequent months. As if this is not enough, the penalty for late remittance of VAT will also apply at 10% of the amount not remitted + interest at the prevailing central bank of Nigeria minimum rediscount rate.
Let’s paint a scenario, imagine your VAT in any month is N50,000, defaulting to make payment in the first month would be the N50,000 (VAT) + N50,000 (PENALTY) + (10% + Banks interest rate of VAT) alone and subsequent months will attract N25,000.
Would you really want to pay all that? Your guess is as good as mine, No!
Now you see that the cost of defaulting on tax payments is higher than the cost of compliance. ‘If only I had known’ should not be the story you should tell in 2021 with your tax payments and remittances, please. At Taxaide®, we take the stress off you so that you can focus on your core business operations, while we ensure that all your tax obligations are met. Its really that simple. We offer you a better way of complying with taxes and we dish out management and advisory services from seasoned and experienced tax professionals.
For more information on VAT remittance and all tax-related issues, please do not hesitate to contact us on:
0700TAXAIDE or business@localhost
Let’s have a Tax-Efficient 2021!
