Introduction
On 13 January 2020, the President of the Federal Republic of Nigeria signed the finance bill as legislation. The finance act introduced several changes to seven tax laws in Nigeria. It specifically changes the outlook of Nigeria’s tax administration. Interestingly, recurring amendments on VAT administration and practice over the years indicates Nigeria’s interest in VAT and the government’s intention to use VAT as a means to increase its revenue.
Value added tax under the Finance Act, 2020
Fundamentally, the VAT changes introduced by the finance act have the following key objectives: VAT compliance, thresholds for VAT returns and effects of VAT non-remittance.
1. VAT Compliance
The finance act introduces significant changes with respect to VAT compliance, beginning with the timeline required for registration for VAT by taxable persons. The previous timeline of six (6) months after commencement of business has now been amended – a business must now register for VAT with the Federal Inland Revenue Service (“FIRS”) when it commences. Any taxable person who fails to register for VAT upon commencement shall be fined a sum of 50,000 Nigerian Naira (NGN) (~ EUR 120) for the first month and NGN 25,000 (~ EUR 60) for each subsequent month of default. A taxable person that ceases to carry on business must communicate their intention to be de-registered for the purpose of VAT within 90 days of such cessation.
Also for failures to notify the change of address or permanent cessation of a trade business, a penalty of NGN 50,000 for the first month of default and subsequently a fine of between NGN 5,000 and NGN 25,000 for every month that the failure subsists, has been implemented.
Similar penalties are imposed on failure to submit returns.
2. Threshold for VAT returns
A minimum threshold to file returns has been established: taxable persons who meet NGN 25 mil (~ EUR 60,000) worth of taxable supplies are liable to file tax returns on or before the 21st day of the subsequent month. For the determination of the threshold the following shall be excluded:
- taxable supplies on capital assets.
- taxable supplies from the sale of the whole or part of the business.
3. Effect of non-remittance
VAT payments have to be completed on or before the 21st day of the month following the month which the taxable supplies are made. A penalty of 10% (in the past: 5%) plus interest at the commercial rate on the total amount of remittable tax will be imposed.
Conclusion
These amendments introduce a tax-friendly legislation, for the compliance threshold that invariably protects the most vulnerable from the incidence of VAT. Only time will reveal whether the practical administration of these amendments will be as easy as the law appears. Hopefully, sometime in the future, amendments will be made to properly address the concerns on the collection of VAT which these amendments do not address, however, we are of the opinion that the changes introduced by the finance act are worthy of applause.
