Nigeria: Finance Act 2020: Highlights of the VAT reform

The Finance Act 2020, including several updates for VAT, was signed into law by President Muhammadu Buhari on 31 December 2020 and became operative from 1 January 2021.

VAT reforms in the 2020 Finance Act

1. VAT exemption: the list of exempt goods and services provided for under Parts 1 and 2 of the First Schedule to the Value Added Tax Act (VATA) has been further expanded to include:

a. commercial aircrafts, commercial aircraft engines and commercial aircraft spare parts;

b. airline transportation tickets issued and sold by commercial airlines;

c. hire, rental or lease of tractors, ploughs and other agricultural equipment for agricultural purposes.

2. Effective date for new VAT rate: The controversies on the effective date for the implementation of the new VAT rate of 7.5% has been laid to rest as this has been specified in the amended Section 4 of VATA dated 1 February 2020.

3. Registration by non-residents: According to Section 10 of the amended VATA, non-residents supplying taxable goods and services to Nigeria are now specifically required to register with the Federal Inland Revenue Service (FIRS) and obtain a Tax Identification Number (TIN). However, the Act permits a non-resident, in this instance, to appoint a representative for the purpose of complying with this registration requirement.

4. Time of supply of goods and services: the new Act amended Section 2 of the VATA and gave an elaborate explanation of when a supply of goods or services is deemed to have taken place, given that “supply”, in this sense, plays a pivotal role in the determination of VAT liability.

Generally, a supply is deemed to take place at the time an invoice or receipt is issued by the supplier. The amendment, however, differs for certain specific business arrangements and specifies the time of supply for connected persons, rental agreements, payments made in instalments and credit arrangements.

Conclusion

Although the Finance Act 2020 contains a handful of updates on VAT, the updates are welcome developments and show the commitment of the Nigerian government to constantly improve the ease of doing business, by providing timely updates in the applicable tax laws to reflect current economic realities.

Read the WTS Global VAT Newsletter here.