Introduction
The VAT Act was one of the seven principal tax statutes amended by the Finance Act 2019. This Act came into force on 13 January 2020 and some of the significant changes made to the VAT Act include the following:
- VAT payable by consumers was increased from 5% to 7.5% effective as of 1 February 2020;
- penalties payable by a taxable person for non-remittance within the specified period increased from 5% to 10%;
- the penalty for failure to give notice of change of address or permanent cessation of business was increased from NGN 5,000 (approximately EUR 11) to NGN 50,000 (approximately EUR 110) in the first month and NGN 25,000 (approximately EUR 56) in subsequent months;
- the penalty for failure to register has been increased from NGN 10,000 to NGN 50,000 (approximately EUR 22 resp. EUR 110) in the first month and from NGN 5,000 to NGN 25,000 (approximately EUR 11 resp. EUR 56) in the subsequent months. However, the time within which a taxable person is required to register with the Federal Inland Revenue Service (FIRS) is not specified under the new law as it simply refers to the term “upon commencement of business”;
- a threshold for VAT compliance was introduced. Thus, companies with a turnover of NGN 25,000,000.00 (approximately EUR 56,000) or more shall render their tax on or before the 21st day of every month;
- a taxable person who ceases to carry on a trade or business in Nigeria shall notify the FIRS of its intention to deregister for tax purposes within 90 days of such cessation of the trade or business.
Based on the foregoing, the FIRS issued an Information Circular dated 29 April 2020, providing clarifications and guidance on the procedure for the implementation of the VAT provisions of the Finance Act.
Registration of non-resident companies
As regards non-resident companies, the Circular clarifies the provisions of the VAT Act. Worth mentioning is the provision that covers non-resident supplies: a non-resident person making taxable supplies to a person in Nigeria or to a Nigerian resident is required to register for VAT with the FIRS, using the address of the person to whom it is making the supply as its Nigerian address for the purposes of correspondence relating to the tax.
The non-resident entity is required to include VAT on its invoice for the supply of goods or services and the entity receiving the supply in Nigeria is required to withhold and remit the VAT due on the invoice to the FIRS in the currency of the transaction. According to the Circular, a non-resident company which has a fixed base or Permanent Establishment (“PE”) in Nigeria is required to comply with registration, charging, filing, payment and other requirements as if it were a Nigerian company. Thus, said company must register using the address of its place of business in Nigeria (fixed base or PE), issue a VAT invoice, file returns, remit the tax and undergo tax assessments in accordance with the provisions of the VAT Act.
Value Added Tax (Modification Order), 2020
On 3 February 2020, the Value Added Tax (Modification Order), 2020 (“VAT Modification Order”) was issued.
Under the VAT Modification Order, the provisions of the VAT Act were expanded by extending the list of goods and services designated as exempted from VAT. The VAT Modification Order is the response to the current economic situation expanding the number of VAT exempt items to include products used by a vast number of Nigerians across all sectors, e.g.: basic food items (agro- and aqua-based staple foods), medical and pharmaceutical products, petroleum products as well as renewable energy equipment (solar- or wind-powered generators).
Conclusion
From the sweeping changes introduced by the Finance Act 2019 on the provisions of the VAT Act and further clarifications of these provisions by the FIRS, to the VAT Modification Order issued by the Minister of Finance, it is correct to say that, at present, VAT-related legislation is being made that has the capacity to boost the economy by stimulating the growth of small- and medium-sized enterprises in Nigeria whilst, at the same time, generating revenue for the government.
