Value Added Tax is a tax on consumption of goods and services. VAT is collected at each stage of the production and distribution chain; hence the tax incidence or burden is borne by the final consumer. VAT rate in Nigeria is 5% on the value of goods and services.
When entities sell vatable goods or services, they are expected to charge VAT at 5% on the invoice value; this is known as “Output VAT”. Also, entities pay VAT when they purchase goods or services at the rate of 5%; this is known as “Input VAT”. Therefore, the VAT payable to government is the difference between Output VAT and Input VAT.
In Nigeria, Input VAT incurred on services are NOT deductible from Output VAT. Also, not all goods and services are subjected to VAT. The list of goods and services exempted from VAT include:
• All medical and pharmaceutical goods
• Basic food items – raw rice, gari, etc.
• Books and educational material
• Baby product e.g. feeding bottles
• Commercial vehicles and commercial vehicles spare parts
• Fertilizers, agricultural, farming machinery and farming transportation equipment.
• Plant and machinery and equipment purchased for the use in the export processing zone (EPZ) and in gas utilization activities.
• Agricultural chemicals
• All exports
• Medical service
• Service rendered by Community Banks, People Banks and Mortgage Institutions.
• Plays and performance conducted by educational institution as part of learning.
• All exported services.