Vat & Other Indirect Taxes Essay

Introduction

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Value Added Tax ( VAT ) was introduced in Nigeria in 1993 but became effectual on 1 January 1994. VAT replaced the Gross saless Tax. VAT is governed by the Value Added Tax Act. Chapter V1. Laws of the Federation of Nigeria ( LFN ) 2004. The revenue enhancement is administered by the Federal Inland Revenue Service ( FIRS ) . Ratess and range

Ratess

The standard VAT rate on goods and services is 5 % . Value for VAT intents includes imposts responsibilities. revenue enhancements. committee. conveyance. insurance and other charges. where applicable. Other than the standard-rated goods and services. some goods and services have been classified as VAT exempt. while others are zero-rated.

Scope

The standard rate applies to all goods imported. supplied or manufactured in Nigeria. The range of VAT in Nigeria is wide and applies to about all minutess. VAT. which is based on general ingestion. is applicable to the supply of all goods and services made ( i. e. consumed ) in Nigeria. except where the supply is specifically exempted or zero-rated. VAT is applicable in all Nigerian provinces. including the Federal Capital Territory. the territorial Waterss and the Continental shelf of Nigeria. For VAT intents. the Export Processing Zones ( EPZ ) or Free Trade Zones ( FTZ ) are non treated as portion of Nigeria. VAT is hence non collectible on the importing of any goods or services into an EPZ or a FTZ. In add-on. works and machinery imported for usage in the EPZ or FTZ are exempt. provided that 100 % of the production of such a company is for export ; otherwise. the revenue enhancement shall accrue proportionately on the point.

VAT enrollment

Compulsory enrollment

All occupant and non-resident companies making concern in Nigeria are required to use for enrollment with the FIRS instantly on beginning of concern. There is presently no enrollment threshold. The revenue enhancement governments will apportion a VAT designation figure to every registered individual. which figure must be stated on all bills issued by the registered individual. Such bills are referred to as revenue enhancement bills. A non-resident company making concern in Nigeria is required to register for VAT utilizing the reference of the individual with whom it has a existing contract as its reference for intents of correspondence associating to VAT. Where a registered individual changes his name or trading name or the reference of any of his concern. he must instantly advise the FIRS in composing. and all bing enrollment paperss should be returned to the revenue enhancement governments for amendment or re-issue.

Group or subdivision enrollment

There is no longer a demand for each subdivision of a company to register individually. The FIRS now permits taxpayers to register centrally where their administrative or caput offices are located. There is no group enrollment in Nigeria. each legal entity must register in its name.

Application for enrollment

Businesss must register with the revenue enhancement governments utilizing VAT Form 001. instantly on beginning of concern. Upon enrollment. the concern will be issued a ‘Certificate of Registration’ and a VAT designation figure. The figure serves as an authorization to bear down and roll up VAT on behalf of the FIRS.

Deregistration

The revenue enhancement governments must be notified in authorship of the weaving up or surcease of a concern. There are no specific commissariats for VAT deregistration in Nigeria.

End product revenue enhancement

Monetary values of Goods and Services

Advertised monetary values for nonexempt goods and services are deemed to be inclusive of VAT. Where monetary values are non inclusive of VAT. this should be clearly stated. When invoicing. VAT must be clearly stated. where applicable.

Calculation of end product revenue enhancement

Output VAT is calculated at the standard rate of 5 % on the entire gross revenues value of the goods or services supplied. Output revenue enhancement is due when a nonexempt supply is made or in certain other fortunes. such as:

•forced gross revenues of goods in satisfaction of a debt ;
•certain activities in relation to the surcease of a concern ; and
•withdrawal of goods for private or ain usage.
Exemptions and zero-rating
Exempt supplies
Exempt goods have no VAT levied on the concluding goods sold to the consumer. A registered provider of exempt goods and services can non claim input revenue enhancement credits for VAT paid on the goods or services acquired to do exempt supplies. which include:

•all exported services ;
•all medical and pharmaceutical merchandises ;
•basic nutrient points ;
•books and educational stuff ;
•baby merchandises ;
•plant. machinery and goods imported for usage in the Export Processing Zone or Free Trade Zone ;
•plant. machinery and equipment purchased for use of gas in downstream crude oil operations ;
•fertilisers. tractors and Big Dippers. agricultural equipment and implements purchased for agricultural intents ;
•medical services ;
•services rendered by community Bankss. people’s Bankss and mortgage establishments ; and •plays and public presentation conducted by educational establishments as portion of acquisition.

Exemption by Policy
Extra freedoms granted by the Minister of Finance through the Fiscal Policy Measures in line with the VAT Act include:
•Locally manufactured biscuits ;
•Plant. machinery and equipment ( including steel constructions ) for the industry of cement and allied merchandises ;
•Vegetable oil ; and
•Motorcycle ( CKD ) /Bicycle ( SKDs ) and their trim parts.

Zero-rated supplies
Zero-rated goods pull VAT at 0 % on the concluding merchandise. while any VAT paid on the input is claimable by the provider. The undermentioned goods and services have been listed as zero-rated: •non-oil exports ;

•goods and services purchased by diplomats ; and
•goods and services purchased for usage in human-centered giver funded undertakings.

Input revenue enhancement
Input revenue enhancement is the VAT charged on purchases by a registered individual. including:
•goods purchased. leased or otherwise acquired ;
•imported goods ; and
•services acquired by a registered individual.
Input revenue enhancement allowed
VAT incurred as input VAT may be deducted from end product VAT merely in regard of: •goods purchased or imported straight for resale ; and
•goods representing the stock in trade. used straight for the production of a new merchandise on which end product VAT will be charged. Input revenue enhancement expressly denied

The following are non allowed for tax write-off as input VAT:
•VAT incurred on operating expenses. service and general administrative cost of any concern – such VAT is expensed to the net income and loss history together with the costs to which they relate ; •VAT on any capital point or plus – such VAT is capitalised along with the cost of the capital point or plus to which they relate ; and •VAT on any services of adjustment. housing and amusement. regardless of whether such goods or services are acquired for concern intents.

Partial freedom

Any VAT incurred on the acquisition of goods that can non be entirely attributed to the devising of nonexempt supplies will be recyclable as input VAT in portion merely. The allotment of input revenue enhancement that can be claimed is determined by mention to the degree of nonexempt usage or ingestion of the goods and capable to the normal regulations for subtracting input revenue enhancement.

Imports

Goods

VAT is collectible on the importing of all goods. whether or non the importing is capable to imposts responsibility or strike responsibility. VAT on import is collectible to the Nigerian Customs Service before the import can be cleared for place ingestion. Goods entered into a bonded warehouse or an excise warehouse will non be recognised as imported goods until such goods are removed from the warehouses and entered for place ingestion. Goods entered for trans-shipment. export or re-export in conformity with the Export Processing Zone Act are non apt to VAT. VAT on importing is calculated by using VAT at the rate of 5 % to the amount of the imposts value of the goods plus any imposts responsibility or levies and other costs ( such as conveyance. insurance etc ) up to the port or topographic point of importing.

Imported services

The VAT Act defines imported services to intend services rendered in Nigeria by a non-resident individual to a individual inside Nigeria.
Exports
Goods
All exports of non-oil goods are zero-rated.
Servicess
Exported services are exempt from VAT. The VAT Act defines exported services to intend services rendered by a Nigerian occupant or a Nigerian company to a individual outside Nigeria.

Refunds to aliens

There is no VAT refund to tourers on purchases made in Nigeria.
Topographic point. clip and value of supplies
Topographic point of supply
There are no specific place-of-supply regulations. Supplies of goods and services in Nigeria are apt to VAT in Nigeria. Supplies made outside Nigeria are outside the range of Nigerian VAT.

Time of supply

A supply of goods and services shall for the intents of VAT be deemed to take topographic point at the earlier of the clip a revenue enhancement bill is issued by the provider or payment is received by the provider.

Value of supply

If a supply is for pecuniary consideration. the sum of the supply with add-on of the VAT chargeable will be equal to the consideration. The monetary values of goods and services may be stated: •exclusive of VAT. in which instance end product VAT will be calculated at 5 % of the VAT-exclusive monetary value ; •inclusive of VAT. in which instance. the revenue enhancement fraction of 5/105 will be applied to the VAT-inclusive monetary value. If the supply is for a consideration non entirely dwelling of money. the value of the supply is its unfastened market value. Where a nonexempt supply is non the lone affair to which the consideration in money relates. the supply is deemed to be for such portion of the consideration as is decently attributed to the nonexempt supply.

VAT conformity

Accounting footing and revenue enhancement periods

VAT is accounted for on an accrual and non a hard currency footing. A supplier’s liability to account for end product revenue enhancement arises in the nonexempt period in which the clip of supply takes topographic point. irrespective of whether or non the provider has received payment during that revenue enhancement period. A registered individual may therefore do a claim for an input revenue enhancement recognition in the nonexempt period during which the nonexempt supply is made to him. provided he is in ownership of a valid VAT bill from his provider. irrespective of whether or non he has paid his provider. The nonexempt period will by and large get down on the first twenty-four hours of a calendar month and terminal on the last twenty-four hours of that month.

Tax returns and payment of VAT

Where a registered person’s end product revenue enhancement exceeds the input revenue enhancement. the difference must be paid to the Tax Authorities at the clip the return is submitted. Where the input revenue enhancement exceeds the end product revenue enhancement. such VAT is carried frontward as a hereafter recognition. as hard currency refunds are non given in pattern. Where a registered individual does non do any supply of goods and services and does non have any goods or services within a peculiar nonexempt period. he must subject a nil return in regard of that revenue enhancement period.

The due day of the months for payment of VAT are as follows:

•taxable supplies – on the entry of the return by the 21st twenty-four hours of the month following the terminal of a nonexempt period ; •importation of goods – on entry for place ingestion. when imposts duty or excise responsibility is collectible ; and •notice of appraisal – within 30 yearss of the day of the month of the notice. Interest and punishments

Interest and/or punishment are charged as follows for the failure to: •register for VAT – punishment of N10. 000 for the first month of failure and N5. 000 for each subsequent month in which the failure continues ; •file monthly returns – punishment of N5. 000 for every month in which the failure continues ; •remit VAT collectible to the FIRS – punishment of 5 % and involvement charged at the predominating commercial loaning rate ( presently about 21 % p. a. ) ; •issue a revenue enhancement bill for nonexempt goods or services – punishment of 50 % of the cost of the goods or services for which the revenue enhancement bill was non issued ; or •collect VAT ( by a registered individual ) – punishment of 150 % of the VAT non collected plus 5 % involvement above Central Bank of Nigeria Monetary Policy Rate. Time bound for claiming input VAT

In general there appears to be no clip bound as to when input VAT can be claimed. every bit long as such claim is supported by a revenue enhancement bill. However. in line with the legislative act of restriction. which is six old ages. it is improbable that any claim in surplus of this will be entertained. VAT Refunds/ Carryforward

Where the allowable input VAT exceeds the end product VAT. this may be carried frontward as recognition against future VAT collectible. Alternatively. the FIRS Establishment Act provides for a hard currency refund on application within 90 yearss of FIRS determination. capable to allow revenue enhancement audit. . . Expostulations and entreaties

Any registered individual who disputes an appraisal or demand notice issued to him. may appeal to the Tax Tribunal in the prescribed format. An award or judgement by the Tax tribunal shall be enforced as if it were a judgement of the Federal High Court on enrollment of a transcript of the award or judgement in the register of the Federal High Court by the party seeking to implement the judgement.

Following the determination of the Tax Tribunal. notice of the sum of revenue enhancement indictable under the appraisal as determined by the Tribunal shall be served by the FIRS on the company or individual apt for the revenue enhancement. Notwithstanding a pending entreaty. revenue enhancement shall be paid in conformity with the determination of the Tribunal within one month of presentment of the sum of revenue enhancement collectible. Any party aggrieved by the Tribunal’s determination may appeal against it on a point of jurisprudence to the Court of Appeal within 30 yearss after the day of the month on which the determination was given. puting out the evidences on which the determination is being challenged. VAT conformity

Tax bills

A revenue enhancement bill is issued on the supply of nonexempt goods or services in support of the dealing. The VAT bill serves as a signifier of enfranchisement that VAT has been levied on a dealing. and as documental cogent evidence back uping claims for input revenue enhancement by a registered individual. A revenue enhancement bill must incorporate the undermentioned specifics:

•the taxpayer’s designation figure ;
•name. reference and VAT enrollment figure of the provider ;
•customer’s name and reference ;
•type of supply ;
•description of the goods and services supplied ;
•quantity of goods or extent of services ;
•the rate of VAT ;
•the rate of hard currency price reduction offered ; and
•the entire VAT payable.
The punishment for failure to publish a revenue enhancement bill for nonexempt goods or services is 50 % of the cost of the goods or services for which the revenue enhancement bill was non issued. Credit notes and debit notes
A recognition note or debit note is normally issued to take history of a alteration in the consideration for a nonexempt supply due to the undermentioned fortunes: •the cancellation of a supply of goods and services ;

•an change or fluctuation in the nature of a supply ;
•a alteration in the antecedently accepted consideration for the supply e. g. due to a price reduction ;
•a short supply of goods ;
•an unrecoverable bad debt arising from a nonexempt supply that has been written off ; or
•a return of goods to the provider.
The issue of a recognition note or a debit note will organize the footing for the needed accommodation to the relevant VAT return. The VAT statute law is non specific on what information is to be reflected on the debit and recognition notes but such paperss should incorporate sufficient information to place the original dealing and the VAT bill to which it relates.

Record-keeping

A registered individual must maintain records and books of all minutess. operations. imports and other activities associating to nonexempt goods and services sufficient to find the right sum of VAT due. Transcripts of a supplier’s VAT bills should be kept for a period of at least six old ages after the completion of the dealing to which they relate. A general statutory restriction of six old ages instantly following the last twenty-four hours of the nonexempt period in which the dealing took topographic point applies to the transporting out of a revenue enhancement audit to bring forth records. This clip bound can be extended when fraud is suspected to hold occurred. Records may non be kept outside the state. Records should be kept in the signifier of paper transcripts every bit good as in electronic signifier. where possible. For the intent of determining the revenue enhancement liability. FIRS may necessitate the registered individual to bring forth records and transcripts of VAT bills for keeping. as it may see necessary.

Specific VAT regulations

Bad debts

Where a registered individual has claimed an input revenue enhancement recognition. and the person’s debt towards the provider is written off as unrecoverable. the registered individual will be required to do an accommodation for input revenue enhancement over-claimed in the yesteryear. Where a registered individual has made a nonexempt supply. accounted for the end product revenue enhancement and has later written off the whole part of the debt as unrecoverable. the relevant accommodations should be made to the VAT return for the period concerned. Although non specifically provided for in the VAT statute law. where a registered individual later recovers all or a part of the debt which was antecedently written off. end product revenue enhancement should be paid in regard of the VAT part of the sum recovered in the relevant revenue enhancement period.

Land and edifices

The Nigerian Law does non specifically exempt land from VAT. nevertheless. as land can non be expressly described as either a good or a service. the pattern is to handle land as exempt from VAT. The supply of edifices is nevertheless non exempted from VAT. The FIRS would hence demand end product revenue enhancement in this regard. which should be accounted for in the normal mode. Input revenue enhancement in line with normal regulations is capitalised as portion of the cost of the plus.

Other indirect revenue enhancements

Customss responsibilities

Customss responsibilities are collectible on imported goods at the rate of responsibility shown in the imposts responsibility duty with mention to the predominating Harmonized Commodity and Coding System ( HS codification ) . The current duty under the Customs Act ranges from 0 % to 35 % . Duties on imported goods are levied on the Cost. Insurance and Freight ( CIF ) value of the imported good. Other rates and charges include:

•7 % surcharge ( Port development levy ) . calculated on the imposts responsibility •0. 5 % trade liberalisation strategy levy. calculated on imposts responsibility ( where import is from states outside the ECOWAS part ) •1 % Comprehensive Import Suspension strategy ( CISS ) administrative charge for finish review based on the FOB value of goods. •Value Added Tax ( VAT ) calculated at the rate of 5 % on the CIF value of the import. imposts responsibility and the charges stated above. Nigeria is traveling towards the acceptance of the Common External Tariff ( CET ) for Economic Communities of West African States ( ECOWAS ) . The duty under the CET ranges from 2 % to 20 % . It should be noted that the Ministry of Finance reappraisals Customs and Importation Guidelines and Policies from clip to clip. Sometimes. the pattern is inconsistent with the jurisprudence and policies. It is hence recommended to maintain abreast of developments in this country.

Excise responsibilities
Excise responsibilities are collectible on certain goods manufactured and sold in Nigeria. The undermentioned goods are apt to strike responsibilities at the specified rates in Nigeria:

•Beer & A ; Stout ; 20 %
•Wines ; 40 %
•Spirits ; 40 % and
•Cigarettes and Tobacco ; 40 % .

Stamp responsibility

All instruments associating to an act to be performed in Nigeria. unless specifically exempted. must be stamped within 40 yearss of first executing. Stamp responsibilities may be charged at a level rate ( specific ) or in proportion to the value of the consideration ( ad valorem ) depending on the category of instrument. The punishment for late stamping of instruments is N20 ; but where the unpaid responsibility exceeds N20. there is a farther punishment in the signifier of involvement on the cast responsibility collectible at the rate of 10 % per annum topic to a upper limit of the unpaid responsibility.