How to Calculate VAT in Nigeria 2021: A Comprehensive Guide
Value-added tax (VAT) is an indirect tax that is levied on the production and distribution of goods and services in Nigeria. It is a consumption tax that is borne by the final consumer and collected by the businesses that sell the goods or services. In this article, we will provide you with a comprehensive guide on how to calculate VAT in Nigeria in 2021.
What is VAT?
Value-added tax (VAT) is an indirect tax that is levied on the value added to goods and services at each stage of production or distribution. It is a consumption tax that is borne by the final consumer and collected by the businesses that sell the goods or services. VAT is a major source of revenue for the Nigerian government, and it is administered by the Federal Inland Revenue Service (FIRS).
What is the VAT rate in Nigeria?
The VAT rate in Nigeria is currently 7.5%. This rate was increased from 5% to 7.5% in 2020, as part of the Finance Act 2019. The Finance Act 2019 also introduced changes to the VAT system in Nigeria, such as the expanded VAT coverage to include online transactions, and the introduction of VAT on imported services.
Who is liable to pay VAT in Nigeria?
Every business that sells goods or services in Nigeria is liable to pay VAT. This includes manufacturers, wholesalers, retailers, and service providers. The only exception is for businesses that have a turnover of less than N25 million per annum, which are exempt from registering and collecting VAT.
How to register for VAT in Nigeria?
Every business that is liable to pay VAT in Nigeria is required to register with the Federal Inland Revenue Service (FIRS). The registration process is free and can be done online through the FIRS e-registration portal. The following documents are required for VAT registration:
- Certificate of incorporation
- Company seal
- Memorandum and Articles of Association
- Evidence of address of the business premises
- Tax identification number (TIN)
How to calculate VAT in Nigeria?
To calculate VAT in Nigeria, you need to follow these simple steps:
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Determine the VAT-inclusive amount: This is the total amount that you are charging for the goods or services, including VAT.
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Determine the VAT-exclusive amount: To determine the VAT-exclusive amount, you need to divide the VAT-inclusive amount by 1.075. For example, if the VAT-inclusive amount is N10,000, the VAT-exclusive amount would be N9,302.33 (N10,000/1.075).
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Determine the VAT amount: To determine the VAT amount, you need to subtract the VAT-exclusive amount from the VAT-inclusive amount. For example, if the VAT-inclusive amount is N10,000 and the VAT-exclusive amount is N9,302.33, the VAT amount would be N697.67 (N10,000 – N9,302.33).
How to file VAT returns in Nigeria?
Every business that is registered for VAT in Nigeria is required to file VAT returns with the Federal Inland Revenue Service (FIRS) on a monthly basis. The VAT returns must be filed on or before the 21st day of the month following the month in which the VAT was collected. The following documents are required for VAT returns:
- VAT returns form
- Sales invoices
- Purchase invoices
- Receipts of VAT payments
What are the penalties for non-compliance with VAT regulations in Nigeria?
Failure to comply with VAT regulations in Nigeria can result in penalties and fines. The penalties for non-compliance include:
- Late filing penalty: N50,000 for the first month and N25,000 for each subsequent month
- Late payment penalty: 10% interest on the amount due
- Failure to register penalty: N50,000 for the first month and N25,000 for each subsequent month
- Failure to keep proper records penalty: N25,000 for the first month and N5,000 for each subsequent month
Conclusion
In conclusion, VAT is an important source of revenue for the Nigerian government, and every business that sells goods or services in Nigeria is required to register and collect VAT. To calculate VAT in Nigeria, you need to follow the simple steps outlined in this article. Failure to comply with VAT regulations can result in penalties and fines, so it is important to ensure that you meet all the requirements.
FAQs
- Do I need to register for VAT if my turnover is less than N25 million per annum?
No, businesses that have a turnover of less than N25 million per annum are exempt from registering and collecting VAT.
- What is the VAT rate in Nigeria?
The VAT rate in Nigeria is currently 7.5%.
- How do I file VAT returns in Nigeria?
Every business that is registered for VAT in Nigeria is required to file VAT returns with the Federal Inland Revenue Service (FIRS) on a monthly basis.
- What are the penalties for non-compliance with VAT regulations in Nigeria?
The penalties for non-compliance with VAT regulations in Nigeria include late filing penalty, late payment penalty, failure to register penalty, and failure to keep proper records penalty.
- What documents are required for VAT registration in Nigeria?
The documents required for VAT registration in Nigeria include certificate of incorporation, company seal, memorandum and articles of association, evidence of address of the business premises, and tax identification number (TIN).
