Value Added Tax (VAT) is a consumption tax levied on goods and services in Nigeria. It is an indirect tax, which means that it is collected by businesses on behalf of the government.
VAT is currently set at a rate of 7.5% in Nigeria, and it is important for businesses to understand how to calculate and remit this tax. In this article, we will provide a step-by-step guide on how to calculate VAT in Nigeria.
Table of Contents
What is VAT?
VAT is a tax on the value added to goods and services at every stage of production and distribution. It is a consumption tax, which means that it is ultimately paid by the end consumer.
VAT is levied on the difference between the price of a good or service sold and the cost of producing or providing that good or service. The tax is collected by businesses on behalf of the government and remitted to the Federal Inland Revenue Service (FIRS) on a monthly basis.
Who Should Register for VAT?
All businesses in Nigeria with an annual turnover of ₦25 million or more are required to register for VAT. Businesses with a turnover of less than ₦25 million may also register voluntarily. Registration for VAT is done through the FIRS and requires the submission of certain documents and payment of a registration fee.
How to Calculate VAT
Calculating VAT in Nigeria involves a few simple steps. The first step is to determine the taxable value of the goods or services sold. This is the value of the goods or services before VAT is added. Once the taxable value has been determined, the next step is to calculate the VAT payable.
To calculate the VAT payable, multiply the taxable value by the VAT rate of 7.5%. For example, if a business sells goods with a taxable value of ₦100,000, the VAT payable would be ₦7,500 (₦100,000 x 7.5%).
How to Remit VAT
After calculating the VAT payable, businesses are required to remit the tax to the FIRS on a monthly basis. Remittance of VAT is done using the FIRS electronic tax payment platform or through authorized commercial banks. Businesses are required to file a VAT return with the FIRS on or before the 21st day of the month following the month of the transaction.
VAT Exemptions
Certain goods and services are exempt from VAT in Nigeria. These include basic food items, medical services and products, educational materials, and certain agricultural products. Businesses that sell these goods and services are not required to charge VAT on them.
Conclusion
Calculating VAT in Nigeria is an important process for businesses that sell goods and services. By following the steps outlined in this article, businesses can determine the amount of VAT payable and remit the tax to the FIRS on a monthly basis. It is important for businesses to register for VAT and to keep accurate records of all VAT transactions to avoid penalties and fines.
FAQs
What is the current VAT rate in Nigeria?
- The current VAT rate in Nigeria is 7.5%.
Who should register for VAT in Nigeria?
- All businesses with an annual turnover of ₦25 million or more are required to register for VAT. Businesses with a turnover of less than ₦25 million may also register voluntarily.
How do I calculate VAT in Nigeria?
- To calculate VAT in Nigeria, multiply the taxable value of the goods or services sold by the VAT rate of 7.5%.
What goods and services are exempt from VAT in Nigeria?
- Certain goods and services are exempt from VAT in Nigeria, including basic food items, medical services and products, educational materials, and certain agricultural products.
How do I remit VAT in Nigeria?
- VAT can be remitted to the FIRS on a monthly basis using the FIRS electronic tax payment platform or through authorized commercial banks. Businesses are required to file a VAT return with the FIRS on or before the 21st day of the month following the month of the transaction.
