{"id":38956,"date":"2017-06-16T16:46:45","date_gmt":"2017-06-16T16:46:45","guid":{"rendered":"http:\/\/localhost:8888\/cregital\/disha\/2017\/06\/16\/msme-tax-101-what-is-vat\/"},"modified":"2017-06-16T16:46:45","modified_gmt":"2017-06-16T16:46:45","slug":"msme-tax-101-what-is-vat","status":"publish","type":"post","link":"https:\/\/msmehub.org\/staging\/6671\/msme-tax-101-what-is-vat\/","title":{"rendered":"MSME Tax 101 – What is VAT?"},"content":{"rendered":"
Value added tax (VAT) is a compulsory consumption tax charged and payable on the supply of all goods and services, other than those goods and services listed in the First Schedule to the Value Added Tax Act. The Value Added Tax Act is the enabling law guiding the administration of VAT in Nigeria.<\/p>\n
Definition of terms<\/strong><\/strong><\/p>\n
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Term<\/span><\/strong><\/p>\n<\/td>\n
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Definition<\/span><\/strong><\/p>\n<\/td>\n
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Ref<\/span><\/strong><\/p>\n<\/td>\n<\/tr>\n
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Tax base<\/span><\/p>\n<\/td>\n
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The value of goods and services on which VAT is to be charged<\/span><\/p>\n<\/td>\n
Difference between the output VAT and the input VAT. The VAT payable is the amount to be remitted to Federal Inland Revenue Service (FIRS).<\/span><\/p>\n<\/td>\n
The applicable rate is 5% of the tax base and the tax burden is borne by the final consumer. However, some goods and services are classified as zero-rated, meaning that they are liable to VAT at 0%. Examples include: non-oil exports, goods and services purchased by diplomats and goods purchased for use in humanitarian donor funded projects.<\/p>\n
\n3. Exempt goods and services<\/strong><\/p>\n
The First Schedule to the VAT Act shows a list of goods and services exempted from VAT. Examples of such transactions include; medical and pharmaceutical goods and services, basic food items, books and educational materials, baby products, exported goods and services etc.<\/p>\n
\n4. Administration<\/strong><\/p>\n
VAT in Nigeria is administered by the Federal Inland Revenue Service (FIRS).<\/p>\n
\n5. Registration<\/strong><\/p>\n
MSMEs who make taxable supply of goods and services are required to register for VAT with FIRS, within six months of commencement of business. MSMEs can register for VAT at the nearest FIRS office. A taxable person acts as an agent of the government, by collecting VAT from customers and remitting same to FIRS<\/p>\n
6. Tax invoice<\/strong><\/p>\n
MSMEs who make taxable supplies are required to issue a tax invoice to the customer containing the following details:<\/p>\n
a) Supplier’s Tax Identification Number (TIN)<\/p>\n
b) Name and address of supplier<\/p>\n
c) The date of supply<\/p>\n
d) Name of customer<\/p>\n
e) Gross amount of transaction<\/p>\n
f) Rate of tax and amount of tax charged<\/p>\n
A tax invoice must be issued on supply whether or not payment is made at the time of supply. <\/strong><\/p>\n
7. Input and Output VAT<\/strong><\/p>\n
Input VAT refers to the VAT that a taxpayer suffers upon purchase of taxable goods and services. Output VAT is the VAT charged by a taxpayer upon making taxable supplies. <\/strong><\/p>\n
8. Due Date for filing of VAT returns<\/strong><\/p>\n
Taxpayers are expected to complete a VAT Form 002 on a monthly basis – on or before the 21st day of the month following the month in which the taxable supply was made, and submit same to FIRS. For example, if a taxable supply is made in January 2017, VAT returns in respect of the supply should be filed with FIRS on or before 21 February 2017.<\/p>\n
The VAT returns is to be accompanied by evidence of payment of net VAT. In the event that a taxpayer does not make any taxable supply in a month, the taxpayer is still required to file nil returns in respect of that month. The nil returns should be accompanied by the taxpayer’s bank statements as evidence that no taxable supply was made in the month.<\/p>\n
We have attached in Appendix 1, a sample VAT Form 002. <\/strong><\/p>\n
9. Offences and penalties<\/strong><\/p>\n
We have attached as Appendix 2, a summary of offences and applicable penalties in the event of default, with respect to VAT compliance.<\/p>\n
Appendix 1 – Sample VAT Form 002<\/strong><\/figure>\n
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Appendix 2 – Summary of offences and penalties<\/span><\/strong><\/p>\n
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Offence<\/span><\/strong><\/p>\n<\/td>\n
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Penalty<\/span><\/strong><\/p>\n<\/td>\n<\/tr>\n
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Failure to register<\/span><\/p>\n<\/td>\n
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N10,000 in the first month, N5,000 for each subsequent month<\/span><\/p>\n<\/td>\n<\/tr>\n
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Evasion of tax<\/span><\/p>\n<\/td>\n
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The higher of N30,000 or two times the amount of tax being evaded<\/span><\/p>\n<\/td>\n<\/tr>\n
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Failure to notify change of address within one month<\/span><\/p>\n<\/td>\n
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N5,000<\/span><\/p>\n<\/td>\n<\/tr>\n
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Failure to issue invoice<\/span><\/p>\n<\/td>\n
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50% of value not invoiced, on conviction<\/span><\/p>\n<\/td>\n<\/tr>\n
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