Value Added Tax (VAT) is an indirect tax levied at a rate of 5% on goods and services consumed. The final burden of VAT is borne ultimately by the final consumers. Value Added Tax (VAT) Act of 1993 governs the affairs of this tax and it is paid only into the Federal Government coffer {Federal Inland Revenue Service (FIRS)}. VAT is distributed monthly to Federal, States and FCT, Abuja, and Local governments in the proportion 15%, 50%, and 35% respectively (with consideration for derivation principle) ^{1}. While some goods and services are VATable in Nigeria, some are non- VATable and so they are VAT exempted.

VATable goods can be defined as all those goods manufactured/assembled in Nigeria or imported into Nigeria, except those specifically exempted under the law; while VATable services are all services rendered by any person in Nigeria, except those specifically exempted under the law.

Schedule 1 of the VAT Act 1993 gives a list of goods and services that are non- VATable. Below is the list of VAT exempted goods.

• All medical and pharmaceutical products sold/supplied
• Basic food items
• Books and Educational materials
• Baby products
• Fertilizer (locally produced), agricultural and veterinary medicine, farming machinery and farming transportation equipment
• Plant and Machinery imported for use in the Export Processing Zone or Free Trade Zones (provided that 100% production of such company is for export)
• Plant, machinery and equipment purchased for utilization of gas in downstream petroleum operations
• Tractors, plough and agricultural equipment and implements purchased for agricultural purposes
• Proceeds from disposal of Short- Term Federal Government of Nigeria securities and Bonds
• Proceeds from disposal of Short- Term State and Local Governments Corporate Bonds (including supra- national Bonds) limited to ten years with effect from December 2011

VAT exempted services are the following:

• Medical services
• Services rendered by Community Banks, People’s Bank, and Mortgage Institutions
• Plays and performances conducted by educational institutions as part of learning
• All exported services

VAT Act 1993 also gives a list of some goods and services that are classified as being VAT zero- rated. VAT zero- rated goods and services are those goods are services that VAT is levied on them at 0% rate. These goods and services are VATable, but at 0% rate instead of the usual 5%.

The zero- rated goods and services are:

• Non- oil exports
• Goods and services purchased by Diplomats or Embassies
• Goods and services purchased by humanitarian donor- funded projects

REFERENCE:

1. Federal Inland Revenue Service (2016) Frequently Asked Questions and Answers. Abuja: The Federal Inland Revenue Service