LET'S TALK ABOUT VAT
Value Added Tax
Hi everyone,
How did the real first week of the year go?
For me, I was quite intentional about my daily activities and I’ve come to realize that TikTok is the weapon fashioned against my productivity, so I’ll be needing an app blocker moving on.
Other than that, I had a good week.
Welcome back.
If you made it through Part 1, well done. Today, we’re continuing the conversation on Taxes.
I got a question on VAT (Value Added Tax) so let’s dive in.
Value Added Tax (VAT) is an indirect consumption tax placed on goods and services at every stage of the supply chain, from production to the point of sale. It is ultimately paid by the final consumer, while the businesses involved act as tax collectors for the government.
Businesses charge “output VAT” on the goods and services they sell to their customers.
Businesses pay “input VAT” on the materials and services they purchase for their own business operations.
Businesses remit the difference between the output VAT they collect and the input VAT they pay to the tax authorities.
In Nigeria, the VAT rate remains 7.5% under the new Nigeria Tax Act.
However, one of the most important reforms is not the rate itself, but what is now zero-rated and what businesses can claim back.
ZERO-RATED ESSENTIAL GOODS & SERVICES
The NTA expands the list of zero-rated VAT items to include essential goods and services such as:
Basic food items
Medical and pharmaceutical products
Medical equipment and healthcare services
Educational books and materials
Tuition fees
Electricity generation and transmission services
Exports (excluding oil and gas exports), etc
A zero-rated item means VAT is charged at 0%, not 7.5%. Under the new tax act, businesses can now claim back (recover) the VAT paid on their related costs (input VAT).
Nigeria now adopts globally recognised VAT principles, allowing businesses to claim input VAT on all purchases, including:
Goods
Services
Fixed assets (like equipment and machinery)
Previously, many service-based businesses could not claim input VAT at all.
Now:
Businesses providing taxable supplies can claim input VAT, as long as the VAT incurred is directly related to their VAT-able activities.
So, if you’re a business providing services and charging VAT, you can now recover VAT paid on things like professional services, rent, and certain assets.
IN SIMPLE TERMS
VAT rate stays at 7.5%
More essential goods are zero-rated, not exempt
Businesses can now recover VAT costs they previously had to absorb
Service-based businesses finally get input VAT relief
This reform reduces costs for businesses and, in theory, should help keep prices more stable for consumers.
In theory.
We’ll stop here for now.
As always, send in your questions or topic suggestions.
I am still reading The 12 Week Year (you know how i am with non-fiction books), i intend to wrap it up this week though.
Have a fantastic week guys!