VAT In Nigeria: How To Calculate & All You Need To Know

I like to describe “Tax” as that cash you remit to the government on either a monthly basis for selling or rendering services. However, a particular tax called Value Added Tax (VAT) applies to certain goods or services; this implies that you sometimes pay VAT for some products you purchase or service rendered.

A lot of people (Nigerians in this case) don’t know about the Value Added Tax (VAT), they equally don’t have an idea they pay extra cash to the government for buying some certain goods. But, it is good to know that not all products or services are VAT inclusive.

VAT is a consumption tax levied on goods at each level of sales where value has been added. This process begins from the raw material stage all through to retail sales point purchase.

For instance, if a product costs 100 Naira and there is a VAT of 10% while buying, you pay the sum of 110 Naira to the seller.

Value Added Tax in Nigeria Explained

According to the Federal Inland Revenue Service (FIRS), VAT is governed by the Value Added Tax Act Cap V1, LFN 2004 (as amended). And it may interest you to know that All goods and services (produced within or imported into the country) are taxable except those specifically exempted by the VAT Act.

Currently, Value Added Tax is charged at the rate of 7.5% (raised from 5% on 1st February 2020) on all VATable goods and services. In Nigeria,

  • Companies that are carrying out VATable transactions with non-resident companies within the country;
  • Government ministries, statutory bodies and other agencies of government; and
  • Companies operating in the oil and gas sector are all expected to deduct tax from source and remit directly to the tax ministry under the federal government. 
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How do you know you’re not overpaying or underpaying when it comes to Value Added Tax? Whenever the need applies, it is expected that individuals are to have basic knowledge of how to calculate VAT, but unfortunately, for most Nigerians, calculating VAT is a difficult task to do.

Output and Input VAT: How To Calculate In Nigeria

Once you are a registered VAT payer, it is expected that 7.5% of the cash you receive from customers for goods or services rendered is seen as your OUTPUT VAT. Similarly, this can also apply to you when you purchase any products and services, 7.5% of the money you pay is to be seen as your INPUT VAT.

To ascertain the tax percentage on goods and services for government remittance, calculate by subtracting your INPUT VAT from the OUTPUT VAT.

Which will be: Total VAT payable to the government = Output VAT – Input VAT How do we Calculate VAT

If we are to calculate output, input, and total VAT payable to the government, a step by step guideline has been outlined below for you.

Example: Take, for instance, a car manufacturing company sold a 2020 Mercedes GLK model to a final consumer for N500,000, the raw materials for this car were sold at N200,000. The output VAT = 7.5% VAT you charge on goods and services you supply or sell while the Input VAT = The 7.5% VAT, you pay on items and services used by you.

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Since the manufacturer of the product sold the product for N500,000, 7.5% of the 500,000 Naira is the output VAT (This is constant because we expect that 7.5% VAT to be delivered on every goods and service rendered continually).

Output VAT = 7.5% of 500,000 Naira which is 37,500 Naira.

While, Since the producer spent 200,000 Naira on buying the raw materials, 7.5% of that quantity is referred to as the input VAT.

Input VAT = 7.5% of 200,000 Naira which is 15000 Naira.

Total VAT payable (Output VAT – Input VAT) = 37,500 – 15000

Therefore, Total VAT payable = 22,500 Naira.

To use an online VAT calculator, you can visit thepercentagecalculator.net/vat/vat-calculator-nigeria.html. After visiting the web page,  enter an amount and proceed to press -VAT to substrate VAT from Amount, or +VAT to add VAT to Amount.

In a situation where the input tax exceeds the output tax, the deficit can be claimed by refund. The three means by which VAT refund can be claimed in Nigeria are;

  1. Direct cash refund method
  2. The credit method and
  3. A combination of the two above.

The credit method is reportedly the most utilized method because of the difficulty that may be encountered with direct cash refunds.

How To Pay VAT In Nigeria?

Most tax payments in Nigeria (VAT in this case) have now gone electronic as cash payments are no loner advised due to the alarming rates of corruption in Nigeria.

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Remittance of tax can either be deducted from source, collected at the point of sales or purchase, or individuals can willingly make their tax payment.

The platforms outlined below are the apporved platforms for VAT payments in Nigeria.

  1. Remita
  2. Interswitch
  3. NIBSS
  4. eTranzact Online Payment

While ministries, departments, and agencies (MDAs) are mandated to use the below method for online tax payment.

What Are The Goods Exempted From VAT in Nigeria?

While we are expected to pay tax, it might interest you to know that certain products and services are free from tax payment. This implies that Value Added Tax charges do not apply to such goods or services.

On the other hand, several goods and services are being considered as zero rates. In such cases, tax applies to such goods, just that the tax application is zero percent.

The following are a list of products and services with zero VAT rates in Nigeria:

  • Agricultural equipment
  • Basic foodstuffs
  • Non-oil exports
  • Commercial vehicles
  • Residential rents
  • Commercial aircraft and spare part imports
  • Certain humanitarian initiatives
  • Machinery and equipment used in the solid minerals sector
  • Exports
  • Medical and pharmaceutical supplies
  • Education and related materials
  • Limited range of financial services
  • Books and newspapers

Tax payment is considered a civic duty. In as much as most people are against tax payment, it is good to understand that majority of the amount realized from tax deduction helps in building Social amenities, health facilities, infrastructures, create development along with paying off the interest on the national debt.

If you have any questions, please let us know via the comment section below.

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