17 Things you need to know about Value Added Tax (VAT) Act 2007 as Amended
In the face of dwindling oil receipt by the Federal Government of Nigeria, and the likelihood that the Federal Inland Revenue Service will up their game in generating income for the government to function properly. Should this happen, businesses are likely to face pressures from the Revenue Services than they have in the past. It is therefore apposite to say that an astute entrepreneur will be in goodstead if it makes conscious efforts to comply with tax laws and enactments to be saved the risk of penalty or other regulatory sanctions.
TAX CONSULTANTS IN NIGERIA
As at today, A Tax Consultant in Nigeria with vast experience will tell you that there has seen an increase in the tempo of activities in the Revenue Office in their quest to increase collections for VAT for the government. Some of the Federal Inland Revenue Services locations in Lagos, Nigeria now demand that VATable persons or Tax Payers accompany their VAT returns with their bank statement where such Returns are on a Nil basis. That is the company did not make any sale and therefore do not collect VAT. We have seen cases where the Revenue Office is already raising Penalty Assessment on Tax Payers for late filing of VAT Returns for particular months.
For some other Tax Office, the issuance of Tax Clearance Certificate are stalled till such tax payer satisfy the Revenue Office of compliance with the VAT law substantially. It will therefore be of interest to you to pay attention to some salient features and requirement of the otherwise old VAT law.
1. Taxable Good and Services
All goods and services are subject to the imposition of Value Added Tax(VAT) at the rate of 5% except for goods or services so exempt. See section 1, 2,4 of the Act.
Every taxable person must register for VAT collection as required by section 8 of the ACT. Specifically, Section 8(1) says ” A taxable person shall within six months of the commencement of the Act or within six month of the commencement of business, whichever is earlier, register with the Board for the purpose of the tax” . Taxable Persons means a person who independently carries out in any place an economic activity as a producer, wholesale trader, supplier of goods, supplier of services(including mining and other related activities) or person exploiting tangible or intangible property for the purpose of obtaining income there from by way of trade or business; and includes a person and an agency of Government acting in that capacity.
The Act also prescribes penalty of N10,000 for the first month in which failure to register occur and N5,000 for each subsequent month in which the failure occur.
3. Goods and Services Exempt
The Act also exempt the following goods and services from charging of VAT namely: All Medical and Pharmaceutical products, Books and Educational materials, baby products, fertilizers, Exports, Plant and machinery imported for used in Export Processing Zone and Gas-Processing and Agriculture, Medical Services, exported services, plays and performances by educational institutions as part of Learning, services of community banks, peoples bank ad mortgage institutions, proceeds from the disposal of short term Federal Government of Nigeria, states, local government, State Bonds, Corporate Bonds(including supra-national bonds).
4. Records and Accounts
It is also compulsory for every businesses to keep proper records of and accounts of its businesses. Section 11 declares “A person who is a registered under section 8 of this Act shall keep such records and books of all transactions, operations, imports and other activities relating to taxable goods and services as are sufficient to determine the correct amount of tax due under this Act”
5. Section 15 – Taxable person to render returns
As a VATable person, you are required to render returns on a monthly basis. Such returns are due not later than the 30th day of the new month. The Act enjoins that “A taxable person shall render to the Board, on or before the 30th day of the following month following that in which the purchase or supply was made, a return of all taxable goods and services purchased, or supplied by him during the preceding month in such manner as the Board may, from time to time, determine”.
6. Section 16 (1) – Remission of Tax
The VATable person is required to make returns on a monthly of its VAT collections after netting of allowable input VAT it has paid during the month. Section 16(1) declares “A taxable person shall, on rendering a return under subsection (1) of section 15 of this Act:
a) If the Output tax exceeds the input tax, remit the excess to the Board; or
b) If the input tax exceeds the output tax, he is entitled to a refunds of the excess tax from the Board on production of such document as the Board may, from time to time, require”
7. Section 17 – Allowable Input Tax
You are also guided on allowable input VAT you can claim when you render your returns on a monthly basis.”For the purpose of section, the input tax to be allowed as a deduction from output tax shall be limited to the tax on goods purchased or imported directly for resale or goods which form the stock-in-trade for the direct production of any new product on which the output is charged”.
8. Section 18 – Effect of failure to render returns
Taxable Persons are also warned about the powers of the Revenue Services to assess it based on its best of judgement. This can be very punitive for the business and must be avoided in these times. The Act declares “Where a taxable person fails to render returns or renders an incomplete or inaccurate returns, the Board shall assess, to the best of its judgement, the amount of the tax due on the taxable goods and services purchases or supplied by the taxable person”.
9. Section 19 – Effect of non-remittance of tax
Another pernicious provision in the Act is the charging of interest on delayed remittances on collected VAT by taxable persons. Section 19 of the Act says “If a taxable person does not remit the tax within the time specified in section 16 of this Act, a sum equal to 5 per cent per annum(plus interest at the Commercial rate) of the amount of tax rentable shall be added to the tax and the provisions of this Act relating to collection and recovery of unremitted tax, penalty and interest shall apply.”
10. Section 25 – Furnishing of false documents, etc
The act of rendering false returns or document to the Federal Inland Revenue Service is punishable by the payment of twice the amount under-declared when so convicted.
11. Section 26 – Evasion of Tax
Section 26 of the Act frowns on participation by persons or who take part in evading the tax who upon being pronounced guilty will pay N30,000 as fine or two times the amount of tax evaded whichever is greater or to maximum prison term of 3years.
12. Section 29 – Failure to Issue Tax Invoice
It is a requirement of the Act for companies to ensure that the invoices they issue to their customers have VAT charged and collected as they will be guilty of an offence and liable on conviction to a fine of 50% of the cost of the goods or services for which they failed to charge VAT. This provision is very punitive. For most SME’s you may because of competition or ignorance fail to comply the punishment appears greater than the offence. This is the law at the moment.
13. Section 32 – Failure to Register
Failure to register for VAT by a company is an offence punishable on conviction by a N5,000 fine and if the failure to do persist after one month, the company’s business shall be liable to be sealed up.
14. Section 33 – Failure to keep proper records and accounts
A taxable person who fails to keep records and accounts of his business transactions to allow for the correct ascertainment of tax and filing of returns is liable to pay a penalty of N2,000 for every month in which the failure continues
15. Section 34 – Failure to collect tax
“A taxable person, who fails to collect tax under this Act, is liable to pay as penalty 150% of the amount not collected, plus 5% interest above the Central Bank of Nigeria rediscount rate”.
16. Section 35 – Failure to submit returns
“A taxable person who fails to submit returns to the Board, is liable to a fine of N5,000 for every month in which the failure continues”.
17. Section 37 – Offence by body corporate etc
The Act also prescribes that where an offence under this it is committed by a body corporate or firm or other association of individuals: every director, manager, secretary or similar officer of the body corporate, partner or office of firm, every person concerned with the management of the affairs of the association or every person purporting to work in any capacity of such body corporate or firms or partnership, they shall be seen as severally guilty of that offence and punished for that offence as if they had themselves commit the offence, unless they can prove their innocent with regards to the breach. Every responsible Office must therefore ensure that compliance with the Act is done by firms in which they either occupy senior positions or hold directorship or interest.
In closing, we will advise as Tax Consulting Company in Nigeria, that it is very important that the salient feature and requirement of the Act is understood so that the entrepreneur can seek avenues to fully comply with the provision of the law. It is regrettable that in the drive to meet the revenue target of the tax station, some overzealous officials now raise penalties, citing this Act which are not in line with the situation of specific companies. You may therefore still require the advise of a Tax Consulting Company to help you in such cases.