1.0 Introduction: Understanding the VAT Framework in the 2025 Act

The Nigeria Tax Act 2025 represents a significant and comprehensive update to the nation’s fiscal landscape. For corporate tax departments, mastering the nuances of the new Value Added Tax (VAT) regime is of strategic importance. A thorough understanding is essential to ensure full compliance, effectively manage tax costs, and mitigate the risk of penalties. The fundamental principles of VAT are established in Sections 144 and 145 of the Act, which impose the tax on all taxable supplies of goods and services in Nigeria, subject to a schedule of specific exemptions. The legislation provides a clear and uniform framework for its application across the economy. As mandated by Section 148, the standard VAT rate is set at 7.5% and is applicable to all taxable supplies that do not qualify for exemption or zero-rating. This report delves into the detailed mechanics of how this tax is calculated and applied to specific business transactions.

2.0 Core Mechanics of VAT Calculation and Application

Accurate VAT compliance begins with the correct identification, timing, and valuation of taxable supplies. The Act provides specific rules that govern these core elements, removing ambiguity and establishing a clear basis for calculation. Mastering these mechanics is fundamental for any business to determine its correct VAT liability and ensure its obligations are met.

2.1 Identifying a Taxable Supply

Section 146 of the Act provides a clear definition of when a taxable supply is deemed to occur within Nigeria’s jurisdiction. The rules differ based on whether the supply involves goods or services.

2.2 Determining the Time of Supply

The “time of supply” is a critical concept that determines the tax period in which a transaction must be reported and the corresponding VAT remitted. Section 147 establishes that the time of supply is the earliest of the following three events: the date a VAT invoice is issued by the supplier, the date payment is received by the supplier, or the date the service is performed or the goods are delivered. For supplies made under an installment credit agreement, Section 147(c) provides that the supply is deemed to occur at the time the goods are delivered or when any payment is received by the supplier, whichever happens first.

2.3 Valuing Taxable Supplies

To calculate the correct amount of VAT, a business must first determine the correct monetary value of the supply. Sections 149 and 150 provide a structured guide for this process:

• Standard Supplies: The value is simply the total consideration paid.
• Non-Monetary Consideration: The value is the open market value of that consideration.
• Supplies to Connected Persons: The value must be the open market value to ensure an arm’s-length valuation.
• Imported Taxable Supplies: Calculated as the sum of the price, any other taxes/duties/charges levied outside or by reason of importation (excluding Nigerian VAT), and all associated costs like commissions, transport, and insurance up to the point of entry.

3.0 VAT Collection and Remittance Obligations

The 2025 Act places clear and strict obligations on businesses for the collection and timely remittance of VAT. Adherence to these procedural requirements is paramount to avoid penalties and scrutiny.

3.1 Mandatory VAT Invoicing

Under Section 153, any taxable person making a taxable supply must furnish the purchaser with a valid VAT invoice containing:

3.2 Mechanisms for VAT Collection

The Act outlines two primary methods for the collection of VAT:

• Standard Collection (Section 154): The taxable person collects output VAT from the purchaser and remits the net VAT (output tax less allowable input tax) to the Service.
• Collection by Other Persons (Section 155): Government agencies and companies with an annual turnover of N50,000,000 or more must withhold the applicable VAT on payments and self-account for it.

3.3 Remittance Deadlines and Procedures

Deadlines differ based on the collection mechanism:

• Standard Collection: Must be remitted by the 21st day of the following month.
• VAT Withheld: Must be remitted by the 14th day of the following month.

The remittance is based on a net principle, where a taxable person remits the excess of its total output VAT over its total allowable input VAT for the period as stipulated in Section 156(1)(a).

4.0 Input Tax Credits and VAT Recovery

The input tax mechanism ensures VAT functions as a tax on final consumption by allowing businesses to claim credit for VAT paid on legitimate business expenses, preventing tax cascading.

4.1 Conditions for Deducting Input Tax

Input VAT is defined in Section 152 as VAT paid by a taxable person on supplies made to it. Per Section 156(5), it is deductible if:

• It was incurred for the purpose of making the business’s own taxable supplies.
• It is claimed within five years after the end of the tax period in which it was incurred.

Non-Deductible Input Tax: Generally, VAT on expenses not allowable for income tax purposes (e.g., penalties, fines, and private expenses under Section 21) is non-recoverable.

4.2 Claiming, Utilization, and Apportionment

A taxable person nets total allowable input tax against total output tax at the end of each period. If input VAT exceeds output VAT, the excess is used as a credit against subsequent months. For mixed supplies (both taxable and exempt), only the proportion of input tax relating to taxable supplies is deductible per Section 156(5)(a).

4.3 Requesting a VAT Refund

Direct cash refunds are available for excess credits that cannot be fully utilized and for zero-rated suppliers (like exporters) who collect no output VAT but pay input VAT on expenses.

5.0 VAT Exemptions and Zero-Rated Supplies

The distinction between exempt and zero-rated supplies is fundamental: zero-rated suppliers can reclaim input VAT, while exempt suppliers cannot.

5.1 Exempt Supplies (Section 186)

Key examples of supplies that do not allow for VAT registration or input tax credit recovery include:

• Basic Food Items: Bread, cereals, fish, milk, poultry, fruits, vegetables, etc.
• Medical/Pharmaceutical: Medical equipment, essential drugs, and locally produced sanitary products.
• Education: Books and educational materials.
• Others: Baby products, residential lease commissions, and shared passenger road transport.

5.2 Zero-Rated Supplies (Section 187)

These are taxable at 0%, allowing for input VAT refunds:

• Non-oil exports and exported services.
• Medical equipment and purchases by diplomats.
• Electricity transmitted by the TCN to DISCOs.

Additionally, Section 188 allows the President to issue orders for further exemptions in the public interest.

6.0 Special VAT Considerations and Provisions

6.1 Non-Resident Suppliers

Section 151 requires non-residents making taxable supplies to Nigeria to register for VAT and include Nigerian VAT on their invoices. For imports via online platforms, if VAT is paid at the point of sale, no further VAT is charged at clearing.

6.2 Business Restructuring

Per Section 157 and 190, the transfer of a business as a “going concern” is not treated as a taxable supply, provided the purchaser is or becomes VAT-registered.