In 2019, the Federal Government of Nigeria enacted the Finance Act 2019 (“FA19”), which introduced several amendments to extant tax statutes. The FA19 was enacted for the tripod reasons of harmonizing tax statutory provisions with emerging global realities and best practices, improving fiscal revenue generation, and creating an enabling environment for commercial “fingerlings” or Small and Medium Enterprises (SMEs).

Though the FA19 has since been supplemented by the Finance Act 2020 (FA20), some of its provisions brought about significant changes to tax administration in Nigeria. A notable change was the creation of a threshold for the remittance of Value-Added Tax (VAT) and other related tax obligations; by this change, a vatable person2 whose taxable supplies (supplies or receipts of vatable goods and/or services, e.g., services of lawyers, engineers, accountants, construction contractors and consultants, etc.)3 within a calendar year have a value below 25 million Naira enjoys exemption from specific VAT liabilities.

What is the scope of this threshold and applicable exemptions? And what practical issues and challenges may arise from the creation of this threshold? This article carefully examines these crucial questions.


The Threshold

Before 2019, a vatable person was required to render to the Federal Inland Revenue Service (FIRS) on or before the 21st of every month following the one in which a purchase or supply of goods and/or services is carried out, a VAT return of all taxable goods and services purchased or supplied by such vatable person during the preceding month. The passage of the Finance Act 2019 made a remarkable change to this regime.

Section 38 of the Finance Act 2019 amended section 15 of the VAT Act 1993 (as amended in 2007) to read as follows:

“15 (1) A taxable person who, in the course of a business, has made taxable supplies or expects to make taxable supplies, the value of which, either singularly or cumulatively in any calendar year, is N25 million or more shall render to the FIRS, on or before the 21st day of every month in which this threshold is achieved and on or before the same day in successive months thereafter, a return of the input tax paid and output tax collected by him in the preceding month in such a manner as the FIRS may prescribe.”

This provision operates to exempt any person who does not fall within the threshold in section 15(1) VAT Act from the implications of such provisions as sections 8(2), 13, 29, 34 and 35 the VAT Act. A brief description of these provisions of the VAT Act forming the subject of the exemption highlighted above will not be out of place.

Section 8(2) Penalties for failure to register with the FIRS for VAT purposes – N10,000 for first month of infraction and N5,000 for each subsequent month.
Section 13 Duty of vatable person to furnish the purchaser of good or receiver of service with a tax invoice containing the Tax Identification Number (TIN), name and address of vatable person, VAT registration number, date of supply, name of purchaser/client, gross amount of transaction, tax charged, and rate supplied.
Section 29 Penalty for failure to issue tax invoice – upon conviction, to a fine equivalent to 50% of the cost of goods/services for which invoice was not issued.
Section 34 Penalty for failure to collect VAT – 150% of the amount not collected, plus 5% interest above the rediscount rate of the Central Bank of Nigeria (CBN).
Section 35 Penalty for failure to file VAT returns – N5,000 for every month in which infraction continues.


In essence, section 38 of the Finance Act amends section 15 of the VAT Act and operates to exempt a vatable person who has not attained the N25 million threshold from the VAT obligations and penalties contained in the table above.

The Issues and Challenges

Regardless of certainty or doubt as to the capability of a vatable person to meet the transaction threshold of N25 million, the obligation to file returns and remit VAT accordingly does not arise or crystallize until the month within which the threshold is reached. This presupposes that a taxable person ought to issue a VAT invoice, collect VAT and keep same safe in anticipation of hitting the threshold; of course, it would be unthinkable to ignore or neglect collection of VAT payments from the start of the year and start to chase after purchasers or clients only when the threshold is reached.

This raises at least two (2) practical issues:

  1. Where VAT payment is collected and kept safe in anticipation of reaching the threshold, but by the end of the year, the threshold is not reached, what becomes of VAT payments whose obligation to remit (to the FIRS) did not arise or crystallise? Will they be carried forward to the following year, waived in favour of the collector (in which case, there would be no obligation to refund) or waived in favour of the payer (in which case, an obligation to refund would arise)?
  2. Pending the point of reaching the threshold, is there truly an exemption from the obligation to file VAT returns?

I address each issue in turn, starting with the second issue.

Exemption from the Obligation to File VAT Returns?

It is submitted that a combined careful inspection of relevant provisions of the Finance Act 2019 and the VAT Act reveals that the Finance Act 2019 does not obliterate the obligation of a vatable person to file VAT returns.

By the operation of section 38 of the Finance Act 2019, the new section 15 of the VAT Act exempts a vatable person whose taxable supplies has not attained a value equivalent to N25 million not from the obligation to file VAT returns (and allied obligations) but from the penalties that are consequential to failure or refusal to comply. Therefore, in line with current tax administration practices of the FIRS, vatable persons are still expected (rather than mandated) to file monthly VAT returns, even if such returns are nil-rated.

This position is reasonable and apparently aligns with the “mischief” behind the provision of the Finance Act 2019 for at least two (2) reasons. First, though section 38 of the Finance Act 2019 exempts a vatable person from obligations contained in the table drawn above, such exemption would not reasonably presuppose that a vatable person should not register for VAT, collect VAT, or issue VAT invoices. It only means that where a vatable person fails to perform these obligations, they would escape penalty only by reason of their not attaining the threshold. Second, section 38 of the Finance Act 2019 seeks to promote the cause of small and medium scale businesses, by making them visible and traceable, rather than to further deepen their obscurity from the tax man's net or database.

VAT Payments For Which Obligation to Remit Does not Arise

The law is silent on how to resolve this practical issue. Meanwhile, vatable persons are by their VAT remittance obligations, agents of the FIRS in VAT administration. In cases deserving of refunds, the FIRS is obliged to make timely refund to them (vatable persons) during the performance of their agency obligations.

Like the VAT refund procedure, where a vatable person files nil-returns throughout the year to the full satisfaction of the FIRS, no obligation to remit to the FIRS will arise. Consequently, all VAT payments will be in the custody of the vatable person.

Practically and legally, it is close to impossible for vatable persons to make VAT refunds to purchasers or clients, VAT being an indirect tax directed to goods and services rather than legal persons. Once a VAT invoice is raised or a transaction is quoted as VAT-inclusive, the payer typically treats the total amount of money paid on such invoice as covering the full value of goods purchased or service rendered, without taking the VAT element into consideration. Thus, it is submitted that such VAT payments (concerning which remittance obligation does not arise) should fall back to the vatable person and be treated as VAT fiscal support fund from the federal government in line with the purpose for which section 15 of the VAT Act was amended by section 38 of the Finance Act 2019.

Section 13 of the VAT Act provides for three categories of persons that must deduct and remit VAT at source to the FIRS, regardless that they are the receivers of the goods procured or service rendered:

  1. Government MDAs and statutory bodies.
  2. Companies operating in the oil and gas sector.
  3. Nigerian companies carrying on vatable transactions with non-resident entities.

How should section 38 of the Finance Act 2019 apply to these categories of persons? It is submitted that these persons may proceed with their obligations to deduct VAT at source and remit accordingly to the FIRS, since it is a non-delegable and non-derogable obligation imposed by statute and should obtain VAT payment receipts in favour of the vatable persons with which they transacted. By the end of the year of assessment, a company whose taxable supplies do not reach the N25 million value threshold may proceed to the FIRS to apply for tax credit to the tune of the value of the VAT receipt.

However, there is no guarantee that this application for tax credit will be granted by the FIRS. This is because the law does not expressly provide for how VAT payments made in such situations are to be treated. This is another lacuna in the law that calls for statutory amendment after proper consultations with stakeholders in the public and private sector.


The foregoing brief explanations clearly evidence the need for the incoming Finance Act 2021 to inculcate amendments to the extant VAT Act and be explicit on the treatment of the practical issues raised above. Of course, the lingering constitutional issue of the tier of government with the power to administer VAT must also be laid to rest.4 Until then, vatable persons are rest assured of exemption from the VAT penalties mentioned above but should exercise abundant caution and seize the initiative to interface regularly with the FIRS and duly file monthly VAT returns at the FIRS.


1 Olukolade Ehinmosan, Associate, Real Estate and Succession, SPA Ajibade & Co, Lagos, Nigeria.

2 Simply, a person who trades in vatable goods and services for a consideration, usually money or money's worth. See section 46, VATA.

3 Transaction in goods and/or services for a consideration, money, or money's worth.

4 Attorney-General of Rivers State v. FIRS & Attorney-General of the Federation (unreported) Suit No. FHC/PH/CS/149/2020, judgment delivered by Stephen Dalyop Pam, J (Federal High Court sitting at Port Harcourt) on 9th August 2021. Appeal number CA/PH/282/2021 has been filed by the FIRS against the decision of the Federal High Court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.