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Introduction
Months after its enactment in 2025, the Nigeria tax reform laws continue to generate significant public interest with many taxpayers still uncertain about how the changes affect them in practical terms.
One area of particular interest is the Value Added Tax (VAT), which has been a longstanding feature of Nigeria’s tax regime since its introduction on 1st January, 1994 and its continued application under the Value Added Tax Act. The recent tax reforms have prompted many individuals and businesses to reconsider how VAT applies in practice and how it may affect everyday transactions.
This article addresses some of the most common questions and concerns individuals and businesses may have about VAT under the new tax regime.
What exactly is VAT and who actually pays it?
Value Added Tax is a consumption tax imposed on the supply of taxable goods and services at various stages of the supply chain. It is charged at each stage of the transaction, from production up to final consumption.
In practice, the final consumers bear the cost of VAT, while businesses bear the cost of collection. Businesses charge VAT on vatable goods and services supplied to their customers (output VAT); they collect and subsequently remit the tax to the Nigeria Revenue Service (NRS), the authority responsible for the administration and collection of VAT in Nigeria.
At the same time, businesses may also pay VAT when purchasing goods or services required for their operations. This is commonly referred to as input VAT, which may be credited against the output VAT collected from customers, and only the net amount is remitted to the NRS.
For instance:
If a business pays ₦100,000.00 VAT when purchasing supplies (input VAT), and the business charges ₦150,000.00 VAT on its sales to customers (output VAT), the business will be required to remit ₦50,000.00 to the tax authority (i.e. output VAT minus input VAT).
What is the VAT rate and what goods are vatable?
VAT is charged at 7.5%1 of the value of taxable goods and services and generally applies when a taxable supply of taxable goods or services are made in the course of business in Nigeria. Taxable supplies refer to any transaction for sale of goods and services for a consideration. Each supply is subject to VAT except where it is expressly exempted under Part 4 of Chapter 8 of the NTA. So, any supply that does not appear on the list of exempt supplies is vatable.
This means that where a business provides goods or services, VAT must be charged on the transaction unless the goods or services fall within a category that is specifically exempt or zero-rated under the law or the supplier is exempted from charging VAT.
What goods and services are VAT exempt?
VAT is not chargeable on the goods and services classified as exempt or zero rated. The table below provides a summary of these categories:
| Exempted Supplies | Zero Rated Supplies |
| · Oil and gas exports, crude petroleum, and feed gas for processed gas
· Goods for humanitarian donor-funded projects · Baby products and locally manufactured sanitary towels, pads, or tampons · Military hardware and locally made uniforms supplied to Nigerian security agencies · Shared passenger road transport services · Agricultural equipment such as tractors and ploughs · Supplies consumed by approved entities in export processing or free trade zones for approved activities · Goods or services supplied to qualifying diplomatic missions or diplomats for public-interest activities · Educational plays and performances conducted as part of learning · Land or buildings (including interests in them) · Money, stakes, securities, and related financial interests · Government licences · Assistive and disability-related devices (e.g., wheelchairs, hearing aids, braille materials)
|
· Basic food items
· All medical and pharmaceutical products, including herbal medicines · Educational books and materials · Fertilisers · Locally produced agricultural chemicals · Locally produced veterinary medicines · Locally produced animal feeds · Live livestock (cattle, goats, sheep, and poultry) · Agricultural seeds and seedlings · Electricity generated by GENCOs and supplied to the National Grid or NBET · Electricity transmitted by TCN to DISCOs · Medical services · Tuition for nursery, primary, secondary, and tertiary education · Exported goods (excluding oil and gas) · Exported services · Exported incorporeal property · Medical equipment
|
While both exempt and zero-rated supplies are not subject to standard VAT, the key difference lies in how businesses treat input VAT – recall we stated that input VAT is the VAT businesses pay out to their suppliers when purchasing goods or services required for their operations.
Zero-rated supplies, on the other hand, are taxed at 0%, meaning customers are not charged any amount as VAT. Although no VAT is charged to the customer, businesses making these supplies remain within the VAT system and can recover input VAT incurred in producing or supplying them.
To further illustrate the distinction, consider two Nigerian businesses:
A company engaged in the manufacture and sale of baby products within Nigeria pays VAT to its suppliers on inputs, including raw materials and marketing services. Since baby products are classified as exempt supplies, no VAT is charged on the sales of the manufactured product. This means that the company will not be able to recover the amount incurred as input VAT, which instead becomes an additional cost of doing business and is most likely transferred to the customer.
By contrast:
A fashion designing company exports finished clothing to customers outside Nigeria and similarly incurs VAT on inputs such as locally sourced fabric, packaging materials and logistics services. Although no VAT will be charged on its export sales because exports are zero-rated, the company is entitled to recover the sum incurred as input VAT.
Recovery of input VAT has been depicted earlier, however where the input VAT incurred is more than the output VAT charged in a particular month, the excess may be carried forward and applied against VAT liabilities in subsequent months. In certain circumstances where the excess cannot be utilised, the business can apply to the NRS for a refund.2
Can VAT apply to services related to exempt supplies?
For goods or services exempted from VAT, services provided in relation to those transactions may still attract VAT where they constitute a separate taxable supply. For instance, land and buildings are VAT exempt, meaning that VAT is not chargeable on the purchase price in a sale of land transaction. However, professional services rendered in connection with the transaction such as legal services or agency services, still attract VAT on the professional fees charged for services rendered.
Similarly, where a bank facilitates a funds transfer, VAT is not charged on the amount transferred as money is VAT exempt. However, VAT applies to the service fee charged by the bank for processing the transaction.
Understanding this helps prevent the misconception that VAT is charged on the exempt item, when in reality it is applied only to the taxable services provided in connection with the transaction.
Does VAT apply on foreign goods and services?
For foreign goods or services, VAT apply where they are consumed or used within Nigeria. Under the Nigeria Tax Act (NTA), a non-resident person that makes taxable supplies to persons in Nigeria is required to register for VAT and include VAT on its invoices for those supplies.3 However, where the non-resident supplier does not collect the VAT directly, the person in Nigeria receiving the supply is required to withhold the VAT due and remit it to the NRS.4
For instance, where a Nigerian company engages a foreign consulting firm to provide advisory or technical services, VAT is chargeable on the service, and the Nigerian recipient may be required to account for the VAT on the service. Additionally, where goods are purchased from foreign suppliers through online or digital platforms e.g., Amazon, VAT can be collected at the point of purchase or importation. Once VAT has been paid and proof of payment is provided, the goods will not be subjected to VAT again upon entry into Nigeria.5
Which businesses are exempted from VAT obligations?
Small businesses are exempted from VAT which includes registering for, charging and remitting VAT and filing VAT returns.
Pursuant to the Nigeria Tax Administration Act (NTAA), small business refers to ‘’a business that earns gross turnover of N100,000,000.00 or less per annum with total fixed assets not more than N250,000,000.00”. Businesses that render professional services are excluded.6 Accordingly, any business that does not fall under this threshold is mandated to comply with all VAT obligations and file VAT returns not later than the 21st day of the following month whether or not any amount goods and services were provided during the relevant month.7 Failure to comply with these obligations attract penalties under the NTAA.8
Conclusion
As a consumption tax applied to everyday transactions, VAT is one of the most visible elements of Nigeria’s tax system for both individuals and businesses. A clearer understanding of the obligations placed on businesses and when VAT is chargeable can help ensure that VAT is applied appropriately and avoid common misconceptions while taxpayers remain compliant with their obligations under the current tax regime.
Footnotes
1. Nigeria Tax Act, s.147
2. Nigeria Tax Act 2025, s.155
3. Ibid, s. 150(1)
4. Ibid, s. 150 (2)
5. Ibid, s 150 (8)
6. Nigeria Tax Administration Act 2025, s. 147
7. Ibid, s. 22
8. Ibid, s. 101, 102, 106, 107
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.
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