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Vat Bill In Nigeria

Many states in Nigeria may not be able to meet their financial commitments as the federal government could lose revenue from taxes amidst dwindling revenue in recent times with a court ruling assigning the collection of Value Added Tax (VAT) and two other taxes to states.

VAT contributes significantly to the total revenue generated by the government, accounting for over 16.2% of the Gross Domestic Product (GDP) in 2019.

Most states depend on funding from the Federal Allocation Account Committee (FAAC) due to their poor Internally Generated Revenue (IGR). Lagos and Rivers states, which contribute over 70 per cent of the VAT collectibles in the country, have decided to enact a law that will empower them and not FG, to collect VAT in their states.

Their action is based on the judgement of August 11 by a Federal High Court in Port Harcourt, which held that VAT collection was for the states and not for the federal government through the Federal Inland Revenue Service (FIRS). VAT was introduced via Decree No.102 of 1993. It replaced sales tax operated under Decree No.7 of 1986, which was administered by states and the Federal Capital Territory (FCT). Until now, the FIRS had the responsibility of collecting VAT on behalf of the 36 states and the FCT. Section 40 of the VAT Act requires that the VAT pool be shared 15% to the FG; 50% to states; and 35% to LGs (net of 4% cost of collection by the FIRS). Twenty per cent of the pool is shared based on derivation. The Federal Government generated over N2.5 trillion from VAT alone in the last 18 months as outlined in the 2020 Finance Act. According to data filed by the Federal Inland Revenue Service (FIRS) from the National Bureau of Statistics (NBS), Nigeria may have earned about N2.5 trillion from January 2020 to June 2021 at a 7.5 per cent VAT rate. The breakdown shows that FIRS collected about N1.53tr in 2020 with import VAT being N348 billion (or 22.7%) while foreign non-import VAT was N420bn (or 27.4%) and local VAT amounted to N763bn (or 49.8%).

In the first quarter of 2021, VAT collection was N496.39bn while it increased by N15.8bn in the second quarter to N512.25bn. The breakdown of VAT generation for Q2 shows that N187.4bn was from non-import VAT locally, N207.7bn from non-import VAT for foreign goods. The balance of N117.1bn VAT was from the Nigeria Customs Service (NCS) VAT on imports.


Last week, a bill seeking to empower the Lagos state government to collect value-added tax (VAT) passed the first and second reading at the state house of assembly.

Taking a cue from Rivers State, a public hearing on the Lagos VAT bill titled, ‘Bill for a Law to Impose and Charge Value Added Tax on Certain Goods and Services, Provide for the Administration of the Tax and for Related Matters,” was held on last Wednesday. The bill had passed through first and second reading on Monday. According to the bill, the tax which shall be charged and payable on the supply of all taxable goods and services other than goods and services listed in the schedule of the law shall be computed at the rate of 6 per cent on the value of goods and services as prescribed under sections 5 and 6 of the Law, except the goods and services listed under Part III of the Schedule which shall be taxed at zero rates.

Section 5 of the bill provides that the value of taxable goods and services shall be determined in the following ways:  (a) where the supply is for money consideration, its value shall be deemed to be an amount, which with the addition of the tax chargeable is equal to the consideration; (b) where the supply is for a consideration not consisting of money, the value of the supply shall be deemed to be its market value; and (c) where the supply of taxable goods and services is not the only matter to which consideration in money relates, the supply shall be deemed to be part of the consideration as is properly attributed to it. Also, the open market value of supply of taxable goods and services shall be the amount that would be taken as its value under subsection (1)(b) of this Section where the supply was for a consideration in money that could be payable by a person in an arm’s length transaction.

The lawmakers directed the committee on finance that is overseeing the bill to report its findings last Thursday.

Consumers pay VAT when they purchase goods or obtain services. All goods and services (produced within or imported into the country) are taxable except those specifically exempted by the VAT Act.

In a plenary session, Mudashiru Obasa, speaker of the house, said the VAT bill, when passed into law, would lead to a higher revenue stream.

The Cable outlines key features of the Lagos VAT bill:


Section 4 of the bill provides that the State will charge VAT at the rate of six percent on the value of goods and services.

“The tax shall be computed at the rate of 6 percent on the value of goods and services as prescribed under Sections 5 and 6 of this Law, except the goods and services listed under Part III of the Schedule which shall be taxed at Zero rates,” it reads.


Section 7 empowers the Lagos State Internal Revenue Service (LIRS) to administer and implement the law. The LIRS would account for money collected in line with the law and do any other things necessary for the assessment and collection of the tax.


Section 8 states that taxable persons are to register for the tax within six months of the commencement of the law or six months of commencement of business, whichever is earlier.


According to section 9, non-resident companies are to register for the tax if they carry on business in the state, using the address of the person with whom it has a subsisting contract as its address for purposes of correspondence relating to the tax.


Section 16(2) provides that “an importer of taxable goods shall pay to the Service the tax on the goods before clearing.”


The bill provides for a body known as the Value Added Tax Appeal Tribunal.

  1. “There is established a Value Added Tax Appeal Tribunal (referred to in this Law as “the Tribunal”) which shall comprise of the following members:
  2. A Chairman, who shall be a legal practitioner of proven ability and integrity with a minimum of ten (10) years experience in tax matters;
  3. One (1) accountant with relevant experience in tax matters;
  4. Three (3) other persons from either the private or public sector whose membership shall in the opinion of the Governor, assist to resolve disputes arising from tax assessment,” section 21 (1) states.
  5. The members of the Tribunal shall be appointed by the Governor on the recommendation of the Attorney-General and Commissioner for Justice.
  6. The Tribunal shall assist the Service in resolving disputes arising from tax assessment as set out under the provisions of this Law.
  7. The Tribunal shall have powers to regulate its own proceedings and may make standing orders for that purpose, and subject to any such standing orders, may function notwithstanding –
  8. Any vacancy in its membership or the absence of any member;
  9. Any defect in the appointment of a member; or
  10. That a person not entitled to do so took part in its proceedings.
  11. Notwithstanding its standing order, the quorum at any meeting of the Tribunal shall be three (3) members.”


Section 33 states that VAT revenue shall be shared 75 percent to the state government and 25 percent to the LGAs.


According to Section 15, monthly remittance and returns are due by the 21st of the subsequent month in a manner specified by the LIRS. This implies that the first return under the law will become due by the 21st of the month after enactment.

  1. A taxable person shall render to the Service, on or before the 21st day of the succeeding month, a return of taxable goods and services purchased or supplied by him during the preceding month in the manner specified by the Service,” section 15(1) states.
  2. A person who imports taxable goods into the State shall render to the Service, returns on the taxable goods imported by him.
  3. A taxable person who fails to render returns to the Service, commits an offence and is liable on conviction to a maximum fine of Five Hundred Thousand Naira (N500,000.00) for every month the failure continues.”


The list of exempt items is similar to the national VAT Act including basic food items; medical and pharmaceutical products, medical services; books and educational materials; items covered under the Hotel Occupancy and Restaurant Consumption Law of Lagos State, amongst others.


There is no exemption for small businesses with turnover below N25 million as is the case under the national VAT Act.

The Lagos state government had directed the FIRS to stop issuing demand notices for payment of VAT in the state and to render accounts, within seven days, of all sums collected as VAT in the current accounting circle in the state.

The state government premised its demands on the decision of the federal high court in Port Harcourt, Rivers state.

Also, the Rivers state government announced that the court dismissed the FIRS’s application on stay of execution on VAT collection.

The Rivers state government said the court ruled that “granting the FIRS application for a stay of execution would negate the principle of equity.”

But the FIRS had told taxpayers to continue to honour their tax obligations under the VAT Act pending the final determination of the appeal.


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