What is Value Added Tax (VAT) in Nigeria

Value Added Tax (VAT) is a consumption tax that is charged on the value added to goods and services at every stage of production and distribution. In Nigeria, VAT was introduced in 1993 and has since become an important source of revenue for the government. The current VAT rate in Nigeria is 7.5%.

VAT works by adding a tax to the value of goods and services at each stage of production and distribution. For example, if a manufacturer buys raw materials for N100 and sells the finished product for N150, the manufacturer will pay VAT on the N50 added value. Similarly, if a distributor buys the product for N150 and sells it for N200, the distributor will pay VAT on the N50 added value.

In Nigeria, VAT is applicable to all businesses whose annual turnover is above N25 million. VAT registered businesses are required to charge VAT on all taxable supplies and services that they make, and to remit the VAT collected to the Federal Inland Revenue Service (FIRS). Failure to register for VAT or to remit VAT can result in penalties and fines.

The purpose of VAT in Nigeria is to provide a more stable and predictable source of revenue for the government, while at the same time reducing the reliance on direct taxes such as income tax. VAT also helps to reduce the tax burden on the consumer by spreading the tax burden across the value chain, from the manufacturer to the distributor to the end consumer.

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