The federal executive council (FEC) has approved an increase in value added tax (VAT) rate from 5% to 7%.
Zainab Ahmed, minister of finance, budget and national planning, disclosed this to state house correspondents at the end of the meeting on Wednesday.
The Value Added Tax (VAT) in Nigeria is tax payable on goods and services consumed by any person, whether government agencies, business organization or individuals. It can also be said to be tax on spending or consumption levied at every stage of transaction but eventually borne by the final consumer of such goods and services.
Section 7 of the VAT Act vests power of administration of VAT in the Federal Inland Revenue Service, It is a Federal Tax Agency, which is managed by the Federal Inland Revenue Service (FIRS). VAT is charged on most goods and services provided in Nigeria and also on goods imported into Nigeria.
Businesses add VAT to the sales price of the goods or services they offer in Nigeria and the tax is borne by the final consumer of goods and services because it is included in the tax paid. VAT is calculated at a flat rate of 5% of the cost of services and products and is charged on a wide array of goods and services.
Section 8 sub 1 of the VAT Act states that businesses are expected to register for VAT within the first six months of the start of the business. Businesses that want to do business with state, federal or local government agencies are also required to show evidence of registration with VAT and past remittance.
The registered person has to make regular VAT returns and either pays to or receives from the FIRS the difference of the input tax and the output tax. VAT returns are normally made monthly to the FIRS tax office.