FINANCE ACT, 2019 (Continued)
- The Impacts on Value Added Tax Act
In continuation with our review, we will now focus on the changes that affect the Value Added Tax (VAT) Act Cap V1, LFN 2004 as amended, to guide corporate and individual taxpayers on the impact of the Act on their businesses.
VAT is a consumption tax which is levied on consumption of Vatable goods and services. It is a multi-stage tax and the burden of the tax is borne by the final consumer.
- Review of key changes
- Redefinition of Taxable goods and services (S.2)
The old Section 2 of the Act has been substituted with a new Section 2 as follows:
- The tax shall be charged and payable on the supply of all goods and services in Nigeria other than those listed in the First Schedule to this Act.
- For the purpose of this Act, goods and services shall be deemed to be supplied in Nigeria if:
- In respect of goods –
- the goods are physically present in Nigeria at the time of supply, imported into Nigeria for use by a person, assembled in Nigeria, or installed in Nigeria, or
- the beneficial owner of the rights in or over the goods is a taxable person in Nigeria and the goods or right is situated, registered or exercisable in Nigeria;
- In respect of services –
- the services are rendered in Nigeria by a person physically present in Nigeria at the time of service provision, or
- the services are provided to a person in Nigeria regardless of whether the services are rendered within or outside Nigeria.
The implication of S.2 (2aii&2bii) of the Finance Act therefore, is to subject taxable transactions to tax based on the establishment of the “Significant Economic Presence” principle.
- Rate of tax (S.4)
The tax rate has been increased from 5% to 7.5% of the value of Vatable goods and services which represents a 50% increase.
- Registration, deregistration requirements and Changes in penalties for non-compliance (S.8)
The old Section 8 of the Act has been substituted with a new Section 8 as follows:
- A taxable person shall upon commencement of business, register with the service for the purpose of Value Added Tax.
- A taxable person who fails or refuses to register with the service within the time specified in subsection (1) is liable to pay as penalty an amount of –
- N50,000 for the first month in which the failure occurs; and
- N25,000 for each subsequent month in which the failure continues.
- Where a taxable person permanently ceases to carry on a trade or business in Nigeria, the taxable person shall notify the service of its intention to deregister for tax purposes within 90 days of such cessation of the trade or business.
From the above, the New Act has introduced the following changes:
- A taxable person is required to register for VAT purposes within six months of commencement of business. This is contrary to the old Act that granted a six months grace period for registration of the business after commencement or the introduction of the Act, whichever is earlier;
- An increase in the penalty for failure to register for the tax compared to the old Act from N10,000 and N5,000 from first month and subsequent month of occurrence to N50,000 and N25,000 respectively in the new Act;
- Requirement that a taxpayer must notify the Service not later than 90 days of ceasing business or trade before being deregistered for tax purposes, failure of which may result in penalties.
- Registration by non-resident companies & introduction of Reverse Tax Mechanism (S.10)
- For the purpose of this Act, a non-resident company that carries on business in Nigeria shall register for the tax with the Service, using the address of the person with whom it has a subsisting contract, as its address for the purposes of correspondence relating to the tax.
- The Service may, by notice, determine and direct the companies operating in the oil and gas sector which shall deduct VAT at source and remit same to the service.
- A non-resident company shall include the tax on its invoice for the supply of taxable services.
- The person to whom the services are supplied in Nigeria shall withhold and remit the tax directly to the service in the currency of payment.
The new Act has introduced the Reverse Tax Mechanism into the Nigerian tax regime through the provisions in S.10 (2, 3 & 4) of the Act whereby the burden of payment and accounting for VAT is now shifted from the non-resident vendor to the resident customer.
We shall continue with the key changes to the Value Added Tax Act Cap V1, LFN 2004 as amended, based on the Finance Act in the next publication.
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|Lateef M. Ayofe|
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