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NEWSLETTER FOR OCTOBER 2015

Volume 02, Issue 05

 
 VALUE ADDED TAX PRINCIPLES AND PRACTICES

Sequel to the publication by FIRS in This Day newspaper on Wednesday 7th October, 2015 that they will commence a nationwide VAT Compliance check from Monday October 12th 2015, and subsequently a full audit from November 2nd 2015, we therefore use this medium to educate all our esteemed Clients on the principles and practices guiding this tax and also their duties and responsibilities in order to ensure full compliance.

ADMINISTRATION OF VAT

The federal Inland Revenue Service (FIRS) is the body empowered to manage and administer this tax on behalf of the federal government.

 TAXABLE PERSONS

The tax is charged and payable by individuals and companies on the supply of all taxable goods and services other than those listed in the First Schedule of this Act, which is otherwise called exempted goods and services.

GOODS EXEMPTED

a.       All medical and pharmaceutical products.

b.      Basic food items.

c.       Books and educational material.

d.      Baby products

e. Fertiliser, locally produced agricultural and veterinary medicine, farming machinery and farming transportation equipment

f.       All exports

g.      Plant, machinery and goods imported for use in the export processing zone or free trade zone provided that 100% production of such company is for export otherwise tax shall accrue proportionately on the profits of the company.

h.      Plant, machinery and equipment purchased for utilisation of gas in down-stream petroleum operations

i.       Tractors, ploughs and agricultural equipment and implements purchased for agricultural purposes.

j.       Proceeds from the disposal of short-term Federal Government of Nigeria Securities and Bonds.Save for Bonds issued by the Federal Government whish shall continue to enjoy tax exemption, 10 years from the date of this order(2nd January,2011)

k.      Proceeds from the disposal of short-term state, Local Government and Corporate Bonds (including supra-national Bonds)

SERVICES EXEMPTED

a.       Medical services

b.      Services rendered by community banks, Peoples banks and Mortgage banks

c.       Plays and entertainment conducted by educational institutions as part of learning

d    All exported services                                                                                                                                                             

ZERO RATED GOODS AND SERVICES

These goods are sold at 0% VAT rate but the seller is entitled to VAT refund on the inputs used in production of the affected goods and services. They include:

  1. Non-oil exports
  2. Goods and  services purchased by diplomats.
  3. Goods and services purchased for use in humanitarian donor funded projects.

REGISTRATION                                                                                                                              

A taxable person shall within six months of commencement of business register with the Board for the purpose of tax with the aid of VAT Form 001 upon a written application for the registration.

Non-resident companies that carry on business in Nigeria shall register for the tax with the Board using the address of the person with whom it has a subsisting contract in Nigeria and shall include the tax in its invoice while the person to whom goods and services are supplied in Nigeria will remit the tax in the currency of the transaction.

PAYMENT OF VAT

A Taxable person shall pay to the supplier VAT known as INPUT VAT at 5% on taxable goods and services supplied to the person.

COLLECTION OF VAT

A taxable person shall in supplying goods and services to his customers collect the VAT on those goods and services known as OUTPUT VAT at 5% and issue to the purchaser a tax invoice whether or not payment is made at the time of supply.

REMISSION OF VAT

A taxable person shall on rendering return:

  1. If the output VAT exceeds the input VAT, remit the excess to the Board; or
  2. If the input VAT exceeds the output VAT, be entitled to a refund of the excess VAT from the Board on production of such documents as the board may require.
  3. An importer of taxable goods shall, before clearing those goods, pay to the Board the VAT due on those goods.

ALLOWABLE INPUT VAT

The input VAT to be allowed as a deduction from the output VAT shall be limited to the VAT on goods purchased or imported directly for resale and goods which form the stock-in-trade used for the direct production of any new product on which the output VAT is charged.

Any capital item and asset not capitalised with the cost of the capital shall not be allowed as a deduction from output VAT.

DUE DATE TO RENDER RETURNS

A taxable person shall render returns on taxable goods and services purchased or supplied by him to the Board on or before the 21st day of the month preceding the month of the transaction whether or not VAT is payable.

Payment made to duly authorised government agents, shall be deemed to have been made to the FIRS.  

OFFENCES

PENALTIES

1.Failure to register with the Board

10,000 for the first month the failure occurs and 5,000 for each subsequent month it continues

2.Failure to submit returns

5,000 for every month the failure continues

3.Non-remittance of tax

A sum equal to 5% per annum plus interest at the commercial rate of the amount of tax not remitted.

 
 



COMPLEXITIES IN DEDUCTION OF VAT AND WHT

Often times, issues arise on what the net amount payable on goods and services supplied should be. In explaining this, emphasis will be laid on oil and non-oil companies. Oil companies are empowered by law to deduct WHT and VAT because of the huge contract fee before making payments but non-oil companies are not.

ILLUSTRATION

Mr Clem supplied goods worth (100,000) inclusive of 5%VAT to CIAS LIMITED a non-oil company making a total of 1,050,000.  The net amount payable by CIAS LIMITED will be

Particulars

Amount

Goods supplied

VAT payable@ 5%

TOTAL

1,000,000

50,000

1,050,000

DEDUCT 5% WHT

(50,000)

NET PAYABLE

1,000,000

                                 

This does not mean that CIAS limited has not paid VAT but has only deducted WHT which is a different tax entirely.

SECOND SCENARIO

If CIAS LIMITED was an oil company, the net payable will be

Particulars

                      

Amount

 

Goods supplied

VAT @5%

 

TOTAL

 

DEDUCT VAT@5%

WHT@5%

 NET PAYABLE

1,000,000

50,000

1,050,000

(50,000)

(50,000)

950,000

                                                                                                                                                                                                                      

A CALL TO BE WITHHOLDING TAX COMPLIANT

In the light of the recent change in government at the Federal level in Nigeria, the country is perceived to be aggressive in revenue generation.

The Federal Inland Revenue Service (FIRS) as widely known is in charge of handling all federal related tax matters in the country.

The essence of this publication is to draw the attention of tax payers to the duties and responsibilities imposed on them by the statutes to charge and remit withholding tax on chargeable goods and services within the due period (21st day of every month) in accordance with Withholding tax law which states that;

“Any person who being obliged to deduct any tax under Sections 60, 61, 62 or 63 of the Company Incomes Tax Act(CITA) and Sections 69-72 of the Personal Income Tax Act (PITA) fails to deduct or having deducted fails to pay to the board within twenty-one days from the date the amount was deducted or the time the duty to deduct arose, shall be guilty of an offence and shall be liable to a penalty of 10 per cent per annum of the tax not withheld or not remitted as the case may be in addition to the amount of tax deducted plus interest at the prevailing commercial rate.                                                                                

After the compliance check, FIRS will release teams/groups of officials that will go round organizations in the country to conduct an audit exercise with the aim to ensure that organizations are complying with the law as regards withholding tax deduction and remittance and whoever is found guilty shall be made to pay penalties as prescribed by the law.

For more clarifications, the following are some of the transactions that qualify for withholding tax charge and their rate of tax for companies

a)     Contract of supplies @ 5%

b)     Contract of construction @ 2.5%

c)     Technical service @ 10%

d)    Professional service @10%

e)     Commission @10%

f)      Management service @10%

g)     Rent @10%      etc

A deduction made from a payment shall not be regarded as an additional cost to the contract price as tax due on the payment since WHT is not a type of tax but a mode of payment..

In conclusion, this is a wakeup call on all our esteemed clients to take note of this new development and be proactive to significant compliance.

 

 

 

 

 

 


 

HEALTH TALK

6 Ways To Improve Your Health At Work

1.        To prevent back pain while lifting objects, avoid twisting your back or leaning sideways.

2.      Walk over to someone's         desk at work rather than speaking to them by phone.

3.         If you work on a computer a lot, take regular breaks in order to relax your body.

4.         Keep healthy snacks handy.

5.         Drink a lot of water

6.         Set goals to achieve for the day.

 

 

 

QUOTES

1.         “Striving for success without hard work is like trying to harvest where you haven't planted”  David Bly, American Politician (1952)

2.         “Satisfaction lies in the effort, not in the attainment. Full effort is full victory”  Mohandas Gandhi (1869  1948)

3.         “Keep integrity and your work ethics intact, so what if that means working a little harder, an honorable character is your best calling card and that's something anyone can have”  Kathy Ireland.

 

 

 

For more information,

please contact us at

39, king George V. Road, Onikan, Lagos.

Tel: 08023204138, 09093626035

Email: elvisonuoraandco@gmail.com