Overview

As of July 30, 2021, the Value Added Tax (Modification) Order, 2021 came into effect, ushering in notable changes to Nigeria’s tax landscape. The Order, signed by the Honorable Minister of Finance, Budget, and National Planning, expands and refines the list of goods and services exempted from Value Added Tax (VAT) under the VAT Act. This development follows the previous VAT (Modification) Order 2020 and is part of ongoing efforts to streamline tax regulations and provide clarity to taxpayers and regulatory bodies.

Understanding the Modifications

Under Section 38 of the VAT Act, the Minister holds the authority to amend and adjust the list of exempted items outlined in the First Schedule. The 2021 Order supersedes its predecessor, the VAT (Modification) Order 2020, and introduces several key changes and clarifications:

1. Definition of Exempted Goods: The 2021 Order refines the definition of various exempted goods, such as commercial aircraft, engines, spare parts, educational materials, airline transportation tickets, and fertilizers. Additionally, petroleum products are further categorized to specify exempt items like aviation turbine kerosene, premium motor spirit, household kerosene, locally produced liquefied petroleum gas, and crude petroleum oils.
2. Newly Added Exemptions: The Order introduces new exemptions, including renewable energy equipment, raw materials for specific manufacturing purposes (e.g., baby diapers, pharmaceuticals, animal feed), military hardware and uniforms for security agencies, gas supplied to electricity companies, agricultural seeds and seedlings, and shared passenger road-transport services.
3. Changes in VAT Application: Noteworthy alterations include the removal of VAT exemption exclusions for certain entities, such as corporate leases of residential accommodation, and the restriction of VAT exemption for services by Micro-Finance Banks to specific categories designated by the Central Bank of Nigeria.

Implications for Taxpayers

The VAT (Modification) Order, 2021 significantly impacts taxpayers and regulatory compliance. Here are some key implications to consider:

1. Enhanced Clarity: The Order provides clearer definitions and classifications for VAT-exempt items, reducing ambiguity and potential disputes between taxpayers and tax authorities.
2. Expanded Exemptions: The inclusion of new exemptions reflects ongoing efforts to stimulate key sectors like renewable energy, agriculture, and manufacturing, aligning with broader economic development objectives.
3. Compliance Challenges: Taxpayers must stay updated with the latest modifications to ensure accurate VAT calculations, proper application of exemptions, and adherence to regulatory requirements.
4. Consultation and Guidance: Given ongoing disputes and legal debates surrounding VAT administration, taxpayers are advised to seek professional tax advice and consult with relevant authorities to navigate compliance challenges effectively.

Conclusion: Navigating the VAT Landscape

The Value Added Tax (Modification) Order, 2021 represents a significant step in refining Nigeria’s VAT framework, fostering economic growth, and addressing regulatory ambiguities. However, challenges persist, necessitating ongoing dialogue, consultation, and proactive tax management strategies among stakeholders. As Nigeria continues to evolve its tax policies, collaboration between taxpayers, regulatory bodies, and tax advisors remains crucial for ensuring compliance and driving sustainable economic development.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.