UNDERSTANDING THE VAT (MODIFICATION) ORDER OF 2021.

In September 2021, the VAT (Modification) Order was signed, and it was subsequently issued by the Minister of Finance, Budget, and National Planning in October, with a commencement date of 30th July 2021. This Order brings about significant modifications and expansions to the list of exempted goods and services outlined in the First Schedule to the Value Added Tax (VAT) Act. It also aims to provide clarity on items already exempted in the VAT Act.

Key Changes in the 2021 Order:

Part I of the First Schedule (VAT Exemptions):

1. Petroleum Products: Included as exempted items.
2. Renewable Energy Equipment: Now considered exempt from VAT.
3. Raw Materials for Baby Diapers and Sanitary Towels: Raw materials used in the production of these items are exempt.
4. Raw Materials for Pharmaceutical Products: Raw materials used in pharmaceutical production are exempted.
5. Locally Produced Animal Feed: Exempt from VAT.
6. Military Hardware, Arms, Ammunition, and Locally Manufactured Uniforms: Exemption extended to these items used by the Armed forces, para-military, and other security agencies in Nigeria.
7. Gas Supplied to GENCOs, Electricity, and Transmission Services: Gas supplied to Electricity Generating Companies (GENCOs), electricity generated by GENCOs, and transmitted to the National Grid or Nigeria Bulk Electricity Company (NBET) are exempted.
8. Agricultural Seeds and Seedlings: Exempt from VAT.

Part II of the First Schedule:

1. Change in Exemption for Banking Services: Community and People’s Banks services are replaced with services rendered by Unit Microfinance Banks.
2. Exemption for Shared Passenger Road-Transport Services: Shared passenger road-transport services are now exempt from VAT.

Part III of the First Schedule:

1. Reclassification of Non-Oil Exports: Non-oil exports moved from zero-rated to exempted services.

Interpretations:

1. Commercial Aircraft, Engines, and Spare Parts: Defined to exclude private aircraft from VAT exemption.
2. Unit Micro-Finance Bank: Defined as a micro-finance bank categorized by the CBN as Tier 1 or Tier 2 Unit Micro-Finance Bank.
3. Exclusion of Hired or Rented Aircraft: Airline transportation tickets now exclude hired or rented aircraft or private jets, which will be subject to VAT.
4. Specific Definition of Fertilizer: Limited to “all fertilizers for agricultural purposes.”
5. Definition of Petroleum Products: Now includes aviation turbine kerosene, premium motor spirit, household kerosene, locally produced liquefied petroleum gas, and crude petroleum oils.
6. Restriction of Medical Services: Limited to healthcare-related services for both humans and animals by qualified medical practitioners, excluding cosmetology, spa, gymnasium, and similar services.
7. Lease of Residential Accommodation: Deletion of the exclusion of corporate persons from VAT exemption.
8. Exclusion of Previously Exempted Items: Items such as Natural Gas, imported liquefied petroleum gases, and other gaseous hydrocarbons have been excluded from the Order.
9. Definition of Share Passenger Road-Transport Service: Now clarified to mean road-transport service available for public use, excluding leased, hired, or rented motor vehicles for business or private use or car or ride-hailing.

This VAT (Modification) Order of 2021 introduces significant changes to the VAT landscape, impacting various sectors and services. Businesses and individuals should carefully review these modifications to ensure compliance and a clear understanding of their VAT obligations.

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