-Types of Taxes in Nigeria: Value Added Tax (VAT).
YBTC NEWS- It is no news that government diligently source for income through taxation. After all, money must be generated to cater for government expenditures. The cost of producing is not free from taxation and good enough, consumption is equally in the tax net. While the rates of both production and consumption taxes differ, the purpose are similar – to increase government revenue. Consumption taxes like excise duties, import duties and VATs are therefore levied to fulfill this objective. However, the focus of this piece shall be to uncover a particular aspect of consumption tax – Value Added Tax (hereinafter referred to as VAT).
Value added tax was formerly known as sales tax before 1993 when the VAT Act No. 102 of 1993 was promulgated into law. Unlike VAT, sales tax was administered by the state government. VAT was borne out of the need to make the tax system effective to cover the enlarging consumption base.
To aid your understanding of what VAT is, it is important for you to note that VAT is an indirect tax. A tax on consumption. A definitional approach will therefore mean that Value added tax (VAT) is a tax levy paid by consumers of goods and services for what they have consumed. So unlike other direct taxes, VAT is imposed on the indirectly on the values that accrue to a particular product and paid by the final consumer. The value the consumer pays for adds up from the manufacturing stage up till the distribution and the last stage of the goods getting to the consumer.
The VAT rate is 5% and it has been like that since the its inception. Persons who engage in economic activities (whether based in the country or not) as a manufacturer, supplier of goods or services, or any other person using tangible or intangible property with the intent to obtain income by a way of trade or business are required to register with FIRS for remitting VAT. Hence, VAT is indirectly paid by consumers and remitted to the federal government by the companies and firms.
Be that as it may, not all goods and services are VATable. That is, VAT is not paid on consumption of all goods and services. Thus, we have the VATable goods and services and those that are exempted.
VATable goods and services are those mentioned in the VAT Act as being subjected to payment of VAT. VATable goods include: Jewelries, shoes, bags, television etc. and VATable services include: services rendered by Lawyers, Engineers, Accountants, Contractors and Consultants etc.
On the contrary, certain goods and services are not subjected to VAT. These are known as exempted goods and services. A fundamental characteristic of exempted goods is those that they are basic life necessities. They include: All medical and pharmaceutical products, Basic food items, Books and Educational materials, Baby products, among others. And exempted services are: Medical services, Plays and performance conducted by the educational institutions as part of learning among others.
Next week, we’ll discuss Capital Gains Tax. Till then, we look forward to your questions, comments and contributions.
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