Understanding Value-Added Tax (VAT)

Questions and Answers

What was the VAT rate increase effective from February 1, 2020?

5% to 7.5% (correct)

5% to 10%

6% to 9%

4% to 6%

Which of the following is NOT considered an exempt item for VAT purposes?

Luxury consumer goods (correct)

Pharmaceutical products

Basic food items

Exported services

Who has the obligation to deduct VAT at source and remit it to the tax authority?

Government agencies and banks only

MTN and Airtel exclusively

All businesses selling goods

MTN, Airtel, banks, oil and gas companies (correct)

What mechanism was introduced by the Finance Act 2019 regarding invoices and VAT?

Reverse-charge mechanism for services Signup and view all the answers

Which platform has been implemented by the FIRS for VAT tracking and remittance?

FIRS VAT-Collect Signup and view all the answers

Which type of companies must charge and collect VAT when providing services to Nigerian customers?

Non-resident digital companies Signup and view all the answers

How are VAT returns filed according to the current regulations?

On a cash basis Signup and view all the answers

Which of the following is categorized as a zero-rated item?

Goods purchased by diplomats Signup and view all the answers

Study Notes

Value-Added Tax (VAT) Overview

Current standard VAT rate is 7.5%, an increase from 5% as of 1 February 2020.
Zero-rated items include goods and services for diplomats and humanitarian donor-funded projects.

Exempt Items

Exemption applies to:
- Plants and machinery used in Export Processing Zones (EPZs) or Free Trade Zones (FTZs).
- Basic food items as specified in a list.
- Medical products and services.
- Pharmaceutical products.
- Books and educational materials.
- Exported services.

VAT Compliance and Collection

Key entities (MTN, Airtel, government agencies, banks, oil and gas companies) must deduct VAT at source from suppliers and remit to tax authorities.
Other organizations must collect VAT from customers and file payments to tax authorities.
The Finance Act 2019 introduced a reverse-charge mechanism for certain services lacking a tax invoice.

Filing and Remittance

VAT returns are filed on a cash basis.
The Federal Inland Revenue Service (FIRS) has developed FIRS VAT-Collect for automatic VAT tracking and remittance.
Domestic airlines and certain retailers utilize this system for instant VAT remittance on ticket sales.

Non-Resident Digital Companies

Non-resident digital companies providing services to Nigerian customers are obligated to charge and collect VAT.
They must remit VAT to the FIRS in the currency of the transaction.

Description

This quiz delves into the intricacies of Value-Added Tax (VAT), focusing on the standard rate, zero-rated items, and exemptions. Learn about the applications of VAT in various sectors and the essential goods and services affected by it. Enhance your understanding of taxation principles and their implications.