How to compute vat example in nigeria

Value Added Tax (VAT) is a consumption tax applied to goods and services in Nigeria. Businesses registered for VAT are required to collect, report, and remit this tax to the Federal Inland Revenue Service (FIRS).

In this guide, I will explain how VAT is computed in Nigeria, using practical examples to make it easy to understand.

Key Takeaway:

VAT in Nigeria is 7.5% and applies to most goods and services.

Businesses with ₦25 million+ turnover must register for VAT with FIRS.

VAT payable = Output VAT – Input VAT (remit the difference to FIRS).

VAT-exempt items include basic food, medical services, and education.

Zero-rated items (exports) are taxed at 0%, but input VAT can be claimed.

VAT must be filed and paid by the 21st of each month to avoid penalties.

Failure to comply with VAT laws can result in fines and legal action.

What is VAT in Nigeria?

VAT is an indirect tax levied on the supply of goods and services. The current VAT system in Nigeria operates under the Value Added Tax Act (VATA) 1993, which has undergone several amendments.

The tax is borne by the final consumer and collected by businesses that act as agents for the government. These businesses then remit the collected VAT to FIRS monthly.

Who Should Pay VAT?

Individuals and businesses purchasing taxable goods or services.
Companies and organizations offering VAT-applicable goods or services.

Who Should Register for VAT?

Any business with an annual turnover of ₦25 million and above must register for VAT with FIRS.

VAT Rate in Nigeria

The VAT rate in Nigeria was 5% until 2020, when it was increased to 7.5%.

Breakdown of VAT Rates in Nigeria

Standard VAT Rate: 7.5% (applies to most goods and services).
Zero-rated VAT: 0% (for exports and certain essential goods).
Exempt VAT: Some goods and services are completely exempted from VAT.

How to Compute VAT in Nigeria

VAT is calculated as 7.5% of the total cost of taxable goods or services.

Formula for VAT Calculation:VAT=Taxable Amount×7.5% VAT= Taxable Amount × (7.5 ÷ 100) VAT= Taxable Amount × 0.075

There are two common methods of VAT computation:

Output VAT – VAT collected from customers when selling goods or services.
Input VAT – VAT paid on business purchases or expenses.

VAT Payable to FIRS Formula

VAT Payable=Output VAT−Input VAT

If Output VAT > Input VAT, the business remits the difference to FIRS.
If Input VAT > Output VAT, the business may claim a refund or carry it forward to the next tax period.

VAT Computation Examples

Example 1: Computing VAT on Goods Sold

A business sells laptops worth ₦1,000,000 to a customer. The VAT payable is: ₦1,000,000×(7.5 ÷ 100) = ₦1,000,000× 0.075=₦75,000

So, the total amount the customer pays:₦1,000,000+₦75,000=₦1,075,000

Example 2: VAT Computation for a Service Business

A consulting firm charges a client ₦500,000 for services rendered. The VAT amount is:₦500,000×0.075=₦37,500

Total amount payable by the client:₦500,000+₦37,500=₦537,500

Example 3: Calculating VAT Payable to FIRS

A business has the following VAT transactions in a month:

Output VAT (VAT collected from customers): ₦150,000
Input VAT (VAT paid on business purchases): ₦80,000

VAT payable to FIRS:₦150,000−₦80,000=₦70,000₦

The business must remit ₦70,000 to FIRS.

VAT Exempt and Zero-Rated Goods

Not all goods and services attract VAT.

VAT-Exempt Goods & Services in Nigeria

The following are VAT-exempt items in Nigeria:

Basic food items (e.g., rice, beans, maize)
Educational materials (e.g., books)
Medical services and drugs
Farming equipment and agricultural products
Tuition fees in educational institutions

Zero-Rated VAT Items

Some goods and services are taxed at 0%, meaning VAT is not charged, but businesses can still claim input VAT refunds.

Exported goods and services
Certain international transportation services

How to File and Remit VAT in Nigeria

Businesses registered for VAT must file VAT returns and remit payments to FIRS every month.

Steps to File VAT Returns

Calculate VAT: Compute the total Output VAT and Input VAT for the month.
Determine VAT Payable:
- If Output VAT > Input VAT, pay the difference.
- If Input VAT > Output VAT, claim a refund or carry forward.
Complete the VAT Form 002: Fill in the VAT return form on the FIRS TaxPro-Max portal.
Make Payment: Pay VAT using:
- Bank deposit
- Online transfer via the FIRS portal
Submit VAT Returns: Submit the VAT form before the 21st of the following month.

VAT Filing Deadline

VAT returns must be filed on or before the 21st of every month. Late filing attracts penalties.

Common Mistakes to Avoid

Many businesses make errors when computing and filing VAT. Here are some common mistakes to avoid:

Failing to register for VAT (if turnover is ₦25 million or more).
Not issuing VAT invoices to customers.
Misclassifying VAT-exempt and zero-rated goods.
Failing to remit VAT before the deadline (attracts penalties).
Incorrectly calculating VAT payable (errors in output vs. input VAT).

Conclusion

Computing VAT in Nigeria is straightforward when you understand the process. Businesses must charge 7.5% VAT on taxable goods and services, remit collected VAT to FIRS, and file VAT returns monthly.

By following these guidelines, you can accurately compute and remit VAT in Nigeria, ensuring compliance with tax laws.

Tools:

Country	Standard VAT Rate	Reduced VAT Rate	VAT Authority Website
United Kingdom	20%	5%	UK VAT
Ireland	23%	13.5%, 9%, 4.8%	Revenue Ireland
Afghanistan	10%	–	–
Albania	20%	6%	–
Algeria	19%	9%	–
Andorra	4.5%	9.5% (higher), 1% (reduced)	Andorra VAT
Angola	14%	7%, 5%	Angola VAT
Anguilla	13%	–	Anguilla GST
Argentina	21%	27% (higher), 10.5%, 3%	–
Australia	10%	–	ATO GST
Austria	20%	13%, 10%	Austria VAT
Azerbaijan	18%	–	Azerbaijan VAT
Bahamas	10%	–	Bahamas VAT
Bahrain	10%	–	Bahrain VAT
Bangladesh	15%	10%, 7.5%, 5%, 4.5%, 2%, 1.5%	Bangladesh VAT
Barbados	17.5%	22% (higher), 10%	Barbados VAT
Belarus	20%	26% (higher), 10%	Belarus VAT
Belgium	21%	12%, 6%	Belgium VAT
Benin	18%	–	Benin VAT
Bolivia	13%	–	Bolivia VAT
Bosnia & Herzegovina	17%	–	Bosnia VAT
Botswana	14%	–	Botswana VAT
Brazil	18%	12%, 7%, 2%-5%, 1.6%-7.6%, 3%	Brazil VAT