Value Added Tax (VAT) is a mandatory tax in Nigeria, and businesses that meet the required threshold must register with the Federal Inland Revenue Service (FIRS). Failure to register for VAT or comply with VAT regulations can result in severe penalties.
In this guide, I will explain the legal consequences of not registering for VAT, the fines imposed by FIRS, and how businesses can avoid penalties.
What is VAT Registration in Nigeria?
VAT registration is the process of obtaining a Tax Identification Number (TIN) from FIRS and registering as a VAT-collecting business. According to the Finance Act 2019, all businesses with an annual turnover of ₦25 million and above must register for VAT.
Who Must Register for VAT?
- Companies and individuals offering taxable goods and services.
- Businesses with annual revenue of ₦25 million or more.
- Government agencies, ministries, and parastatals that make payments to VAT-registered businesses.
Who is Exempt from VAT Registration?
- Small businesses with an annual turnover of less than ₦25 million.
- Organizations dealing only in VAT-exempt goods and services.
Legal Penalties for Not Registering for VAT
The Nigerian tax law imposes strict penalties on businesses that fail to register for VAT. The penalties are outlined in Section 8 of the VAT Act (as amended).
1. Penalty for Late VAT Registration
If a business fails to register for VAT within six months of commencing operations, the following penalties apply:
- ₦50,000 for the first month of default.
- ₦25,000 for each subsequent month of default.
Example Calculation:
If a business delays VAT registration for five months, the total penalty will be: ₦50,000+(₦25,000×4)=₦150,000 = ₦150,000
This fine continues accumulating until the business registers.
2. Penalty for Failure to Charge and Collect VAT
Once registered, businesses must charge VAT on taxable goods and services. If a business fails to collect VAT, it will still be liable to pay the VAT amount, even if it was not collected from customers.
- The business must remit the uncollected VAT to FIRS.
- 10% penalty on the uncollected VAT plus interest at the Central Bank of Nigeria (CBN) minimum rediscount rate.
Example Calculation:
If a business fails to charge VAT on goods worth ₦1,000,000, the VAT should have been: ₦1,000,000×0.075=₦75,000
Penalty: 10%×₦75,000= ₦7,500
Total payable to FIRS: ₦75,000+₦7,500=₦82,500(excluding interest)
3. Penalty for Late Filing of VAT Returns
VAT-registered businesses must file VAT returns monthly and remit VAT collected to FIRS by the 21st of the following month.
Failure to file VAT returns attracts:
- ₦50,000 for the first month of default.
- ₦25,000 for each subsequent month of default.
Example Calculation:
If a business delays VAT filing for three months, the total fine will be: ₦50,000+(₦25,000×2)=₦100,000
This penalty continues accumulating until the business files its VAT returns.
4. Penalty for Non-Remittance of VAT
If a business collects VAT from customers but fails to remit it to FIRS, the penalties are severe.
- 10% penalty on the unpaid VAT.
- Interest charged at the CBN minimum rediscount rate.
Example Calculation:
A business collects VAT of ₦500,000 from customers but does not remit it.
Penalty: 10%×₦500,000= ₦50,000
Total amount payable (excluding interest): ₦500,000+₦50,000=₦550,000₦500,000 + ₦50,000 = ₦550,000
5. Penalty for Providing False VAT Information
Providing false VAT information, underreporting sales, or fraudulent VAT filing is a criminal offense. The penalties include:
- ₦50,000 fine or imprisonment for up to six months.
- Seizure of business assets or bank accounts by FIRS.
6. Penalty for Obstructing VAT Enforcement
If a business obstructs a VAT audit or investigation, FIRS can impose:
- A fine of ₦50,000 or imprisonment for up to six months.
How to Avoid VAT Penalties
Businesses can avoid VAT penalties by ensuring full compliance with tax laws.
1. Register for VAT Early
If your business earns ₦25 million+ annually, register for VAT with FIRS immediately to avoid late registration penalties.
2. Charge VAT on Taxable Goods and Services
Always add 7.5% VAT to taxable goods and services and issue VAT invoices to customers.
3. File VAT Returns Monthly
Ensure VAT returns are filed before the 21st of each month. Even if there was no VAT transaction, businesses must file a nil VAT return.
4. Remit VAT on Time
After collecting VAT from customers, remit it to FIRS before the deadline to avoid penalties.
5. Keep Accurate VAT Records
Maintain proper records of VAT collected, VAT paid, and all transactions. This helps during FIRS audits and tax filing.
6. Use the FIRS TaxPro-Max Portal
FIRS has an online platform for VAT filing and payment. Register your business on the website and file VAT electronically.
7. Seek Tax Advice
If you are unsure about VAT compliance, consult a tax professional or accountant.
Frequently Asked Questions (FAQs)
1. Who needs to register for VAT in Nigeria?
Any business with an annual turnover of ₦25 million or more must register for VAT with the Federal Inland Revenue Service (FIRS).
2. What is the penalty for not registering for VAT in Nigeria?
Businesses that fail to register for VAT within six months of operation will be fined:
- ₦50,000 for the first month of default.
- ₦25,000 for each subsequent month of default.
3. What happens if I don’t collect VAT from customers?
If a VAT-registered business does not charge VAT, it will still be liable to pay the VAT amount to FIRS, plus:
- 10% penalty on the unpaid VAT.
- Interest at the Central Bank of Nigeria (CBN) minimum rediscount rate.
4. How often should I file VAT returns?
VAT returns must be filed every month. The deadline is the 21st of the following month.
5. What is the penalty for late VAT filing?
If a business does not file VAT returns on time, it will be fined:
- ₦50,000 for the first month of default.
- ₦25,000 for each subsequent month of default.
6. What is the penalty for not remitting VAT after collection?
If a business collects VAT but does not remit it, the penalties include:
- 10% penalty on the unremitted VAT.
- Interest at the CBN minimum rediscount rate.
7. Can FIRS seize my assets for VAT non-compliance?
Yes. If a business consistently fails to pay VAT, FIRS can seize bank accounts, assets, or shut down the business.
8. Can a small business be exempt from VAT registration?
Yes. Businesses with an annual turnover of less than ₦25 million are not required to register for VAT.
9. How do I file my VAT returns?
You can file VAT returns online through the FIRS TaxPro-Max portal at here.
10. What happens if I provide false VAT information?
Providing false VAT information can lead to:
- A fine of ₦50,000.
- Imprisonment for up to six months.
- Seizure of business assets by FIRS.
11. Can I correct a VAT filing mistake?
Yes. If you make a mistake in your VAT filing, you can submit an amended return with the correct details.
12. How can I avoid VAT penalties?
To avoid VAT penalties, ensure you:
- Register for VAT on time.
- Charge and collect VAT correctly.
- File VAT returns before the 21st of each month.
- Remit collected VAT on time.
- Keep proper VAT records.
13. What is the VAT rate in Nigeria?
The current VAT rate in Nigeria is 7.5%.
14. Can FIRS audit my business for VAT compliance?
Yes. FIRS conducts audits to check VAT compliance. Non-compliant businesses may face additional penalties or legal action.
15. How do I register for VAT in Nigeria?
To register for VAT, visit the nearest FIRS office or register online via the TaxPro-Max portal. You will need:
- Business registration documents.
- Tax Identification Number (TIN).
- Corporate bank account details.
Following these guidelines will help your business stay compliant and avoid unnecessary fines.
Tools:
- Ireland VAT Calculator
- Madhya Pradesh VAT Rate Calculator
- Spain VAT Refund Calculator
- Nigeria Customs Duty Calculator
- Pakistan Customs Duty Calculator
- Indian Customs Duty Calculator
- US Customs Duty Calculator
- Brazil Sales Tax Calculator
- China VAT Calculator
- Denmark VAT Refund Calculator
- Greece VAT Calculator
- GST Calculator
- GST HST Calculator
- Import Duty Calculator
- India GST Calculator
- Morocco Import Duty Calculator
- New Zealand GST Calculator
- Reverse GST Calculator
- U.S. Sales Tax Calculator
- UK VAT Tax Calculator
- Philippines VAT Calculator
- Australia VAT (GST) Calculator
- spain vat calculator
- Italy vat calculator
- Germany VAT Calculator
- Belgian Vat Calculator
- Germany Vat Calculator
- France Vat Refund Calculator
- France vat calculator
- Singapore GST Refund Calculator
- Japan Tax Refund Calculator
Conclusion
Failure to register for VAT in Nigeria attracts penalties starting from ₦50,000, plus additional fines for non-compliance. Businesses must register on time, charge VAT, remit collected VAT, and file VAT returns to avoid legal issues with FIRS.
By following these VAT compliance rules, businesses can avoid penalties and run smoothly without tax-related problems.
Related:
| 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 |