As a reputable accounting firm in Nigeria, we strive to keep our clients informed about the latest regulatory developments that impact their businesses. The year 2021 brought significant changes to the Value Added Tax (VAT) regime in Nigeria, with the passage of the Finance Act 2021. These changes are designed to enhance revenue generation, simplify tax administration, and foster economic growth. In this article, we will highlight the key changes to the VAT regime in 2021 and their implications for Nigerian companies.
- Increase in VAT Rate:
The most notable change to the VAT regime in 2021 was the increase in the VAT rate. The Finance Act 2021 raised the standard VAT rate from 5% to 7.5%. This change came into effect on the 1st of February 2021. The higher VAT rate has implications for the cost of goods and services and affects businesses and consumers alike.
- Digital Services Tax (DST):
The Finance Act 2021 introduced a Digital Services Tax (DST) on foreign companies providing digital services to Nigerian consumers. DST is applicable at a rate of 2% on the gross income derived from specific digital services, including online advertising and subscriptions. Nigerian companies that utilize digital services from foreign providers need to account for this tax when planning their digital expenses.
- Expansion of VAT Exemptions:
The VAT regime was expanded to include additional exempted goods and services. Educational materials, pharmaceuticals, and baby products are now VAT-exempt. While this benefits consumers and reduces the cost burden on essential goods, it may also impact businesses in these sectors in terms of input VAT recovery.
- Simplification of VAT Registration:
The Finance Act 2021 introduced a simplified VAT registration process for small businesses with annual turnover below N25 million. Such businesses are eligible for voluntary VAT registration, which allows them to enjoy the benefits of VAT input tax deductions while improving compliance.
- Removal of VAT on Stock Exchange Transactions:
The VAT regime for the Nigerian stock market underwent a change in 2021. The Finance Act removed VAT on stock exchange transactions. This measure aims to encourage investment in the capital market and enhance liquidity.
- Impact on Cash Flow:
The increase in the VAT rate from 5% to 7.5% has implications for cash flow management for businesses. Companies need to assess how the higher VAT rate affects their working capital, pricing strategies, and customer demand.
- VAT Compliance Requirements:
With the changes to the VAT regime, companies must ensure compliance with the new regulations, including updated VAT rates, expanded exemptions, and the DST. Timely and accurate VAT registration, invoicing, and filing are essential to avoid penalties and maintain a good standing with the tax authorities.
The key changes to the Value Added Tax (VAT) regime in 2021 have significant implications for Nigerian companies. As a trusted accounting firm, we are committed to assisting our clients in understanding and navigating the impact of these changes on their businesses. By staying informed, businesses can optimize their tax planning, ensure compliance with the regulations, and contribute to Nigeria’s economic growth and development. Our expertise and guidance empower companies to make informed financial decisions and thrive in the evolving Nigerian tax environment.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.