In May 2020, the Minister of Finance, Budget, and National Planning released the Value Added Tax (Modification) Order 2020 or Order. The Order contained comprehensive details of the items that are exempt from Value Added Tax (VAT). Section 38 of the VAT, Cap. V1, LFN, 2004 (as amended) gives the Minister of Finance the authority to amend or change the first schedule of the VAT Act. However, the tax authority responsible for collecting and administering VAT in Nigeria held a different opinion.
On 24 June 2020, Federal Inland Revenue Service (FIRS) issued a Public Notice in response to taxpayers’ questions on whether some items in Paragraph 2 of Value Added Tax (Modification Order) 2020 were exempt from VAT. FIRS suggested a better explanation of the items exempt in the First Schedule to the VAT Act as follows;
- The insertion of Common External Tariff codes will enable importers, Nigerian Customs Service, as well as other stakeholders to determine which items are exempt from VAT.
- The four (4) items below that will be liable to VAT at 7.5% until they are exempt in proper statutory legislation.
- natural gas;
- essential raw materials for the production of pharmaceutical products;
- renewable energy equipment; and
- raw materials for the production of baby diapers and sanitary towels.
FIRS public notice on the four items that remain liable to VAT conflicts with the provisions of the Order. As both documents have different views, taxpayers can only abide by one position for every transaction. Then which path should taxpayers follow? Is it the public notice or the Order? The Minister of Finance, Budget, and Planning (MoF) has the powers to amend the First Schedule, which led to the release of the VAT Modification Order 2020. A Public Notice from FIRS cannot cancel legislation from the MoF. Therefore, every stakeholder in the Nigerian tax system, including FIRS, must comply with the provisions of the Order.