To clear the air on the implementation of the Finance Act 2019, the Federal Inland Revenue Service (FIRS) has joined the conversation! Recall that the Nigerian President signed the Finance Act into law on 13 January 2020 while the Finance Minister announced the Act would be in force from 1 February 2020. The next step was FIRS guidance on the amended tax provisions such as value added tax (VAT), companies income tax. FIRS has issued a public notice on the commencement of Finance Act implementation.
Taxpayers should, therefore, note the following information on VAT.
- VAT rate: Taxpayers should insert or update their enterprise software and system to reflect the new rate of 7.5%.
- Invoices: When paying for goods and services, consumers should ensure their receipts show the new rate and recognize the expanded list of exempt items.
- Monthly returns: The new rate for monthly VAT returns is 7.5%. In effect, taxpayers will use 7.5% on the February 2020 returns which is due on or before the due date of 21 March 2020.
- Penalty for late filing of VAT returns: From 13 January 2020, any late submission of returns will be NGN50,000 in the first month of default and NGN25,000 in each subsequent month of default. The revised charge applies to January 2020 returns which is due on 21 February 2020 as well as outstanding VAT returns.
Illustration on late returns penalty
A taxpayer who files VAT returns for December 2019 on 11 May 2020 will have an estimated penalty of NGN125,000. That is,
- First month: 21 January 2020 – NGN50,000
- Second month: 21 February 2020 – 25k
- Third month: 21 March 2020 – 25k
- Fourth month: 21 April 2020 – 25k
Under the old provisions, the charges was NGN20,000 (5k per month). In the illustration above, missing a VAT deadline will be 525% (Old: 20k, New: 125k) more expensive. As the sanctions are stiffer, taxpayers and authorized agents are encouraged to comply with the new Act. We also expect FIRS public notice on the implementation of corporate tax in the coming weeks.