The Federal Government of Nigeria has recently issued the “Value Added Tax (Modification) Order, 2024”, which took effect on 1 September 2024. This modification brings significant changes to Nigeria’s Value Added Tax (VAT) landscape, particularly aimed at promoting clean energy solutions and technological advancements.
It introduces new VAT exemptions for equipment, services, and infrastructure related to alternative fuels, electric vehicles, and renewable energy. These changes are designed to foster sustainable development and drive the transition towards cleaner, more efficient energy systems across various sectors.
We discuss below the changes introduced and what taxpayers in Nigeria should know and do.
Summary of Key Changes in the VAT Landscape:
1. New Exemptions for Clean Energy and Technology-Related Goods:
The order expands VAT exemptions to include equipment and infrastructure related to clean and alternative energy solutions. This covers:
- Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG) equipment, including conversion kits.
- Domestic Liquefied Natural Gas (LNG) processing facilities and equipment.
- Electric vehicles and their components, including parts and semi-knock-down units for assembly.
- Biogas and biofuel equipment, emphasizing clean cooking and transportation.
2. Promotion of Electric and Dual-Fuel Vehicles
VAT exemptions have been extended to a variety of vehicles that use alternative fuels, including electric vehicles and dual-fuel vehicles (CNG/LPG). This includes:
- Electric vehicles (EVs) and components like batteries and solar charging systems.
- CNG/LPG dual fuel vehicles, CNG cylinders, and conversion kits.
- Parts for assembling electric vehicles, buses, and other mass transportation vehicles with clean energy alternatives.
3. Inclusion of Specific Manufacturing and Service-Related Activities:
- The modification explicitly exempts services related to the installation and conversion of CNG and LPG equipment, along with the manufacturing, assemblage, and sale of electric vehicles. This change is designed to encourage the production and adoption of clean energy transportation solutions.
4. Extended Exemptions for Industrial and Agricultural Equipment:
- Several industrial and agricultural machines are also included under VAT exemptions, such as gas generators, LNG vaporizers, cryogenic storage tanks, biogas digesters, fermentation tanks, and dryers for biofuel processing.
5. Emphasis on Clean Energy Infrastructure Development:
- Infrastructure like electric vehicle charging systems, biogas compressors, gas pipelines, and related accessories have been added to the VAT-exempt list, underlining Nigeria’s focus on expanding clean energy infrastructure.
Implications for Taxpayers and Businesses:
1. Transition Opportunities for Manufacturers:
- Manufacturers can benefit from the VAT exemptions on alternative fuel vehicle parts and related clean energy equipment. Companies producing or assembling electric vehicles, CNG, and LPG infrastructure should explore these opportunities to scale their operations, leveraging lower tax burdens to enhance profitability.
2. Businesses Engaged in Clean Energy and Alternative Fuels:
- Firms involved in the installation, distribution, or conversion of clean energy equipment will find it more cost-effective to expand these services. Lower VAT burdens on equipment like CNG/LPG conversion kits, electric vehicle parts, and biogas units will make it feasible to offer competitive prices, fostering wider adoption.
3. Potential Tax Planning and Compliance Adjustments:
- Businesses must adjust their tax planning and compliance processes to account for the updated list of VAT-exempt products. Companies dealing with logistics, transportation, energy production, and related sectors should review their VAT filings and documentation to ensure compliance with the new regulations.
4. Increased Investment in Renewable Energy:
- The VAT changes align with Nigeria’s broader push towards renewable energy adoption and environmental sustainability. Companies in the energy sector should capitalize on these adjustments by exploring new investments in renewable projects, including biofuel, CNG, LPG, and electric energy systems.
5. Clarification Needed for Effective Implementation:
- The order specifies that relevant agencies, like the Nigeria Customs Service and the Federal Inland Revenue Service, may issue guidelines to facilitate smooth implementation. Businesses are advised to stay updated on any supplementary guidelines that clarify the application of the new VAT rules.
Recommendations for Businesses:
1. Engage in Training and Awareness Programs:
- Organize workshops to educate stakeholders, including suppliers, clients, and internal teams, about the new VAT changes. This will ensure everyone is well-informed about the products and services that qualify for exemptions.
2. Tax Strategy Reassessment:
- Consult with tax professionals to reassess your current tax strategies. Ensure you are maximizing the benefits of the new VAT exemptions and aligning your business operations with the updated regulations.
3. Stay Updated on Policy Guidelines:
- Keep track of further announcements from the relevant agencies that may issue guidelines to smooth out the implementation of this VAT modification. Regular updates will help in maintaining compliance and avoiding penalties.
This VAT (Modification) Order, 2024, introduces significant changes that promote Nigeria’s green economy aspirations. Taxpayers, especially those in the clean energy and transportation sectors, should capitalize on these incentives to enhance their service offerings and market competitiveness.
Click here to view or download the full copy of the VAT (Modification) Order, 2024.
Click here to download this newsletter in PDF.
For enquiries about how these changes might affect your business, tax strategies and plans to adopt or the tax technology updates your business may require in order to proactively align with or manage the new changes, do not hesitate to contact us via email – clients@vi-m.com.