On Wednesday, 24 June 2020, the Federal Inland Revenue Service (FIRS), issued Public Notices in the Newspapers, overturning the Value Added Tax (VAT) Exemptions granted to some items in the Value Added Tax (Modification) Order 2020, which was issued by the Minister of Finance, Budget and National Planning in May 2020.
These items include:
- Natural Gas (which is a crucial component, required in most major sectors of Nigeria’s economy, e.g electricity generation, manufacturing, domestic use, fertiliser production, etc.)
- Essential raw materials for the production of pharmaceutical products.
- Renewable energy equipment (which majorly includes wind and solar powered generators).
- Raw materials for the production of baby diapers and sanitary towels.
FIRS, in its Public Notice, argues that these items cannot be made VAT exempt by the VAT (Modification) Order as they were not listed on the 1st Schedule to the VAT Act, neither were they listed in a previous Ministerial Order.
The FIRS insists that these items will continue to be liable to VAT at 7.5% until otherwise provided in an appropriate statutory instrument.
First: The VAT (Modification) Order, 2020 firstly modifies the provisions of Schedule 1 of the VAT Act and then goes ahead to provide extended list/ interpretations for the all the items (as modified). FIRS’ argument on these items not being listed earlier in the VAT Act or in a previous Ministerial Order, may not therefore hold strongly.
Second: Not all provisions of the VAT (Modification) Order 2020 are favourable to taxpayers or align with the earlier provisions of Schedule 1 to the VAT Act.e.g. the non-exemption given to basic food items sold in hotels, eateries and similar places and those supplied by caterers / contractors; baby products for children above 3 years old; and educational materials not used in conventional schools. Overturn to all these provisions therefore ought to be made uniformly, and not just to selected items.
Third: The overturned exemptions relate to items that are essential goods for powering the major essential sectors of the economy. These items are continuously supplied in large quantities in Nigeria and their exemptions from VAT would cause a huge dip in tax revenues. In its endeavours to increase tax revenues collection, this may well be the major reason why FIRS overturns the VAT exemptions on these items.
Fourth: Government should work towards harmonising all the divergent interpretations on such issues; for simplicity, ease and certainty of taxes in Nigeria, even as businesses and income earners struggle against the pandemic, the global economic decline and all other odds to protect their income and asset bases.