THE FEDERAL INLAND REVENUE SERVICE (FIRS) APPOINTS CERTAIN COMPANIES TO WITHHOLD VAT 

Published On - February 9, 2023

Vi-M Professional Solutions Tax, Tax Alert

In its 7th November 2022 Public Notice, the Federal Inland Revenue Service (“FIRS” or the “Service”) informed all persons carrying on a trade, profession or any kind of business, tax practitioners and the general public that effective from 1 January 2023, the following companies are appointed to withhold or collect VAT charged on all taxable supplies made to them:

  1. MTN
  2. Airtel
  3. All money deposit banks (as defined by the CBN Guidelines) (see list here)

According to the FIRS, this Directive is in accordance with the provisions of Section 14(3) of the Value Added Tax Act Cap. VI LFN 2004 as amended.

The companies are to comply with the below:

  1. remit the tax withheld or collected, in the currency of transaction to the Service on or before the 21st day of the month immediately following the month the tax was withheld or collected.
  2. the tax withheld or collected under this notice should be remitted in the format prescribed by the FIRS but separately from VAT due on the companies’ taxable supplies.

A supplier whose output tax is withheld as provided in the Public Notice may: 

  1. deduct the input tax paid on the goods purchased or imported to make the taxable supply from the output tax collected on other taxable supplies, and
  2. where the input tax paid to make the supply is not fully recovered from the output tax on other taxable supplies, the balance is refundable to the supplier; provided that a supplier who is entitled to a refund may utilize the amount refundable to offset future VAT liability or request for a cash pay-out.

The FIRS has also assured the affected suppliers that the Service has instituted adequate measures to ensure prompt payment of refundable input tax under this arrangement; however, input tax claims (including refunds) are subject to the limitations imposed by Section 17(2)(a) of the VAT Act, which implies that only input tax  paid on imported or locally purchased goods for resale, will qualify for input tax claim.

A penalty of 150% of such VAT not collected, plus 5% interest above the Central Bank of Nigeria’s rediscount rate in addition to other penalties that may accrue under the relevant laws, will be imposed on anyone obliged to comply with this notice but fail to comply.

The FIRS has also gone ahead, through subsequent communiques, to make it clear that customers of these entities need not be afraid as they should not be impacted by this new directive. Only the suppliers of goods and services to these entities will have their VAT charged on supplies to these entities withheld at source.

While this directive may aid easier VAT administration and collection by the FIRS, given that these organizations are properly structured and have the necessary machineries to withhold and remit the VAT as and when due, it imposes extra burden of tax compliance on the affected organizations. These organizations may in turn push the increased burden of tax compliance through to their consumers through price increases. 

For more enquiries on this FIRS’ Directive, please send an email to clients@vi-m.com.