Investor Presentaiton
The Country and its
institutions
Business Organisation Labour and Social
and Regulation
Security Regulations
The Nigerian Financial Tax System
Services Industry
Foreign Exchange
Transactions
Investment in Nigeria
Accounting and
Auditing Requirements
Importation of Goods
Exportation of Goods
COVID-19 Economic
and Fiscal Measures
5.3.3
PPT Returns
5.4
Value Added Tax (VAT)
KPMG
5.3.4
5.3.5
Every company engaged in petroleum operations is required to prepare and
submit an estimated tax return within 2 months of the commencement of
an accounting period. Revised estimates can be submitted if, at any time
during the accounting period, the company becomes aware that the initial
estimate submitted requires revision.
Annual year-end returns are due within 5 months from the end of the
accounting period (i.e., 31 May of the following calendar year for a typical
company).
PPT Payment
PPT liability is payable in 12 monthly instalments, starting from the end
of March of each accounting period. The amount payable is based on the
estimated tax liability as shown in the estimated returns submitted.
Where a company's year-end income tax return indicates a higher tax
liability than its (revised) estimated tax, the balance must be paid within
21 days of the receipt of a notice of assessment from the FIRS. However,
where the estimated tax is higher, the over-payment can only be deducted
from the next monthly instalment.
The Deep Offshore and Inland Basin Sharing Contract (Amendment)
Act, 2019
The Deep Offshore and Inland Basin Production Sharing Contract
(DOIBPSC) (Amendment) Act, 2019 was signed into law on 4 November
2019. Amongst others, the DOISPSC Amendment Act replaced the existing
production-based royalty regime with a combination of production and
price-based royalty regime, introduced provisions on offence and penalty for
non-compliance, and mandated a review of the PSCs every 8 years.
VAT was introduced by the VAT Act, No. 102 of 1993, (now Cap V1, LFN, 2004) to
replace the Sales Tax applicable in the States. The VAT Act has been amended by
the VAT (Amendment) Act, 2007 and Finance Acts, 2019 and 2020.
5.4.1
5.4.2
Operation of VAT
VAT is a consumption tax, which is levied at each stage of the value chain
and is borne by the final consumer. Allowable VAT paid by businesses on
purchases, known as input tax, is recoverable from VAT charged on the
company's sales, known as output tax. The excess of a company's output
tax over its allowable input tax is payable to the FIRS through designated
banks. The taxpayer is, however, entitled to a refund from the FIRS, if the
reverse is the case.
Allowable input VAT is limited to VAT on goods purchased or imported
directly for resale and goods which form stock-in-trade used for the direct
production of any new product on which output tax is charged The input
VAT on fixed assets is to be capitalised with the cost of the assets, while
input VAT on overheads, general administrative expenses and services is to
be expensed in the profit and loss account. In essence, the input VAT on
these categories of expenses is not allowable as a deduction from output
VAT.
In 2007, the FIRS, through its Information Circular on the operation of VAT,
mandated every company operating in the oil and gas industry to deduct
VAT due from payments to its suppliers or service providers and remit
same to the FIRS. The Circular was issued pursuant to the provisions of
Section 5 of the VAT (Amendment) Act, 2007. Prior to the issuance of the
Circular, only ministries, statutory bodies and agencies of the Federal,
State and Local Governments, and Nigerian companies dealing with foreign
vendors, were required to deduct VAT at source from their suppliers/service
providers.
Rate of Tax
Effective 1 February 202047, VAT is charged at a flat rate of 7.5%, except
when it is charged on "zero-rated" goods or services at 0%.
"VAT is charged at a flat rate of 7.5%"
47 The change in VAT rate was introduced by the Finance Act, 2019. Although the Act became effective on 13 January 2020, the Minister of
Finance announced that the new VAT rate would commence on 1 February 2020 in order to give stakeholders a 2-week transition period
for adequate preparation for compliance with the new rate.
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