When the Federal Inland Revenue Service (FIRS) announced the appointment of MTN, Airtel as well as money deposit money banks in Nigeria as its agents to deduct Value Added Tax (VAT) on all taxable supplies made to them at the point of payment, and remit to the service in a notice that was issued by its chairman, Muhammad Nami, not a few people were left confused on the reason or aim of the mission.
To state the obvious, the aim is to effectively block all the leakages and raise more revenues for government, especially in the face of dwindling revenue to the federation. Previously reliant on crude oil revenue, domestic and external shocks have warranted the creation of innovative ways to boost revenue collection for government spending.
The notice was actually given to all persons carrying on trade, profession or business of any kind, tax practitioners and the general public that, with effect from 1st January, 2023.
“In line with the provisions of Section 14(3) of the Value Added Tax Act Cap. V1 LFN 2004 (as amended), the following companies are appointed to withhold or collect VAT charged on all taxable supplies made to them: MTN; Airtel; and all money deposit banks — as defined by the CBN guidelines,” the service said in an advertisement that was published by many national dailies.
According to the development, companies are expected to remit the tax deducted on or before the 21st day of the month immediately following the month the tax was withheld, in the format prescribed by the service. In the notice, FIRS explained that the options that were available to suppliers of these companies whose output tax is withheld.
“A supplier whose output tax is withheld, as provided in this notice, may 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 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 utilise the amount refundable to offset future VAT liability or request for a cash pay-out,” the service said.
FIRS said it has instituted adequate measures to ensure prompt payment of refundable input tax under this arrangement, while also stating that input tax claims, which include refunds, are subject to the limitations imposed by Section 17(2)(a) of the VAT Act.
In the eyes of the FIRS, VAT is still a consumption Value Added Tax charged at 7.5% and every taxable registered person remains as agent of collection. Section 14(3) gives the FIRS powers to appoint any person as further agent to withhold the tax from whoever invoices that person and remit to the Service.
By implication, such persons have due roles to play as VAT agent. The first is to charge VAT at the applicable rate on all its invoices and remit to the tax watchdog as and when due, and the second is to withhold the tax from invoices issued to it by its customers or vendors and remit to the service as and when due.
The due date for remittance remains on or before the 21st of the subsequent month of transaction as contained in Section 15 of the VAT Act. The truth is that, FIRS has in the exercise of its powers, under section 14(3) of the VAT Act, appointed MTN, AIRTEL and deposit money banks as agents to withhold VAT and remit to the Service and has recently issued a public notice to this effect.
To this end, effective 1st January, 2023 these appointed entities will responsible for remitting all the VAT invoiced to them by deducting such tax at source and filed alongside the VAT invoiced by them.
It is imperative to note that this arrangement is not new as section 13 of the VAT Act already mandated every Ministry, statutory body or other agency of Government and companies in the oil and gas sector to deduct at source and remit the VAT to the Service in the stimulated manner.
Failure on the part of any appointed agent for this purpose will attract a penalty of 150% of the amount not collected plus 5% interest above the CBN rate.
What will change with the appointment?
The appointed companies listed in the notice and their vendors are expected to be impacted except a vendor with annual turnover less than N25 million (who ordinarily would not invoice but the agent will apply self-charge principle as long as the transaction is vatable).
The change key areas are: The appointed companies will file their normal revenue transaction of VAT returns (Section 15(1) and agent collection (from its expenditures) returns (Section 14(3) separately. Vendors to the appointed companies will no longer have VAT cash flow a month and 21day to utilize again.
Accelerated refund of overpaid VAT
Vendors to the appointed companies VAT accounting and returns will have more of withheld VAT credit against their VAT payable. However, in the case of over payment of VAT, there is assurance by the Federal Inland Revenue Service to accelerate refund of eligible input VAT by the affected vendors is expected to reduce the cash flow impact.
In the case of transaction between two or more appointed companies; the customer (consumer) company is prioritized to deduct VAT from its vendor and remit the same on or before 21st day of the following month.
Specific clarifications on the appointment
The appointment of companies operating in specific sectors of the economy as VAT agents is not new in Nigeria. In 2007, companies operating in the oil and gas sector were appointed as agents for collection of VAT. The current legal arrangement of Nigeria Custom Service collection of VAT on import duty charges is not in any form affected.
Customers of MTN, Airtel and deposit money banks will not be affected in any form, and the prices of telecom and banking services should remain the same.
The publication does not affect the obligation of Taxable Person to render returns or any part of the VAT Act.NB: the above view is strictly person and does not represent FIRS Management’s view or opinion on the subject.
Those who have been following up on activities of the FIRS focused on aggressive revenue drive say there is no need to panic as the service is simply innovating to meet target or surpass the tax revenue target of the federal government. They may be correct.
For instance, last year, as part of its efforts at modernizing tax administration in the country, the tax watchdog introduced a new tax administration solution codenamed TaxPro-Max for ease of tax compliance.
At that time, Mr Nami said the TaxPro-Max solution enables seamless registration, filling, payment of taxes and automatic credit of withholding tax as well as other credits to the taxpayer’s accounts, among other features. The TaxPro-Max also provides a single-view to taxpayers for all transactions with the service.
7th June, 2021 date was set for the TaxPro-Max to become the channel for filing Naira-denominated tax returns in the country. Well, against concerns of many, the operationalization of the technology enabled solution has been effective so far.
“All Naira-denominated tax returns are to be filed via the TaxPro-Max Solution in order to generate the obligatory document identity number (DIN),” those were the words of Nami.
With the introduction of that solution, taxpayers have largely not been allowed to pay without DIN; as such taxpayers wanting to submit their tax returns manually must visit the relevant tax office where FIRS personnel will be on hand to assist them to upload the returns and generate the DIN.
“In view of the time it might take to upload manual returns and generate the DIN, taxpayers are encouraged to bring manual returns for upload, at least, two weeks before the due date; qualified personnel of the Service are on hand to assist taxpayers experiencing challenges in filing returns on the TaxPro-Max,” he said.
While the FIRS believes strongly that the licensing of MTN, Airtel and the commercial banks would help in effective VAT collection and remittance, it remains to be seen if the new move would further increase VAT revenues to the federal government.