VAT in Nigeria: Complete 2025 Guide

Value Added Tax (VAT) is one of Nigeria's most significant consumption taxes, affecting virtually every business and consumer in the country. Whether you're a business owner trying to understand your compliance obligations or a consumer wanting to know why prices include VAT, this comprehensive guide covers everything you need to know about VAT in Nigeria.

What Is VAT?

Value Added Tax is a consumption tax levied on the supply of goods and services at each stage of the production and distribution chain. It's called "value added" because the tax is applied only to the value added at each stage, not the cumulative value.

How VAT Works

A manufacturer sells goods to a retailer, charging VAT. The retailer sells to consumers, charging VAT. Each business remits the VAT collected minus VAT they paid on their inputs. Ultimately, the consumer bears the full VAT burden.

Current VAT Rate

Nigeria's VAT rate is 7.5% as of 2025. This was increased from 5% in February 2020. The rate applies to most goods and services unless specifically exempted or zero-rated.

Who Must Register for VAT?

Mandatory Registration

All businesses making taxable supplies must register for VAT, regardless of turnover. This includes companies registered with CAC, businesses supplying goods or services in Nigeria, and importers of goods and services.

Registration Process

Register with the Federal Inland Revenue Service (FIRS). Complete the VAT registration form. Provide required documents including CAC certificate, TIN, and bank account details. Receive your VAT registration number (TIN). Begin collecting and remitting VAT.

VAT-Exempt Goods and Services

Certain goods and services are exempt from VAT, meaning no VAT is charged or collected.

Exempt Goods

Basic food items like agricultural produce are exempt. Medical and pharmaceutical products are exempt. Educational materials and services don't carry VAT. Baby products are exempt. Agricultural equipment and inputs are also exempt.

Exempt Services

Medical services are exempt from VAT. Educational services provided by approved institutions are exempt. Commercial transportation of goods and passengers is exempt.

Zero-Rated Supplies

Some supplies are zero-rated, meaning VAT applies at 0%. The difference from exemption is that zero-rated suppliers can claim input VAT refunds. Exports of goods are typically zero-rated. Non-oil exports are zero-rated to encourage exports.

VAT Compliance for Businesses

Charging VAT

Calculate VAT at 7.5% of the taxable value. Show VAT separately on invoices. Maintain proper records of all VAT transactions. Issue VAT-compliant invoices to customers.

VAT-Compliant Invoice Requirements

A proper VAT invoice must include your business name and TIN/VAT number, customer's name and address, invoice date and unique number, description of goods or services, quantity and unit price, VAT amount clearly shown, and total amount including VAT.

Input VAT Credit

You can claim credit for VAT paid on business purchases. Input VAT is deducted from output VAT collected. If input exceeds output, you may be entitled to a refund. Keep proper documentation of all VAT paid on inputs.

Filing and Remittance

VAT returns are filed monthly. Filing deadline is the 21st day of the following month. Remit the net VAT (output VAT minus input VAT). File even if you have no transactions (nil return). Use the FIRS e-filing portal.

Calculating VAT

Adding VAT to Prices

If your product costs ₦10,000, VAT is ₦10,000 × 7.5% = ₦750. Total price to customer is ₦10,750.

Extracting VAT from Inclusive Prices

If the total price including VAT is ₦10,750, to find the VAT component divide by 1.075 to get ₦10,000 (excluding VAT). Then multiply ₦10,000 × 7.5% = ₦750 VAT.

Net VAT Calculation

If you collected ₦100,000 in output VAT from customers and paid ₦30,000 in input VAT on purchases, Net VAT payable is ₦100,000 - ₦30,000 = ₦70,000.

Common VAT Questions for Businesses

Do Small Businesses Need to Register?

Yes. Unlike some countries with turnover thresholds, Nigeria requires all businesses making taxable supplies to register for VAT. Even small businesses must comply.

What If I Only Make Exempt Supplies?

Businesses making only exempt supplies don't charge VAT but also can't claim input VAT credits. Registration may still be required for record purposes.

What About Online Businesses?

Online businesses operating in Nigeria must charge VAT on taxable supplies. This includes e-commerce, digital services, and online subscriptions. Foreign digital companies supplying services to Nigeria may also have VAT obligations.

VAT for Consumers

Where You Pay VAT

As a consumer, you pay VAT on most purchases, including restaurant meals and hotel stays, telecommunications services, electronics and appliances, clothing and accessories, professional services, and entertainment.

Understanding Your Bills

VAT should be shown separately on receipts and invoices. If a price seems to include VAT, ask for clarification. For services, ensure VAT is applied correctly.

Consumer Rights

You have the right to receive a proper VAT invoice. Prices should clearly indicate whether VAT is included. Businesses shouldn't overcharge VAT. Report suspicious practices to FIRS.

Penalties for Non-Compliance

For Not Registering

Failure to register attracts penalties. FIRS may assess unpaid VAT with penalties. Business operations may be affected.

For Late Filing

Late filing penalty is ₦5,000 for the first month. Additional ₦500 for each subsequent month. This applies even for nil returns.

For Late Payment

Interest at CBN minimum rediscount rate plus 5% applies. This accrues on outstanding VAT amounts. Compound interest makes delays very expensive.

For Fraud or Evasion

Serious penalties including prosecution may apply. Fines can be substantial. Criminal penalties in extreme cases. Reputation damage affects business.

VAT and State Governments

There has been ongoing debate about VAT collection and distribution in Nigeria.

Current Position

The Federal Government (through FIRS) collects VAT nationwide. Distribution currently is 15% to Federal Government, 50% to State Governments, and 35% to Local Governments.

State Collection Debates

Some states have sought to collect VAT directly. Court cases have addressed this issue. The position continues to evolve. Businesses should follow FIRS guidance on remittance.

Record Keeping Requirements

What to Keep

Keep all sales invoices issued and purchase invoices received. Maintain import documentation, bank statements, and VAT returns filed.

Retention Period

Keep records for at least 6 years. Make records available for FIRS inspection. Maintain both physical and digital copies. Organize records by period for easy retrieval.

Using Technology for VAT Compliance

Accounting Software

Use accounting software that tracks VAT automatically. Ensure correct VAT rates are applied. Generate VAT reports easily. QuickBooks, Sage, and local solutions are available.

FIRS e-Filing

Register on the FIRS e-services portal. File returns online. Make payments electronically. Keep digital records of all filings.

Recent and Upcoming Changes

Tax laws evolve. Stay updated on potential VAT rate changes, new exempt categories, digital services taxation, and changes in filing requirements.

Follow FIRS announcements and work with tax professionals to ensure continued compliance.

Frequently Asked Questions

Is VAT included in prices or added at checkout?

Both approaches are used. Supermarkets often show VAT-inclusive prices. Many businesses add VAT at checkout. Invoices should show VAT separately regardless of display method.

Can I claim back VAT on business expenses?

Yes, VAT-registered businesses can claim input VAT on business expenses. Keep proper invoices and only claim VAT on legitimate business purchases.

What if my business is both exempt and taxable?

You can only claim input VAT for the taxable portion of your business. Partial exemption rules apply. Professional advice may be needed for complex situations.

Conclusion

VAT is a fundamental part of Nigeria's tax system affecting every business and consumer. For businesses, proper VAT compliance—registration, collection, record-keeping, and remittance—is not optional. The penalties for non-compliance can be significant, while proper management of input and output VAT can actually benefit your cash flow.

Stay informed about your VAT obligations, use proper systems for tracking, file and pay on time, and seek professional advice when needed. VAT compliance, while requiring ongoing attention, becomes manageable with proper systems and understanding.