TAX TIPS & FACTS
- Value Added Tax (VAT)
What is Value Added Tax – VAT?
VAT is a Tax on goods and services. It is paid by the buyer to the registered seller who remits the tax to the tax authorities. The tax is administered and managed by the Federal Board of Inland Revenue. The tax is collected at each stage of the production and distribution chain. The rate of tax is 7.5% on the value of all taxable goods and services. It was 5% before the Finance Act 2020 increased the rate by 50%. There is compliance threshold which exempts companies with annual turnover of N25,000,000 or less from registering for VAT, charging VAT, and rendering monthly return of sales and purchase. It also exempts them from the penalties prescribed by the Act for non-compliance with the VAT Act provisions.
Does a Business Owner need to bother about VAT?
Yes, a business owner cannot avoid VAT. Only very small businesses are exempted from the legal obligation to register for VAT. The threshold as explained above is N25million naira or less. Even if the business is small, you will have to pay VAT on the goods and services which you purchase.
Is there a Special VAT Problem for Retailers or Shopkeepers?
Yes, there is the problem of selling a large number of items, which are usually low priced. To solve this problem requires having a good record of your sales and purchases. The system will aggregate your total sales and the VAT rate of 7.5% will be applied to the total turnover.
How can I establish the record keeping system for VAT?
The VAT Act requires that a person who is registered for VAT should keep proper books of all transactions, operations, imports and other activities relating to taxable goods and services as are sufficient to determine the correct amount of tax due to be paid.
A good system of invoicing and book-keeping has been developed to meet this requirement. The system is simple and easy to operate. The solution is a software titled BusinessProfits. It will relief you of all your problems about VAT and record keeping. You will be monitoring your profits and you operate your business.
For more information, check on: businessprofitssolution.