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2020 LIST OF GOODS AND SERVICES EXEMPTED FROM VALUE ADDED TAX IN NIGERIA

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Value Added Tax (VAT) is a consumption tax levied at the rate of 7.5% on goods and services supplied to consumers for a fee. The primary law governing VAT in Nigeria is the Value Added Tax Act 1993 (the “Act”), which provides for the administration of VAT and states the Goods and Services exempted from it. In addition to the Act, the Finance Act 2019 and the Value Added Tax (Modification Order), 2020, also guide the administration of VAT in Nigeria and contains provisions clarifying the list of goods and services which are exempt from VAT or zero rated VAT.

From a joint reading of the Act, the Finance Act 2019 and the Value Added Tax Act (Schedule Modification) Order 2020, the following are exempted from VAT:

  1. all medical and pharmaceutical products;
  2. basic food items;
  3. books and educational materials including educational performances and tuition from nursey to tertiary education;
  4. baby products;
  5. all exported goods and services;
  6. imported machines for use in the Export Processing Zone (EPZ) or free trade zone;
  7. fertiliser and locally made agricultural medicines and agricultural equipment;
  8. life insurance;
  9. transportation services for public use;
  10. lease on residential property;
  11. equipment for utilisation of gas in down-stream petroleum operations;
  12. microfinance banks people’s bank and mortgage institutions services; and
  13. locally manufactured sanitary towels.

Provisions of the Order

  1. The Order adopted the description of basic food items as contained in the Finance Act as agro and aqua based staple food. However, where these items are purchased in restaurants, hotels, eateries, lounges and other similar premises, they are not subject to the exemption. The Order further provides that basic food items sold by contractors, caterers and other similar vendors are not eligible for exemption.
  2. The Order provides that baby products refers to products made for children under three years including baby activity, entertainment products, clothing and even raw materials for diapers production.
  3. Educational books and materials: The Order expands the exemption to include electronic books. It also accommodates music materials, maps and charts, and materials used in vocational and religious education.
  4. Medical Products and Services: healthcare related services for both humans and animals are exempted from VAT. Furthermore, the raw materials used in manufacturing pharmaceutical products were included in the exemption list
  5. Transportation: only public road transport services shared by passengers are VAT exempt. Rented transportation for private use does not qualify for the exemption.
  6. Lease: the Order specifies that lease by individuals for residential purposes alone are VAT exempt. A lease by a corporate entity seeking residential accommodation for its staff will be subject to VAT.
  7. Petroleum Products: the Order exempts petroleum products from VAT including spirit, kerosene, natural gas, other liquefied petroleum gases and gaseous hydrocarbons.
  8. Renewable energy equipment such as wind and solar energy generators have been included in the exemption list.
  9. The Order provides the Common External Tariff (CET) Code for the products under the exemption list. This will provide clarity to importers, Nigeria Customs Service and other port authorities on the appropriate VAT treatment of the affected items and, hopefully, expedite their clearance at the ports.

However, on June 24th,2020, the Federal Inland Revenue Service (“FIRS”) issued a public notice to clarify enquiries it had received from taxpayers on the VAT exempt status of certain goods listed in the Order. In its clarification, the FIRS stated that certain items, which had been exempted from VAT by the Order, did not have the exemption status as they were not listed in the Act or a previous ministerial order. The items include: a) Natural gas; b) Essential raw materials for the production of pharmaceutical products; c) Renewable energy equipment; and d) Raw materials for the production of baby diapers and sanitary towels.

EFFECT OF THE FIRS NOTICE

The contradiction between the provision of the Order and that of the FIRS public notice on whether the items listed above are to be subject to the 7.5% VAT presents a conundrum for taxpayers, especially manufacturers and importers, in assessing their VAT liability. It is however pertinent to note that a public notice issued by the FIRS cannot override a subsidiary legislation promulgated by the Minister of Finance. Therefore, the provisions of the Order will be deemed to stand, pending the time the Ministry of Finance provides further clarity.

 

Doing Business Simplified: Regulatory Requirements For Operating A Restaurant in Nigeria.

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With a growing population of over 200 million, food production is one of the most lucrative businesses in Nigeria. In 2016, the Association of Fast Food and Confectioners of Nigeria (AFFCON) estimated the food industry to be worth over a trillion naira. In April 2020, Euromonitor International reported that demand for restaurants in Nigeria will continue to grow due to expansion of the mid-income group, growing urbanization and busy lifestyle of Nigerians. To operate a restaurant business in Nigeria, there are a number of regulatory requirements which Restaurant Operators (ROs) must comply with, some of which are discussed below.

Environmental Regulations

The Minister of Environment is empowered under the Environmental Health Officers (Registration, Etc) Act of 2002, to issue regulations and directions for Health Officers Registration Council of Nigeria (EHORECON). In several states, the state Ministry of Environment issues guidelines to relevant regulatory agencies to ensure compliance with environmental laws. Consequently, by law, all food outlets, including ROs, must apply and obtain a permit to ensure compliance with basic health and safety guidelines within their immediate environment. The premises of the restaurant will be inspected to ensure that the facilities are well ventilated, with regular disinfection, accessible water supply, disposable towels, rest room facilities, self-closing doors, medical certificate of fitness and training of the food handlers, amongst others.

Local Government licenses

In Lagos State for instance, ROs are required to apply for a food permit within the Local Government where the restaurant is located prior to commencement of operations. In addition, where the alcohol will be sold by an RO, a liquor permit is a requirement. Other relevant licenses issued by the local government are Television License (to use a television or radio), Private Entertainment and Merriment Permit (to run loud entertainment ventures) and Private Car Park Permit (to own a car park). The applicable fees for obtaining these licenses are subject to assessment of the local government officials.

National Agency for Food and Drug Administration and Control (NAFDAC)

NAFDAC, a federal government agency which regulates the production, manufacturing of food and drugs in Nigeria created under National Agency for Food and Drug Administration and Control Act of 1993. Generally, restaurants which process and sell food products in commercial quantity may be required to obtain a Good Hygiene Practice (GHP) license from NAFDAC prior to commencement of operations. A GHP license is usually issued upon satisfaction that the equipment of the food processor meets certain standards and that the food handlers possess the required certification.

Signage/Advertising

In operating a restaurant, it is typical to place a signage outside the premises for the purpose of advertising. To achieve this, Lagos State signage laws require all businesses, including ROs, with outdoor advertising to obtain a signage permit with the Lagos State Signage and Advertisement Agency.

Conclusion

There are other regulators such as the Federal Competition and Consumer Protection Commission, states’ ministry of health and the relevant federal and state tax regulatory bodies, who are in charge of ensuring compliance with applicable laws and regulation. Whilst there may be an overlap in their functions, the common goal of the regulators is to ensure the general welfare and safety of consumers.