The Federal Government has introduced a new bill seeking to exempt a range of essential products and services from Value Added Tax (VAT) as part of its efforts to ease the financial burden on citizens.
The bill, titled “A Bill for an Act to Repeal Certain Acts on Taxation and Consolidate the Legal Frameworks relating to Taxation and Enact the Nigeria Tax Act to Provide for Taxation of Income, Transactions and Instruments, and Related Matters,” was dated October 4, 2024, and seen by Nairametrics.
The VAT exemption list includes baby products, locally manufactured sanitary towels, pads, and tampons, in a bid to make these items more accessible.
The bill document listed the items exempted from the Value Added Tax imposed to include “Baby products; locally manufactured sanitary towels, pads or tampons.”
However, the bill extends these exemptions to other categories as well, covering both economic and social sectors.
Other items exempted from VAT
- Additional items on the exemption list include military hardware, arms, ammunition, and locally manufactured uniforms supplied to the armed forces, paramilitary, and other security agencies.
- The bill further exempts shared passenger road transport services from VAT, likely in an effort to mitigate transportation costs for the public.
- In the agricultural sector, the bill provides VAT relief for the purchase, hire, or lease of equipment such as tractors and ploughs, as long as they are used for agricultural purposes.
- However, individuals engaged in agriculture are required to first pay the VAT and subsequently request a refund from the relevant tax authorities.
- Diplomatic and educational activities also receive consideration in the proposed law. Goods or services supplied to diplomatic missions, diplomats, and entities operating under the Diplomatic Immunities and Privileges Act are listed as exempt, provided the activities are not for profit. Similarly, plays and performances conducted by educational institutions as part of the learning process are included in the VAT exemption.
- Other items highlighted for exemption are government licenses, land or buildings, and financial instruments such as money or securities, including interests in these instruments. The bill also notes that supplies consumed within export processing or free trade zones will not attract VAT, provided they are used for approved activities.
The bill emphasizes that VAT will only be collected on these items if the Minister, by an order published in the Official Gazette, specifies a date for the imposition of VAT on any of the exempted items.
This provision suggests that while the exemption will initially be in place, the government retains the flexibility to modify these rules as needed in the future.
What you should know
Nairametrics observed that this was not the first time the government is introducing VAT exemptions on some of the items on the list.
In the Finance Act of 2020, about 20 basic food items, locally manufactured sanitary towels, pads and tuition fees relating to nursery, primary, secondary and tertiary education were added to the exemption list of goods and services for VAT. The new Act then had raised VAT from 5% to 7.5%.
However, in the current bill at the National Assembly will likely increase from 7.5% to 10% by 2025.
The new bill also included a section to increase VAT to 12.5% by 2026 to 2029 and 15% from 2030 upward.