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EXPLAINER: FIRS new VAT policy turns telcos to tax collectors. What it means



For taxable supplies made to them, Deposit Money Banks (DMBs), MTN and Airtel will withhold the 7.5 per cent Value Added Tax (VAT) on behalf of the Federal Inland Revenue Service (FIRS).

FIRS made it known in a document signed by its executive chairman, Muhammad Nami, on Monday. The commercial banks and telcos will become collectors starting from January 1, 2023.

The tax administrator said, “This notice is 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 Notice reads further, “The companies shall remit the tax withheld or collected, in the currency of transaction, to the service on or before the 21st day of the month immediately following the month the tax was withheld or collected,”

FIRS also explained that, “The tax withheld or collected under this notice shall be remitted in the format prescribed by the service but separately from VAT due on the companies’ taxable supplies.”

It was also learnt that a supplier “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”.

In the notice, Nami revealed that FIRS was willing to refund suppliers unable to recover their input tax, but this will be determined by section 17(2)(a) of the VAT act.

“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.” FIRS added.

Explaining further that input tax on any overhead, service, and general administration of any business which otherwise can be expanded through the income statement (profit and loss accounts), according to the section 17(2)(a) of the VAT act, “shall not be allowed as deduction from output tax”.

READ ALSO:Gamblers to pay tax, as FIRS commences on-the-spot deductions

What this means?

According to PricewaterhouseCooper (PWC), in a statement addressing the new policy from FIRS, “Ordinarily under a VAT system, a supplier or service provider charges VAT on their invoice which is to be paid by the customer along with the price of the good or service for onward remittance to the FIRS.

“However, under the Withholding VAT rule, a customer is required to pay the vendor net of VAT while the VAT is remitted directly to the FIRS. Currently a similar arrangement is applicable to companies operating in the Oil & Gas sector as well as Government and their agencies.”

What will be the impact?

Listing the impact of the policy, PWC stated;

• Customers of MTN, Airtel and Banks will not be affected, and the prices of telecom and banking services should remain the same.

• The companies listed in the Notice and their vendors will be impacted except a vendor with annual turnover less than N25 million.

• The key issue will include compliance cost by the appointed companies and cash flow challenges for the affected vendors.

• Other issues to consider will include cut-off point and reconciliation, reverse charge of VAT, and import VAT.

• The assurance by the FIRS to refund eligible input VAT by the affected vendors is expected to cushion the cash flow impact if efficiently implemented.

• Ultimately the Withholding VAT should provide the intelligence to improve tax compliance resulting in more revenue for the government. This however needs to be balanced within the context of the associated cost to the affected taxpayers.

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