FIRS appoints MTN, Airtel, banks to collect VAT from their suppliers

The Federal Inland Revenue Service (FIRS) has appointed MTN, Airtel and deposit money banks (DMBs) to withhold value added tax (VAT) charged on all taxable supplies made to them.

The VAT is to be remitted to the FIRS.

In a public notice released on Monday and signed by Muhammad Nami, its executive chairman, the FIRS said the new policy takes effect from January 1, 2023.

VAT is administered by FIRS at a charge rate of 7.5 percent. It (FIRS) transfers the generated revenue from the tax paid to the three levels of government via the federation accounts allocation committee (FAAC).

In the notice, the tax agency explained the role of the companies as well as the obligations of their suppliers with regards to the withholding of VAT.

“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.

The FIRS said the companies are expected to remit the tax they would withhold on or before the 21st day of the month immediately following the month the tax was withheld, in the format prescribed by the service.

“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,” the notice reads.

“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.”

The body agency further explained the options available to any supplier of the named companies whose output tax is withheld.

It said a supplier whose output tax is withheld, as provided in the notice, “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”.

“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.

The FIRS said it has instituted adequate measures to ensure prompt payment of refundable input tax under the new arrangement.

It also said input tax claims, which include refunds, are subject to the limitations imposed by section 17(2)(a) of the VAT act.

Section 17(2)(a) of the VAT act states 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) shall not be allowed as deduction from output tax”.

WHAT DOES THIS MEAN?

PricewaterhouseCoopers (PwC) Nigeria explains that 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.

It says customers of MTN, Airtel and banks will not be affected, and the prices of telecom and banking services should remain the same.