November 8,2022

The Federal Inland Revenue Service has appointed MTN, Airtel, and commercial banks also known as money deposit banks to withhold Value Added Tax (VAT) charged on all taxable supplies made to them, and remit to the Service.

This is according to a public notice issued by the FIRS issued on the 7th of November and signed by its Executive Chairman, Muhammad Nami.

Before now, only oil and gas firms and government agencies were allowed to deduct VAT from invoices from suppliers.

What FIRS is saying: “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.”

We earlier reported the news with details here.

In simple English: The telco duo of MTN a d Airtel as well as commercial banks will now deduct 7.5% VAT from the invoices of their vendors who supply those goods and services.

• Prior to this announcement if you supply goods and services to MTN or Airtel or the banks and invoice them inclusive of 7.5% VAT, they pay you the full amount inclusive of the 7.5% VAT while deducting withholding tax (WHT).
• Now, they will not only deduct WHT but also deduct VAT from your invoice

How does this affect you? Before now most suppliers or vendors of banks and telcos typically invoice them inclusive of VAT and WHT.

• Upon receipt of payment of their invoices only WHT are deducted while the banks and selected telcos and pay you the net amount inclusive of VAT.
• With this announcement, the telcos and banks will now only pay you the invoice amount net of VAT and WHT. They are now expected to remit the VAT on your behalf just the way they did with WHT.
• This new policy affects all suppliers or vendors for telcos and banks with an annual turnover of above N25 million.

How do you claim your VAT back? In Nigeria, VAT output refers to VAT includes in a sales invoice while VAT input refers to VAT that is paid by vendors when they purchase items

• Typically, vendors deduct the VAT input from the VAT output and then pay the difference to the FIRS.
• However, the FIRS is saying, that “A supplier whose output tax is withheld, as provided in this 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,
• This suggests, when the telcos or banks deduct VAT from your invoice, you can claim the portion of tax associated with the cost of supplying the service or good from the telcos or banks otherwise called the input VAT from the output VAT you receive from sales to other companies that are not banks and the selected telcos. 
• “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,” the Notice explained.”

Numbers game: According to Nairametrics data, leading commercial banks quoted on the stock exchange incurred a total of N1.1 trillion in other operating expenses in 2021.

• Telcos, MTN and Airtel spent N1.49 trillion and $850 million respectively in combined direct and indirect expenses in 2021.
• This could form a major pool of new tax revenues for the government