The primary aim of a business is to make profit and reduce tax as much as possible.
This could be either through tax planning or avoidance, the Revenue driven approach of the Federal Government in the area of taxation has propelled tax payer to look critically into their transactions to identify goods and services that are VAT-able, exempted, and zero-rated.
Value Added Tax
Value Added Tax is levied on the supply of goods and services and on the importation of goods except for zero-rated or exempt good and services. The tax shall be computed at the rate of 5% on the value of all goods and services VAT-able.
Zero-rated and exempt VAT
Zero-rated VAT are good and services subject to VAT but at zero percent while exempt VAT are not liable to VAT.T he main difference between zero rate and exempt supplies is that the suppliers of zero-rated goods and services can still reclaim all their input VAT, but the suppliers of exempt goods cannot reclaim their input VAT.
The question a business will then ask is: Is my product or services VAT-able or not VAT-able?
The First schedule of VAT Act, clearly states all the goods and services that are exempted and zero-rated. The VAT status of all medical and pharmaceutical products and services implies that they are exempted from VAT.
Interestingly, books and educational material also falls under the category of exempt goods, however, FIRS requires that all taxable persons whose goods and service are exempt are still required to render a NIL returns to the Board on or before 21st of the month following the month of transaction, failure to render returns attract a penalty of #5,000 per month.
The tax invoice issued by a pharmaceutical company should include the following except VAT: Tax payers identification number (TIN), Name and address, VAT registration number, date of supply, name of purchaser, Gross amount of transaction.
For a Pharmaceutical company whose product are exempt but are also involved in the sales of book, the revenue from the sales of book will be subject to VAT since the ACT explicitly stated that only books and educational material are tax exempt. ‘Others’ (books) that are not for educational purpose will be subject to VAT, however, one need to be careful in defining the books that are educational and non- educational. Educational books are category books regarding education.
For books used for classroom instruction in various subjects, the field of educational materials (EM) refers to a subset of the book, games, Internet, and software publishing industries that is focused on providing resources to a variety of educational market segments.
VAT Act LFN 2004 as amended, schedule I states that pharmaceutical product, book and educational material are tax exempt, but in as much as they are exempted, other products and services not on this schedule are subject to VAT.
Disclaimer: This article is a tax information and of general guidance only, and does not in any way serve or replace a tax advisory.