FIRS Appoints MTN, Airtel and Deposit Money Banks as Collection Agents for VAT Deduction at Source

If you run a business that sells goods or services to MTN, Airtel, or any of the Deposit Money Banks in Nigeria, expect to be paid less the VAT amount on your invoices henceforth.

This new development is resulting from a new public notice that was issued by the Federal Inland Revenue Service (FIRS) on Monday, 7 November 2022.

By this notice, which was issued in line with the legal powers conferred on the FIRS under the new section 14(3) of the Nigerian VAT Act, FIRS has now appointed MTN, Airtel, and all money deposits banks (as defined by the CBN guidelines) as agents of the government to collect the VAT charged on invoices issued to them by their vendors or contractors.

Prior to this new notice, only Government Ministries, Agencies & Statutory Bodies, as well as Oil & Gas Companies were legally authorized to withhold or collect VAT at source from invoices issued to them by vendors or contractors in Nigeria.

What are the Implications? Key Points to Note

The appointed companies are now required to withhold VAT charged on invoices issued to them by their vendors or contractors and then remit the VAT so withheld to the FIRS in the currency of the transactions not later than the 21st day of the month after the month in which the tax was withheld or collected.

The VAT payable on taxable supplies of the appointed companies should be paid and reported separately from the VAT withheld at source from invoices issued to them by vendors or contractors, in the format required by the FIRS. A supplier whose output VAT is withheld, as provided in the notice, may consider the following options;

• Deduct the input VAT paid on the goods purchased or imported to make the taxable supplies from the output VAT collected on other taxable supplies;
• Where the input VAT paid to make the supply is not fully recovered from the output VAT on other taxable supplies, the balance is refundable to the supplier. The affected taxpayer will then have a right to the outright collection of the refund due from the government, or apply it as VAT credit to offset its future VAT liability. According to the FIRS, adequate measures have been instituted to ensure prompt payment of refundable input VAT under this arrangement.
• Input VAT claimable is limited to either VAT paid on “goods purchased for resale” or “goods that are raw materials, used for the production of another finished product on which VAT is charged”; and
• Failure to comply with the obligations imposed by the new notice may trigger penalties as stipulated under section 34 of the Value-Added Tax

Other Issues

While we see this development as an opportunity to harmonize and improve collection efficiency, this new appointment may be regarded as conflicting with previous appointments imposed by the FIRS on Non-Resident Suppliers (NRS) under section 10 of the VAT Act, particularly those that render non-exempt services to any of the newly-appointed organisations.

Recall that on 11 October 2021, the FIRS published “Guidelines on Simplified Compliance Regime for Non-resident Suppliers” as one of the unilateral measures implemented by Nigeria to address the “Tax challenges arising from digitalisation – OECD Action 1”. The guidelines were issued for the purpose of providing guidance to non-residents supplying goods, services, or intangibles to persons in Nigeria through electronic, digital, or similar platforms for ease of compliance. FIRS then went on to issue Letters of Appointment as VAT Collection Agents to specific non-resident companies doing business in Nigeria under this category.

The pertinent question now is: With this new notice, are non-resident entities in this category expected to continue to collect and remit VAT charged to their Nigerian customers who have now also been appointed by the Government as Agents of VAT Collection at source? We expect the FIRS to issue further clarifications to resolve this seeming conflict.

However, the clarifications contained in the “Guidelines on Simplified Compliance Regime for Non-resident Suppliers” appear to indicate that the actual intention of the Nigerian Government may have been to capture only digital supplies whose supplies are essentially automated, involves minimal human intervention and is impossible to ensure in the absence of information technology. This type of digital supply may typically not require the non-resident supplier to directly contract with the Nigerian customer in most instances.

The implication is that where detailed contracting that would require the non-resident to issue an invoice containing Nigerian VAT is required, then those supplies would not be considered as “automated” and “involving minimal human intervention”, and should therefore not be brought under the October 2021 guidelines. With this understanding, our opinion is that the Nigerian customer who has been legally appointed as a collection agent should be allowed to withhold the VAT on the non-resident’s invoice without any issue of conflict.