The rules governing VAT under the New Tax Act have been updated, clarified and expanded.
Whether you’re a consumer wondering why things feel more expensive, or a small business owner trying to make sense of what you must charge and remit, understanding the new VAT rules is now more important than ever.
What Is VAT and How Does It Work?
The words ‘Value Added Tax’ are ones most Nigerians see on receipts but rarely stop to think about. You’ve likely noticed that little line showing 7.5% added to your bank transaction or your online shopping. But VAT has always been more than a small surcharge, it’s one of the most important taxes funding Nigeria’s public services.
Value Added Tax, Under the new Nigeria Tax Act, 2025, VAT remains defined in Section 52(1) as “a tax chargeable on the supply of all goods and services except those expressly exempted.” The principle is simple: it is the final consumer who ultimately bears the cost, while businesses act as collection agents for the government.
At every stage in the supply chain, VAT is charged, collected and partially recovered. A wholesaler charges VAT to a baker; the baker charges VAT to a supermarket; the supermarket charges VAT to the consumer. Each business deducts the VAT it paid (its “input tax”) from the VAT it collected (its “output tax”), and afterwards remits only the balance to the Federal Inland Revenue Service (FIRS). In the end, only the final buyer, the consumer, cannot claim a refund. The system ensures the government collects its due share of economic value added at every link in production.
What’s New Under the 2025 Act
1. Digital Services Are Now Covered
For the first time in Nigerian history, foreign digital service providers are explicitly required to register for VAT, collect it from Nigerian customers, and remit it locally. This inclusion, outlined in Section 59(2), reflects a global shift: as commerce migrates online, taxation follows. That means platforms like streaming services, cloud storage providers, and e-commerce marketplaces must now comply. It implies that those services may now cost more by January 1, 2026, when the new laws enter into effect.
2. Stricter Remittance Rules
The new regime imposes firmer deadlines. VAT collected in any given month must now be remitted on or before the 21st day of the following month (Section 62(1)). Failure to do so attracts surcharges and penalties under Section 68 of the NTA and will accrue interest daily until the balance is cleared. In short, procrastination now costs money.
3. Expanded Scope and Clarity
The new 2025 Tax Act provides much more clarity about how VAT applies to newer sectors, especially digital services, foreign providers and previously ambiguous categories of goods. Ambiguous areas such as cross-border services, digital content, and composite transactions have been clarified. The FIRS now has express authority to issue binding public rulings that interpret VAT obligations for emerging sectors.
Exemptions vs. Zero-Rated Supplies
Not everything you buy comes with VAT. Some goods and services are exempt, while others are zero-rated. It’s important to understand the distinction.
Exempt Goods and Services, listed under Schedule IV of the Act, are outside the VAT system entirely. Sellers of exempt goods do not charge VAT, but they also cannot recover VAT paid on their purchases. This category includes basic foodstuffs like rice, yam and bread; medical and pharmaceutical products; educational materials and tuition; residential rent; and public transport fares.
In contrast, Zero-Rated Goods and Services, primarily exports and certain agricultural or energy-related goods, are still taxable, but at a 0% rate. Sellers don’t charge VAT to buyers, yet they retain the right to reclaim input VAT paid on their business expenses. As stated in Section 64(3), zero-rating exists to keep Nigerian exports competitive by preventing tax from inflating export prices.
Input Tax Credits: How Businesses Can Now Recover VAT
For registered businesses, one of the greatest benefits of VAT is the input tax credit mechanism. It prevents double taxation by allowing a business to deduct the VAT it has paid on goods and services used for taxable purposes.
Consider a manufacturing firm that collects ₦500,000 in VAT from customers in a month but has already paid ₦300,000 on raw materials and equipment. Under Section 66(2), the firm remits only ₦200,000, otherwise the net VAT.
But this benefit comes with boundaries. Input tax can only be claimed on purchases directly related to taxable business activities. Personal expenses, mixed-use goods, or entertainment costs are excluded. Using company assets partly for private purposes requires proportional adjustment. The new Act explicitly codifies this detail to reduce abuse.
What This Means for Consumers
For the average Nigerian consumer, VAT is an unavoidable part of daily life. Every time you buy goods or services from a VAT-registered supplier, you pay it. The new VAT law does not increase the 7.5% standard rate, yet many Nigerians will perceive that prices have risen. Why? Because more transactions, especially digital ones, are now correctly capturing VAT that previously went unrecorded.
From January 2026, streaming subscriptions, digital advertisements and cloud-based tools will start reflecting VAT charges. In effect, the informal corners of the economy are being brought into the light. For the first time, Nigerian consumers will bear the same transparent VAT treatment whether they buy a loaf of bread at a local store or a software license from an overseas vendor.
While this may seem like an added cost, it also signals a maturing economy, one where tax collection becomes predictable, structured, and fair across sectors. The government’s stated aim, under Section 2 of the NTAA, is to ensure that “taxation reflects the modern digital and consumption-driven structure of the economy.”
For Business Owners
Businesses remain at the centre of the VAT system, not as victims, but rather, as intermediaries of fiscal trust.
If your company’s annual turnover exceeds the registration threshold (currently ₦25 million under Section 53(3)), registration with FIRS is mandatory. Once registered, businesses must issue VAT-compliant invoices, display their registration number, and remit collected VAT monthly.
Proper recordkeeping has never been more important. Under Section 69(1) of the NTA, failure to keep accurate VAT records or issue invoices can result in fines of up to ₦250,000 or 10% of the undeclared tax, whichever is higher.
For exporters, the zero-rating provisions remain one of the Act’s most strategic features that will ensure Nigerian goods stay price-competitive abroad while allowing full recovery of input VAT.
How Taxpal Can Help with VAT Compliance
Managing VAT compliance can be complex, especially with the new digital service requirements and stricter remittance rules. Taxpal provides comprehensive VAT support for businesses of all sizes. They offer:
- Automated VAT calculation for all types of transactions
- Digital invoicing systems that ensure VAT compliance
- Input tax credit tracking to maximize your recoveries
- Remittance scheduling to avoid late payment penalties
- Registration assistance for new businesses
- Compliance monitoring to keep you on track with changing regulations
Whether you’re a small business just starting with VAT or a large company managing complex VAT scenarios, Taxpal’s tools and expert guidance ensure you stay compliant while optimizing your tax position. To get started, visit their website and choose the option that suits you best, whether it’s a consultation or portal access. They will help you navigate VAT requirements so you can focus on growing your business.
