The FIRS has appointed MTN, Airtel and all money deposit Banks to collect or withhold VAT on invoices received from their vendors and remit to the FIRS effective from 1 January 2023.
What does this mean?
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. Currently a similar arrangement is applicable to companies operating in the Oil & Gas sector as well as Government and their agencies.
What will be the impact?
- Customers of MTN, Airtel and Banks will not be affected, and the prices of telecom and banking services should remain the same
- The companies listed in the Notice and their vendors will be impacted except a vendor with annual turnover less than N25 million
- The key issue will include compliance cost by the appointed companies and cash flow challenges for the affected vendors
- Other issues to consider will include cut-off point and reconciliation, reverse charge of VAT, and import VAT.
- The assurance by the FIRS to refund eligible input VAT by the affected vendors is expected to cushion the cash flow impact if efficiently implemented
- Ultimately the Withholding VAT should provide the intelligence to improve tax compliance resulting in more revenue for the government. This however needs to be balanced within the context of the associated cost to the affected taxpayers.
See a copy of the Notice here: Download FIRS VAT withholding notice_Telcos & banks