The Federal Inland Revenue Service (FIRS) Appoints MTN, Airtel and Banks as VAT Collection Agents

The FIRS has issued a Public Notice (the “Notice”) appointing MTN, Airtel and all money deposit Banks (as defined in the Central Bank of Nigeria Guidelines) to withhold and collect Value Added Tax (VAT) on the supply of goods or services made by their vendors and remit the sum withheld to the FIRS. According to the Notice, this appointment is to take effect from January 1, 2023.

The VAT withheld is to be remitted in the currency of the transaction on or before the 21^st day of the month immediately following the month the tax was withheld. A vendor whose output VAT is withheld in compliance with the Notice may deduct the input tax on the affected transaction from the output tax collected on other taxable supplies. Where the input tax is not fully recovered from the output tax on the other taxable supplies, the balance is refundable to the vendor. The vendor may opt to utilize the amount refundable in offsetting future VAT liability or request for a cash refund.

Tax Implications of the Notice

• With effect from January 1, 2023, MTN, Airtel and all money deposit Banks are required to settle invoices issued by their vendor net of VAT and remit VAT charged on such invoices directly to the FIRS.
• Compliance with the Notice will create additional compliance costs for MTN, Airtel and the money deposit Banks.
• Withholding VAT at source may create cash flow challenges for some vendors and denies such vendors the opportunity of offsetting allowable input VAT against the VAT withheld at source in affected transactions.

Our Comments

• The Notice is bound to improve the level of transparency in the tax administration and collection system and expand the current tax base by bringing more entities into the tax net.
• The additional costs that will be occasioned by compliance with the Notice and the stipulated penalty for non-compliance with the Notice is a major source of concern.  The FIRS has indicated in several public forums that more companies may be appointed in the nearest future to collect and withhold VAT on invoices issued by their vendors. This additional compliance burden may negatively affect the ease of doing business in Nigeria.

• Furthermore, it is not clear whether the request for a refund by a vendor in a credit position will trigger a special tax audit. Such special tax audits are usually onerous and protracted in practice.
• The Notice is issued pursuant to section 14 (3) of the Value Added Tax Act Cap V1, LFN 2004 (as amended) (VAT Act). There may be manifest difficulties in reconciling the provisions of section 14(3) of the VAT Act with the combined effect of section 31 of the Federal Inland Revenue Establishment Act, 2007 (as amended) (FIRS Act), section 68 of the FIRS Act, and Item 1 -9 of the First Schedule to the FIRS Act.
• We also observed that there was no reference to the registered corporate name of the appointed telcos in the Notice.  Additionally, the issuance of letters or notification of appointment to each of the appointed companies should also be considered by the FIRS in other to prevent uncertainties.