Value Added Tax (VAT) — Calculation Methodology
Calculates net VAT position by computing output VAT on sales, deducting input VAT on purchases, and determining whether a net payment or credit results.
Calculates net VAT position by computing output VAT on sales, deducting input VAT on purchases, and determining whether a net payment or credit results.
Categorise Sales and Purchases
Section 78All sales and purchases are classified into three VAT categories: standard-rated (7.5% VAT), zero-rated (0% VAT, eligible for input credit), and exempt (no VAT, no input credit). Exempt supplies include basic food items, medical services, and educational services.
| Category | VAT Rate | Input Credit | Examples |
|---|---|---|---|
| Standard-Rated | 7.5% | Eligible | Most goods and services |
| Zero-Rated | 0% | Eligible | Exports, diplomatic supplies |
| Exempt | N/A | Not eligible | Medical, education, basic food |
Calculate Output VAT
Section 78Output VAT is computed at 7.5% on all standard-rated sales. Zero-rated and exempt sales do not attract output VAT.
Calculate Input VAT
Section 79Input VAT is the VAT paid on standard-rated business purchases. VAT on exempt purchases cannot be reclaimed. Input VAT is deductible against output VAT to determine the net position.
Apply Prior Period Credit
Section 79Any unused VAT credit carried forward from a previous filing period is deducted from the current period’s net VAT liability.
Determine Net VAT Position
Sections 78–79Net VAT = Output VAT − Input VAT − Prior Credit. A positive result indicates a net amount payable to NRS. A negative result indicates a VAT credit position (refund may be claimable by registered persons).
Check Registration Threshold
Section 53(3)Businesses with total annual turnover at or below ₦25,000,000 may not be required to register for VAT. Registration is voluntary below this threshold, though it may be beneficial for businesses wishing to reclaim input VAT.
This methodology is provided for informational and educational purposes only. Tax calculations are estimates based on the information provided and the rates published in the Nigeria Tax Act 2025. Individual circumstances may vary. Consult a qualified tax adviser for personalised guidance.