According to
Nigerian Law what is Tax Rebate? Its Calculation,Reasons,Documentation & Methods
Tax Rebate/Tax Refund
A tax refund or tax
rebate is a payment to the taxpayer when the taxpayer pays more tax
than they owe.
Calculation of Tax Rebate/Tax Refund
Tax rebate/Tax refund = Input tax – Output Tax
Input Tax
An input tax is a levy paid by a
business on acquired goods and services. An example of an input tax is the value added tax. When a business
then taxes its customers, this is
considered an output tax. The business pays the federal revenue authority the
difference between the output tax and input tax if the amount is positive, or
it can apply for a tax refund if the amount is negative.
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Output Tax
Output tax is the VAT that is calculated and charged on the sale of goods and
services from your business, if you are VAT-registered. This must be calculated on sales to other
businesses and consumers alike. Output
VAT must be calculated when goods or services are withdrawn for
private use from a registered business.
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Most common reasons for claiming a Tax Rebate
- Overstatement
of tax amounts remitted online into the tax accounts by the collecting
banks
- Tax
remittances made with mistaken Tax Identification Numbers (TIN)
- Outstanding
input Value Added Tax (VAT) claim resulting from zero rated VAT supplies,
supplies to oil and gas companies or government agencies and supplies to
enterprises operating within the free trade zones
- Taxes
deducted or paid on the supplies aspect of a split contract arrangement
- Excessive
tax payments arising from errors or mistakes on the part of the taxpayer
in assessing or filing tax returns, or errors arising from wrong bases of
tax calculations except where such calculations were based on generally
prevailing practice of the FIRS at the time of filing the tax returns.
- Excess
of utilizable withholding tax (WHT) credits over current and projected tax
liabilities.
The under listed items must be presented by the
Taxpayer before a Tax Refund can be processed. They are:
1. The taxpayer must be registered for Tax purposes with any of the
FIRS Large Tax Offices (LTO), Medium
Tax Office (MTO), or Micro and Small Tax Office (MSTO).
2. Original copy of Tax Refund Request application from Taxpayer or
Collecting Bank stating clearly the following:
- The precise ground giving rise to the refund.
- The tax type for which refund application is
being made.
- The period in which transactions giving rise
to request arose.
3. The Refund request application from the Taxpayer or Bank should
contain the following depending on
reason for refund request.Original documents completed by the taxpayer for the transaction;
should include:
- Original FIRS pay-in-slip (Bank Teller)
- WHT Schedule (when applicable)
- PAYE deduction Schedule (when applicable)
- Original copy of stamp duty document
(un-utilized stamp duty only).
- Photocopy of the stamp duty document for
utilized stamp duty.
- Certificate of stamp duty (un-utilized stamp
duty only).
- Letter of authority from the promoters of the
company (un-utilized stamp duty only)
- e-ticket (Electronic payment acknowledgement
receipt)
- Copy of cheque / draft /payment instruction used
for the payment
- Original FIRS receipt issued for the payment
- Where the correct payment was affected, the
photocopy of FIRS receipt issued for the correct payment and original
copy of FIRS receipt of the Overpaid amount.
4. Tax Refund Application will be processed in the name that
appears on the Pay Direct platform in case of existing Taxpayers.
5. Banks are required to provide an indemnity letter for all refund
being sought. This indemnity letter must be duly stamped at our appropriate
stamp duties office.
Please note that:
All the documents submitted above will be carefully verified and
audited where applicable by FIRS and only successful applications will be
passed on to the approving authority for Tax Refund, which must be made within
ninety (90) days of the decision of
the Service that you qualify for a refund.
Zero Rated Products
Classification:
o
Non-oil exports
o
Goods and services purchased by diplomats
o
Goods purchased for use in humanitarian donor-funded projects
There are three methods of refund available to Nigerian business
owners. They include, the credit method, the direct cash refund method and the
final method is a combination of both.
1. Credit Method
This is carried out with the use of VAT form 002 (VAT Self-Assessment
Form) which contains the calculation of total Output VAT and Input VAT. On this
form the supplier of Zero-rated goods discloses the Output VAT of zero and
Input VAT incurred. This method allows you to offset the credit balance of
Input VAT against any subsequent Output VAT chargeable. This is a popular VAT
refund approach and is encouraged by the Nigerian tax authorities. However, it
will only apply where the supplier of Zero-rated goods also supplies other
goods on which VAT is applicable at the standard rate. Where this is not the
case, the direct-cash method is preferable.
2. Direct Cash Method
Under this method, an application is made to the FIRS stating
the excess of Input VAT over Output VAT. This application is made along with
the relevant supporting documents.
All claims for refund, irrespective of the mode of refund, are
subject to verification by the tax authorities. It is therefore important for
all supporting documents to be maintained. Some of such documents include,
Monthly VAT return form 002 (a Vatable entity is required to
file monthly VAT returns stating it VAT status, whether or not VAT is payable);
Input VAT invoices and sales invoices;
Notices of import and original proof of tax payment on imports;
Export documents, notices of export and proof of realization of
export; and
Any other relevant document needed to back up refund claim.
The audit is carried to confirm the amount up for claim by the
taxpayer. The direct cash refund method is the method mostly prone to audit by
the tax authorities. It is important to state at this point that this audit
usually delays the refund process. Therefore, it is preferable to use the
credit approach as you are able to personally administer the refund and there
may not be a cause for audit by the tax authorities. Input VAT claim via the
credit method becomes subject to audit by the tax authorities where the Input
VAT amount has accumulated overtime and the company intends to offset the
amounts against its current Output VAT.
3. Zero-rated goods and Exempt goods.
Many tax payers fail to distinguish between Zero-rated goods and
Exempt goods. Exempt goods are not liable to VAT, so if you supply them, then:
o
you don’t charge any VAT on them;
o
you don’t include them in your VAT accounts; and
o
you can’t normally reclaim VAT paid on purchase of inputs.
Therefore, the major distinction between Zero-rated goods and
Exempt goods is the ability to reclaim Input VAT incurred.
VAT exempt items are specifically listed in the Act and are
primarily essentials. Some of which include:
o
All medical and pharmaceutical products
o
Basic foods items
o
Books and educational materials
o
Baby products
If you sell a combination of exempt goods and goods that are
liable to VAT (whether at 5% or 0%), your business is ‘partly exempt’ and you
will only be able to reclaim Input VAT related to the VAT incurred on the
taxable goods.
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ReplyDeleteToo much informative
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