Pursuant to the powers conferred by Section 38 of the Value Added Tax Act, (“VAT Act”), the Honourable Minister of Finance, Budget and National Planning (“Minister”) on February 3, 2020, issued the Value Added Tax (Modification Order), 2020 (“VAT Modification Order”).
By the VAT modification order (a gazetted copy has recently become available in the public domain), the Minister has modified the provisions of the First schedule to the VAT Act by expanding and adding to the list of goods and services designated as being exempted from VAT. The number of goods and services exempt from VAT as contained in the VAT Modification Order comes to a total of Eight Hundred and Seventy-Eight items.
HIGHLIGHTS OF THE CHANGES INTRODUCED BY THE VAT MODIFICATION ORDER
1. BASIC FOOD ITEMS
Basic food items refer to agro and aqua based staple foods. They include additives, bread, cereals, cooking oils, culinary herbs, fish, flour & starch, fruits, live or raw meat & poultry, milk, nuts, pulses, roots, salt, vegetables, and water (except where sold in restaurants, hotels, eateries, lounges and other similar premises, as well as sold by contractors, caterers and other similar vendors).
2. BABY PRODUCTS
Baby Products are defined as products for the use of babies from birth to 36 months (3 years of age). They include baby safety car and home accessories, high chairs, baby bath tubs, baby garments, baby feeding products, baby monitors, diapers etc.
3. RAW MATERIALS FOR THE PRODUCTION OF BABY DIAPERS AND SANITARY TOWELS
The items listed as exempt from VAT under this category include: Beauty & make-up preparation and skin care, waxes, glues & adhesives, plates, sheets & films of plastic, and vulcanized rubber, wood pulp and toilet / facial tissue.
4. BOOKS AND EDUCATIONAL MATERIALS
Books and Educational Materials are defined as physical and electronic books and materials used for instructional purposes and to facilitate learning in all educational institutions (Pre-primary, Primary, Secondary, Tertiary, Special, Adult, Vocational, Technical or Science, and Religious Education).
5. MEDICAL AND PHARMACEUTICAL PRODUCTS
Medical Products refer to articles, instruments, apparatus, machine and software used in the prevention, diagnosis or treatment of illness or disease or for detecting, measuring, restoring, correcting or modifying the structure or function of the body for some health purpose but excludes cosmetology or fitness devices and other related devices.
Medical services refer to healthcare related services for both humans and animals rendered by a qualified healthcare practitioner, excluding cosmetology, spa, gymnasium and similar services.
Pharmaceutical Products mean components and finished products of both modern and traditional medicine intended for human use in the diagnosis, cure, mitigation, treatment, or prevention of disease or injury; which are safe, effective, and of good quality, used rationally and are approved by the local regulatory authority.
6. ESSENTIAL RAW MATERIALS FOR THE PRODUCTION OF PHARMACEUTICAL PRODUCTS
The items listed as exempt from VAT under this category include a variety of starch products (pharmaceutical & non-pharmaceutical grades), oil products (palm, soya bean, groundnut, palm-kernel, corn mustard, shea / karite & coconut oils).
7. PLANT, MACHINERY AND EQUIPMENT PURCHASED FOR UTILIZATION OF GAS IN DOWNSTREAM PETROLEUM
Downstream Gas Utilization is defined as the marketing and distribution of natural gas for commercial purposes and includes power plant, liquefied natural gas, gas to liquid plant, fertilizer plant, and gas transmission and distribution pipelines.
8. FERTILIZER, LOCALLY PRODUCED AGRICULTURAL AND VETERINARY MEDICINE, AND FARMING MACHINERY & EQUIPMENT
Fertilizers are defined as “all fertilizers” while Locally produced Agricultural and Veterinary Medicines is defined as drugs and vaccines produced in Nigeria for the treatment of animals, fishes and plants, including veterinary pharmaceuticals, dietary supplements, and pesticides & agrochemicals.
Farming Machinery & Equipment are equipment used extensively for farming or for any other agricultural purposes such as tractors, ploughs, harvesters etc.
9. PETROLEUM PRODUCTS
Petroleum Products exempt from VAT include Aviation Spirit, Motor Spirit (super), Motor Spirit (ordinary), Kerosene (type jet fuel), kerosene, Natural Gas, other Liquefied Petroleum Gases & Gaseous hydrocarbons.
10. RENEWABLE ENERGY EQUIPMENT (RECOMMENDATIONS)
Renewable Energy Equipment recommended and included in the list of exempt items are: generators of different capacities which are either solar-powered, wind-powered or Solar DC generators and photosensitive semiconductor devices.
COMMENTARY
The VAT Modification Order is a timely piece of legislation which is responsive to the economic situation presently faced by Nigeria and the world at large. By expanding the number of VAT exempt items to include products used by a vast number of Nigerians daily cutting across healthcare, education, agriculture and manufacturing of food products as well as petroleum products, the Government is intervening in the harsh realities which we face as a nation due to the COVID-19 Pandemic.
It will be interesting to see the Government continue to roll out laws, initiatives and programs focused on helping the people in these times.
The above is for informational purposes only and does not constitute professional advice by Blackwood & Stone LP.
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