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Value Added Tax (VAT) is simple in theory but can become complex in practice, especially when dealing with input and output tax. In Nigeria, the standard VAT rate remains 7.5% as of 2026. However, the true skill lies in knowing how to offset what you paid against what you collected.
The Basic Formula
The amount you remit to the Nigeria Revenue Service (NRS) is calculated as follows:
Net VAT Payable = Output VAT – Input VAT
- Output VAT: The 7.5% tax you charge your customers on your sales.
- Input VAT: The 7.5% tax you paid to your suppliers for raw materials or goods for resale.
Note: Input VAT can only be claimed on goods purchased for resale or raw materials used to produce new products. It cannot be claimed on overheads like electricity or rent. For more on registration, see VAT Registration in Nigeria: Requirements and Process.
Practical Examples
Example A: Standard Retailer
Imagine you buy stock for ₦1,000,000. You pay ₦75,000 as Input VAT. You then sell that stock for ₦1,500,000 and charge your customers ₦112,500 (Output VAT). Your remittance is: ₦112,500 – ₦75,000 = ₦37,500.
Example B: Service Provider
Service providers, such as consultants, usually cannot claim input VAT on most of their expenses. If you bill a client ₦2,000,000, you collect ₦150,000. Since you have no eligible input tax to deduct, you remit the full ₦150,000. To understand the different taxes for consultants, read Federal, State and Local Taxes in Nigeria Explained.
Step-by-Step Calculation Guide
- Identify all taxable sales for the month.
- Multiply total sales by 0.075 to find Output VAT.
- Identify all eligible purchases (raw materials/stock).
- Multiply eligible purchases by 0.075 to find Input VAT.
- Subtract Input from Output.
Understanding these figures is the first step toward following the VAT Compliance Checklist for Nigerian SMEs. For automated tools, you can check KPMG Nigeria tax calculators or the NRS official portal for the latest zero-rated item list.
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