Implementation of 7.5% VAT on Diesel Creates Hardship for Nigerians

The implementation of a 7.5% value-added tax (VAT) on diesel has caused a distress among Nigerians.

The Federal Government has initiated the collection of VAT on diesel, as revealed by officials from the Nigerian Customs Service and the Federal Inland Revenue Service.

These agency officials stated that the VAT Modification Order mandates the collection of 7.5% VAT on diesel.

On June 19, 2023, the Nigerian government officially confirmed commencement of the 7.5% VAT payment on diesel, also known as Automated Gas Oil.

In Abuja, representatives from the Nigeria Customs and the Federal Inland Revenue Service confirmed this development and clarified that diesel was not exempted from VAT payment according to the VAT Modification Order 2021.

The latest decision to implement VAT on diesel had been attributed to President Bola Tinubu’s government.

Nigerians have expressed strong opposition to this policy, particularly at a time they are still adjusting to the hardship occasioned by the recent increase in petrol price.

Many were unaware that the Federal Government had planned to further raise the cost of diesel.

The confirmation of this development by the Customs and FIRS officials had intensified backlash from the Nigerian public.

It has also been hinted that the Federal Government is also planning to increase electricity tariff by 40% in July, as the subsidy on electricity ends.

The Customs officials have verified this information and confirmed that petroleum products are exempted from Harmonised System Codes according to the VAT Modification Order 2021.

A Customs official said:
“But the HS Codes for Petroleum products exempted from paying VAT are those in the region of 2709.00.00.00 – 2710.19.12.00. The HS Codes are what we use to classify commodities. But AGO is classified under HS Code 2710.19.21.00, which is not exempted from the payment of VAT. Now, this is based on the VAT Modification Order 2021.”

Punch reports that an official of the Federal Inland Revenue Service (FIRS), Tobi Wojuola confirmed the development and said that it was the position of the VAT Modification Order.

According to reports, a letter from the Nigerian Customs Service to its personnel, dated June 8, 2023, stated that VAT must be paid on diesel.

The Assistant Comptroller-General (Tariff and Trade) Mba Musa, signed the letter on behalf of the Deputy Comptroller-General (Tariff and Trade).

The letter reads:

“I am directed to forward a letter from Federal Inland Revenue Service on the above subject-matter. The VAT Modification order 2021 only exempts petroleum products of HS codes 2709.00.00.00 – 2710.19.12.00 from VAT payment. AGO or diesel falls classifiable under HS Code 2710.19.21.00 and is not exempted from paying VAT.

“Subsequent upon the above, all future product importations should assess and pay VAT at the point of entry into the country. Also, note that AGO or diesel are not exempted from destination inspection or import guidelines and are expected to process Form M and PAAR and make declarations appropriately in the NICIS II system.

“A copy of the letter from FIRS is attached for your information. Take note and be guided accordingly, please.”

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The former Minister of Finance, Budget and National Planning, Zainab Ahmed, revealed that the Finance Act 2020 increased Nigeria’s previous 5% VAT to 7.5% on commodities, including automobile gas, which was effected on February 20, 2020.

Items exempted from VAT include honey, bread, cereals, cooking oil, culinary herbs, fish, flour, starch, fruits, meat, poultry, milk, nuts, pulses, roots, salt, vegetables, water, sanitary pads, tampons, tertiary, secondary, primary and nursery tuitions.

Diesel has just recently been VAT compliant.

Nigerians have expressed anger over the development, stating that it will lead to another hike in the price of goods and services as manufacturers using diesel-powered generating sets will seek to recoup their profits.

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The Finance bill became law when President Muhammadu Buhari assented to it, making it lawful for Nigerians.

It proposes critical reforms to tax laws and other relevant regulations in the country.