The Federal Internal Revenue Service, FIRS, has issued a public notice on the deduction of value added tax, VAT, to the sources of companies operating in the oil and gas sector.
In the notice, FIRS recalled that it had previously ordered all companies operating in the Nigerian oil and gas sector to deduct the VAT collected from their suppliers or contractors from the payments due and put it back into service, but had noted that some companies did not they were respecting the notice of withholding and remitting VAT, hence the need for further clarification that came in the form of a public notice.
See the notice below …
DEDUCTION OF THE VALUE ADDED TAX IN THE SOURCE BY THE COMPANIES OPERATING IN THE OIL AND GAS SECTOR
Section 13 (2) of the VAT Law (CAP), CAP V1, LFN 2004 (as amended), establishes that “the Service may, by notification, determine and direct companies operating in the oil and gas sector which will deduct the VAT at the origin and will send it to the Service “.
In addition to the provisions of the VAT law, FIRS has issued information circular no. 02/2007 – Notification of the guidelines for the implementation of the VAT deduction (reverse charge) and the new payment agreement relating to expenses, Withdrawals and other commissions payable by companies in the oil and gas sector.
According to the information circular, FIRS orders all companies operating in the Nigerian oil and gas sector to deduct the VAT collected from their suppliers or contractors from the payments due and return it to FIRS.
The Service noted that some companies do not comply with the notice of withholding and paying VAT. Consequently, FIRS clarifies the following:
The directive contained in FIRS information circular no. 02/2007 which orders all companies operating in the oil and gas sector to deduct the VAT at source and send it to FIRS in line with the previous provisions.
“Companies operating in the oil and gas sector” include all companies involved in (i) upstream operations, (ii) downstream operations, (iii) refineries (iv) oil companies and (v) any other commercial operations in the sectors oil and gas upstream, mid-valley or downstream.
The deducted VAT will be accounted for separately in the VAT form 002A and will be sent to FIRS. It will not be merged with the VAT charged by the company to its customers.
When FIRS has issued any directive, termination or notification contrary to the directives contained in the circular mentioned in this notification, that directive, termination or notification is withdrawn, invalidated and canceled.
If VAT is not deducted and remitted, the penalties will be applied in accordance with the law.
Consequently, all taxpayers, especially oil and gas companies, tax professionals, tax officials, other interested parties and the general public should be guided accordingly.
Muhammad M. Nami