Topic: Value-Added Tax (VAT)

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  • 10 Marks

AT – Nov 2024 – L3 – Q4a – Value Added Tax Deductibility

Determine the deductible input VAT for a VAT-registered company operating multiple business divisions under different VAT treatments.

The two scenarios below relate to ClearTel LTD, a VAT-registered company in Ghana. Each scenario is an independent scenario and should be considered separately.

Scenario 1

ClearTel LTD operates three divisions (XYZ). Division X deals in the sale of computers and mobile phones. Division Y deals in the sale of locally-manufactured sanitary towels. Division Z is into the supply of fertilizers to farmers in Ghana.

Revenue from each division for 2024 is shown below:

Division Description Revenue (GH¢)
X Computers and mobile phones 1,005,700
Y Sale of locally-manufactured sanitary towels 2,500,000
Z Supply of fertilizers to farmers 78,800,000

ClearTel LTD has incurred total input VAT of GH¢50,500,000, and the Finance Manager of the company is unable to determine specifically which division of the business this input VAT amount relates to.

Required:

Determine the amount of input VAT ClearTel LTD can deduct, in line with the provisions of the Value Added Tax Act, 2013 (Act 870 as amended). Justify your answer

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  • 15 Marks

TAX – May 2015 – L2 – SC – Q6 – Value-Added Tax (VAT)

Analyze VAT compliance, loss carry forward, and compute tax liabilities for Hidden Treasures Limited based on provided financial data.

HIDDEN TREASURES Limited is an agro-allied and trading organisation which specialises in Crop and Grain production, Animal husbandry, Sale and distribution of Grains (i.e. cowpeas, guinea corn, millet, rice, beans and groundnuts).

The company has been in business for many years and it has been filing annual Income Tax returns regularly except VAT returns. On 16 March 2015, the Federal Inland Revenue Service (FIRS) served a notice of Tax Audit covering 2010 – 2014 financial years.

The management believed erroneously that since it deals in VAT exempt goods, it did not need to file VAT returns on a monthly basis.

In preparation for the visit of the FIRS, the company’s management invited you on 23 March 2015, to their office and gave you the following extracts from the company’s Statement of Comprehensive Income and agreed Capital Allowances:

Year ended Agric Production (₦) Grain Distribution (₦)
Year ended 30/09/2010 Loss (770,000) (225,000)
Year ended 30/09/2011 Profit 630,000 280,000
Year ended 30/09/2012 Loss (600,000) (150,000)
Year ended 30/09/2013 Profit 990,000 140,000
Year ended 30/09/2014 Profit 30,000 120,000

Agreed Capital Allowances are as follows:

Tax Year Capital Allowance (₦)
2011 70,000
2012 65,000
2013 125,000
2014 115,750
2015 85,000

You are required to:

a. State the provisions of the VAT law with regard to rendition of returns by Vatable persons. (2 Marks)

b. Show by analysis the amount of losses carried forward under each income head shown above. (8 Marks)

c. Compute the tax liabilities for each year. (5 Marks)

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  • 15 Marks

TAX – Nov 2014 – L2 – Q7 – Value Added Tax (VAT)

Calculate the VAT payable for Zuba Construction Company and advise on the timing and contents of a VAT appeal notice.

Zuba Construction Company Limited is an irrigation and building construction company. The company has been in the business for many years.

The company appointed you as the tax representative to provide tax advisory services and deal with the VAT office on its behalf.

On commencement of your assignment, you discovered that there was a dispute on the determination of the amount of VAT payable to the Revenue by the Company. To assist you in the assignment, the following information was made available to you:

Date Details Amount (N)
1/8/13 Bought a concrete mixer 700,000
2/8/13 Bought sand 40,000
3/8/13 Bought gravel 40,000
5/8/13 Bought scaffolding 1,800,000
5/8/13 Bought photocopier machine 50,000
7/8/13 Bought tables 15,000
14/8/13 Bought poker vibrator 300,000
14/8/13 Bought chairs 20,000
14/8/13 Progress payment received 2,000,000
24/8/13 Progress payment received 1,500,000

Additional Note: VAT was paid on all the company’s purchases.

You are required to:

a. Compute VAT payable (if any) for the month of August 2013.
(8 Marks)

b. Advise your client on when and how VAT payment should be made.
(4 Marks)

c. Itemize the contents of a Notice of Appeal against VAT Assessments.
(3 Marks)

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  • 15 Marks

TAX – May 2023 – L2 – SC – Q6 – Value-Added Tax (VAT)

Compute VAT remittance for Fountain Hotels' July 2022 transactions and explain VAT concepts.

Fountain Hotels Limited is a group of hotels located in many parts of North Central Nigeria, providing accommodation and other hospitality services. It renders its returns at the end of each month in accordance with the Value Added Tax Act 2004 (as amended).

The following are the details of the transactions for the month of July 2022:

  • VAT on outdoor catering services: N600,000
  • VAT on food: N360,000
  • VAT on drinks: N240,000
  • VAT on other vatable hotel services: N270,000
  • VAT on drinks purchased: N150,000
  • VAT on foodstuff purchased: N210,000
  • VAT on kitchen equipment: N480,000
  • VAT on professional services: N240,000

Additional Information:

  1. 30% of outdoor catering services were on credit.
  2. 20% of food and drinks were on credit.
  3. Other vatable hotel services were paid in full.
  4. 25% of VAT on drinks and foodstuff purchased were on credit.
  5. VAT on kitchen equipment and professional services were paid in full.

Required:

a. Compute the VAT remittable to the Federal Inland Revenue Service in respect of July 2022 transactions. (9 Marks)

b. Write short notes on the following:
i. Revenue VAT (2 Marks)
ii. Zero-rated supplies and services (2 Marks)
iii. VAT on exports (2 Marks)

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  • 15 Marks

TAX – May 2024 – L2 – SA – Q5 – Value Added Tax (VAT)

Compute VAT payable by Havillah Manufacturing Limited and identify VAT-exempt goods and services.

Havillah Manufacturing Limited, engaged in manufacturing perfumes and other cosmetic products, has the following profit or loss statement for the year ended September 30, 2021:

Additional Information:

  1. Turnover includes N64,350,000 from export sales and N141,900,000 from local sales.
  2. Cost of Sales includes:
    • Opening inventory (VAT inclusive): N24,915,000
    • Closing inventory (VAT inclusive): N40,865,000
    • Purchase of raw materials: N94,600,000
    • Freight charges: N20,570,000
    • Other direct materials: N13,530,000
  3. Plant and machinery purchased for N24,750,000 is included in opening inventory, VAT inclusive.
  4. VAT and withholding tax remitted during the year amounted to N2,173,180 and N1,787,500, respectively.

Required: a. Compute the net VAT payable by Havillah Manufacturing Limited for the year. (10 Marks)
b. State FIVE VAT-exempt goods. (2½ Marks)
c. State FIVE VAT-exempt services. (2½ Marks)

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  • 15 Marks

TAX – Nov 2016 – L2 – Q7 – Value Added Tax (VAT)

Discuss the VAT position of Trevor Optimal Nigeria Limited and recommend actions to address Input VAT buildup.

Trevor Optimal Nigeria Limited has been operating in the oil and gas sector in Nigeria since January 1, 2005. The company is engaged in the importation and sale of oil tools. With the introduction of the Reverse Charge Mechanism in Nigeria, the company has accumulated Input VAT since 2008, which, as of December 31, 2015, stood at N6,000,000. This Input VAT resulted from the importation of oil tools that the company sells to oil companies.

The company’s Output VAT is withheld by its customers at source and remitted to the Federal Inland Revenue Service (FIRS). This practice has left the company with a significant buildup of Input VAT without any Output VAT to offset it.

The Chief Executive Officer has expressed concern over this buildup of Input VAT and has invited you for a meeting to discuss the issue. The CEO reasoned that as long as the company continues in its line of business, the Input VAT will continue to grow and has requested you to advise the company.

Required:
a. Provide brief information for the Chief Executive Officer on why the company is in the current position. (5 Marks)
b. Advise the Chief Executive Officer on the best action to follow in accordance with the law. (5 Marks)
c. State the steps required by FIRS to grant a tax refund to a taxpayer. (5 Marks)

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  • 5 Marks

TAX – Nov 2016 – L2 – Q5b – Value Added Tax (VAT)

Compute the total VAT payable to the Federal Inland Revenue Service (FIRS) for a series of transactions involving a textile company, wholesaler, and retailer.

Olamide Limited is a textile company based in Abuja. The company sold its vatable products to a wholesaler, Qudus Enterprises, for N1,800,000. The wholesaler in turn sold the products to a retailer, Mr. Lekan, for N2,500,000, who finally sold to consumers for N5,000,000. Assume there was no closing inventory at each stage of the transactions.

Required:
Compute the total VAT payable to the Federal Inland Revenue Service.

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  • 15 Marks

TAX – Nov 2021 – L2 – Q6 – Value Added Tax (VAT)

Explanation of when goods and services are deemed to be supplied in Nigeria according to section 2 of the VAT Act.

Taxable supplies of goods and services are those listed under the First Schedule of
the Value Added Tax Act Cap VI for 2004 (as amended). Essentially, these are goods
and services liable to value added tax at the prescribed rate.
Required:
Explain when goods and services shall be deemed to be supplied in Nigeria in
accordance with section 2 of VAT Act (as amended).

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  • 5 Marks

TAX – Nov 2021 – L2 – Q3c – Value Added Tax (VAT)

Explanation of the merits and demerits of Value Added Tax (VAT) as a consumption tax.

Explain the merits and demerits of VAT

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  • 6 Marks

TAX – Nov 2021 – L2 – Q3b – Value Added Tax (VAT)

Explanation of penalties associated with VAT non-compliance including failure to register, failure to notify of address changes, and failure to submit returns.

Explain the penalties associated with the following:

i. Failure to register for VAT return (2 Marks)
ii. Failure to notify the FIRS of change of address or cessation of trade or business (2 Marks)
iii. Failure to submit VAT returns (2 Marks)

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  • 9 Marks

TAX – Nov 2021 – L2 – Q3a – Value Added Tax (VAT)

Calculation of total VAT payable by Adegboyega Enterprises to the Federal Inland Revenue Service (FIRS) for product sales.

Adegboyega Enterprise is a manufacturing outfit based in Jankara, Lagos State. In 2020, the company sold its vatable product to a wholesaler, Ikeja Venture, for N3,500,000. The wholesaler sold the products to a retailer, Mrs. Adeosun, for N4,900,000, who finally sold it to consumers for N6,300,000 (VAT inclusive). Assume there was no closing inventory at each stage of the transaction.

Required:
a. Compute the total VAT payable to the Federal Inland Revenue Service by Adegboyega Enterprises on the transactions stated above.

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  • 1 Marks

TAX – May 2021 – L1 – SA – Q10 – Value Added Tax (VAT)

Multiple-choice question identifying who is not considered a vatable person under Nigerian tax law.

Which of the following is NOT a vatable person?
A. A firm
B. A limited liability company
C. A sole trader
D. An individual
E. A public educational institution

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  • 13 Marks

TAX – May 2018 – L2 – Q7 – Value Added Tax (VAT)

List goods and services exempted from VAT.

a) State THREE goods and THREE services exempted from VAT.

b) Explain THREE differences between Value Added Tax (VAT) and Withholding Tax. (6 Marks)

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  • 15 Marks

TAX – May 2019 – L2 – Q6 – Companies Income Tax (CIT)

Compute total profit and tax liabilities, describe zero-rated VAT items, and discuss penalties for non-registration for VAT.

Duru Cobbler Limited has been in the business of shoe manufacturing for many years. Information contained in the company’s statement of profit or loss for the year ended November 30, 2018, is as follows:

Details Amount (N)
Revenue 18,546,000
Other income:
– Rental income (gross) 240,000
– Profit on sale of property, plant, and equipment 120,000
– Interest on bank deposits (net) 234,000
Total Other Income 594,000
Total Revenue 19,140,000
Less:
Staff salaries and wages 6,180,300
Finance cost 1,144,000
General administration expenses 10,585,190
Impairment loss 420,000
Depreciation and amortization 1,690,000
Total Expenses 20,019,490
Loss before tax (879,490)
Income tax expense –
Deferred tax provision (64,380)
Loss after tax (943,870)

Additional notes provided by the accountant:

  1. Finance costs include bank charges and interest on overdrafts.
  2. General administration expenses include:
    • Bad debts of N655,000 from bulk sales of shoes to the managing director’s relations.
    • Value added tax of N985,000 not imposed on some invoices.
  3. Capital allowances for the relevant year amount to N1,294,000.

Required:
(a) Compute the total profit and tax liabilities payable by Duru Cobbler Limited for the relevant year of assessment. (10 Marks)
(b) Describe zero-rated goods and services under the Value Added Tax Act Cap VI LFN 2004 (as amended) and identify two transactions that may fall under this category. (3 Marks)
(c) Identify the penalties for non-registration for VAT. (2 Marks)

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  • 9 Marks

PT – April 2022 – L2 – Q2a – Value Added Tax (VAT)

Describe activities under VAT that do not require meeting the threshold rule before registration is done.

a) Meeting the threshold is a requirement for VAT registration. Others may come under voluntary registration. However, certain activities must be registered despite the above rules.

Required:
Describe activities under VAT, which do not require meeting the threshold rule before registration is done.
(9 marks)

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  • 4 Marks

PT – April 2022 – L2 – Q2b – Value Added Tax (VAT)

Explain what constitutes the supply of services under the VAT Act 870 (Act 2013).

b) What constitutes supply of services under the VAT Act 870 (Act 2013)?
(4 marks)

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  • 2 Marks

PT – April 2022 – L2 – Q2c – Value Added Tax (VAT)

Explain what compulsory VAT registration entails under the VAT Act.

c) What is Compulsory Registration under the types of VAT registration?
(2 marks)

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  • 12 Marks

PT – Nov 2019 – L2 – Q2b – Value-Added Tax (VAT)

Calculates withholding VAT, output VAT, and VAT payable by Akorfa Vinyo for equipment hire services.

b) Akorfa Vinyo, an equipment hiring company, raises an invoice in the sum of GH¢500,000.00 in respect of hiring of equipment services to a withholding VAT agent (Sir James Enterprise). This supply excludes Value Added Tax (VAT of 12.5%), National Health Insurance Levy (NHIL of 2.5%), and Ghana Education Trust Fund Levy (GETFL of 2.5%).

Assume that this is the only supply of value-added activity done by Akorfa Vinyo in the period and payments are made in the same period.

Required:
i) Calculate the proportion of VAT that should be withheld by the agent in respect of payment of the invoice (the withholding VAT rate is 7%). (3 marks)
ii) Calculate the output VAT to be shown on the face of Akorfa’s monthly VAT Return. (3 marks)
iii) Calculate the VAT payable by Akorfa, if the total input VAT incurred for the period is GH¢25,000. (3 marks)
iv) Show the payment details by the Withholding Agent for the supply. (3 marks)

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  • 3 Marks

PT – Nov 2019 – L2 – Q2a – Value-Added Tax (VAT)

Describes the procedure to follow when a VAT invoice is lost by the recipient.

a) Percy Cool (Percy) supplied goods to Perry Hot (Perry), both are VAT-registered traders. Percy issued a VAT invoice accordingly on 15 February 2019. On 20 February 2019, Percy received a call from Perry indicating that he has lost the VAT invoice issued to him.

Required:
What should Percy do? (3 marks)

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  • 5 Marks

PT – May 2020 – L2 – Q2a – Value-Added Tax (VAT),

Examines the VAT implications for a non-resident company's purchase and servicing of vehicles in Ghana.

Pamela Noi Ltd is a non-resident person. The Company’s Procurement Officer came down to Ghana to buy Ten (10) Toyota Vehicles manufactured by Safo Kantanka to be delivered in Mali. The vehicles are going to be used in Mali. The management of Pamela Noi Ltd requested that the vehicles be serviced in Ghana by High Class Mechanic, a popular mechanic in Accra-Ghana.

Required:

i) What is the Value Added Tax (VAT) implication on the vehicle to be acquired by Pamela Noi Ltd?
(2.5 marks)

ii) What is the VAT implication of the servicing of the vehicle in Ghana?
(2.5 marks)

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