Liquidity is arguably the biggest issue facing Nigeria’s fledgling electricity industry, and there may be a number of reasons for this—including the effects of value added tax (VAT).
Generating companies generally would be able to recover the input VAT paid to gas suppliers from the output VAT collected on energy sold to distribution companies or to the Nigeria Bulk Electricity Trading Company (NBET). The distribution companies also would be able to recover the input VAT paid to the generating companies (or NBET) from output VAT collected from customers. Consequently, VAT would not be an extra burden for the industry because operators theoretically would be able to transfer that cost to the final consumer. However, this is not always the case.
Distribution companies, because of a poor rate of collection, struggle to recover any VAT paid to generating companies, and this also affects the generating companies’ ability to recover their own input VAT—as the distribution companies are struggling to settle their invoices, thereby worsening the liquidity challenge in the industry.
To address these issues, there have been discussions with the Federal Inland Revenue Service as well as proposals under the VAT (Modification) Order, 2018.
Read a September 2018 report prepared by the KPMG member firm in Nigeria
© 2020 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.