COVID-19: VAT Treatment of cancellations, No-shows and Bad debts in Nigeria

Tax Update: Issue 4.3

COVID-19: VAT Treatment of cancellations, No-shows and Bad debts in Nigeria

Wole Obayomi

Partner & Head, Tax, Regulatory & People Services

KPMG in Nigeria


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It is no news that the COVID-19 pandemic has had significant negative impact on businesses across the globe. One of these is the expected increase in debt default rates, cancellations of contracts and/or no-shows by individuals and businesses alike

We recognise that business leaders are contemplating the tax implications that may arise as a result of these challenges. As such, we have highlighted a few points below to serve as guidance on the treatment of bad debts, cancellations and no-shows for VAT purposes in Nigeria.

  • In Nigeria, there are no specific reliefs in the VAT Act on the treatment of bad debts. In practice, companies can make adjustments for VAT on bad debts once it is certain that the agreed payment subject to the VAT has truly become irrecoverable. This is because taxpayers are required to act as agents of the FIRS to collect and report VAT on a cash basis.
  • There are no specific conditions or guidelines prescribed in the law to claim a VAT relief on bad debts or cancelled invoices. However, documentary evidence which demonstrate efforts made to recover the debt may be required during the course of a tax audit.
  • In practice, companies reflect bad debts or cancelled invoices in their monthly self-assessment VAT Form 002 under the ‘sales adjustment’ column. Credit notes may also be issued to indicate that the debt has been written off and no payment is expected.
  • Similar to the above, there are no specific guidelines in the law on the correct treatment of cancellation or no-show fees in Nigeria. An argument can be made for such fees not to be subject to VAT since there was no exchange of a good or service for the ‘consideration’ received. However, where a deposit was made, there is a risk that the FIRS may seek to collect VAT on such transactions on the basis that any amount paid on account will be regarded as consideration for VAT purposes. This will be in respect of the customer’s right to benefit from the performance of the obligations that arise from the contract to provide services/goods – regardless of whether the customer exercises that right. This risk may be reduced where there was no initial deposit for the goods or services to be supplied.
  • It is important that invoices are structured to clearly state the nature of a transaction in order to ensure that the FIRS does not subject an exempted or zero-rated good or service to VAT at 7.5%.

Please note that we have only provided general information above and the practicalities may differ on a case-by-case basis – depending on the nature of your business. We are happy to provide additional advice on any specific issues as may be required. Do not hesitate to reach out to us accordingly.

Please click on the links to access KPMG’s publications on Indirect tax treatment of bad debts and Indirect tax treatment of cancellations and no-shows.

For further enquiries, please contact:

Wole Obayomi

Download KPMG Nigeria Tax Mobile App: Apple Android


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