Let’s be honest — taxes in Nigeria can get a little confusing. Whether you’re a freelancer, business owner, or accountant, understanding how Value Added Tax (VAT) works is one of those things you can’t really avoid.
And while many people rely on automated software or accounting systems to handle it, knowing how to calculate VAT manually can save you from a lot of confusion (and errors).
I’ve worked with businesses that had no idea how VAT truly affected their pricing or revenue — until they started doing the math themselves. So, if you’ve ever wondered how VAT actually works and how to calculate it confidently, this guide breaks everything down in plain, practical language.
Read More: New Tax Identification Number Requirements In Nigeria
What Exactly Is VAT?
VAT, short for Value Added Tax, is a consumption tax — meaning it’s paid when people buy goods and services. It’s not new to Nigeria; it was first introduced in 1993 and is governed by the Value Added Tax Act.
In simple terms:
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Every time value is added to a product or service as it moves through the supply chain, VAT is charged.
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Businesses collect VAT from customers and then remit it to the Federal Inland Revenue Service (FIRS).
So, think of VAT as a little slice of tax that’s baked into almost everything we buy — from groceries and electronics to professional services.
Why It’s Important to Understand VAT
Sure, software can calculate VAT for you, but having a personal grasp of it gives you a serious edge. Here’s why:
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Accuracy: You can easily catch calculation errors instead of blindly trusting systems.
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Compliance: You stay on the right side of FIRS regulations and avoid unnecessary penalties.
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Better Financial Planning: You’ll make smarter pricing and revenue decisions when you understand how VAT fits into your costs.
The Current VAT Rate in Nigeria
As of now, the standard VAT rate in Nigeria is 7.5% — an increase from 5% back in 2020.
However, not everything is taxed equally. VAT in Nigeria falls under three categories:
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Standard Rate (7.5%) – Applies to most goods and services.
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Zero-Rated Items (0%) – Basic food items and export goods.
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Exempt Supplies – Services like financial transactions or educational services that don’t attract VAT.
Knowing which category your product or service falls under is crucial — it determines whether you should charge VAT or not.
How to Calculate VAT in Nigeria (Step-by-Step)
Now let’s get practical.
Step 1: Identify if the Price Is VAT-Inclusive or Exclusive
Before doing any calculation, figure out what type of price you’re working with:
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VAT Exclusive Price (VEP): The price before VAT is added.
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VAT Inclusive Price (VIP): The total price after VAT has already been added.
Example 1 – When the Price Is VAT Inclusive
Let’s say a product sells for ₦100,000 (VAT inclusive).
VAT rate = 7.5% (0.075)
We’ll use this formula:
VEP = VIP ÷ (1 + VAT Rate)
If the VAT Inclusive Price (VIP) is ₦100,000 and the VAT rate is 7.5%, then:
VEP = ₦100,000 ÷ 1.075
VEP = ₦93,023.26 (approximately)
Therefore, the VAT Amount is calculated as:
VAT Amount = VIP – VEP
VAT Amount = ₦100,000 – ₦93,023.26
VAT Amount = ₦6,976.74
So, out of ₦100,000, about ₦6,977 goes to VAT.
Example 2 – When the Price Is VAT Exclusive
Now, let’s say your product price before VAT (VEP) is ₦100,000.
To calculate the VAT:
VAT Amount = VEP × VAT Rate
VAT Amount = ₦100,000 × 0.075
VAT Amount = ₦7,500
To get the total price (VAT inclusive):
Total Price = VEP + VAT Amount
Total Price = ₦100,000 + ₦7,500
Total Price = ₦107,500
Understanding Input VAT and Output VAT
Here’s where it gets interesting — and a little technical.
Input VAT
This is the VAT you pay on your purchases — for example, when you buy materials or services for your business.
The good news? You can often claim this back.
Formula for Calculating Input VAT:
Input VAT = Total Purchase Price × VAT Rate
Example:
If the total purchase price (including VAT) is ₦200,000 and the VAT rate is 7.5%, then:
Input VAT = ₦200,000 × 0.075
Input VAT = ₦15,000
Output VAT
This is the VAT you charge customers on your sales. It’s what you owe the FIRS after offsetting input VAT.
Formula for Calculating Output VAT:
Output VAT = Selling Price × VAT Rate
Example:
If the selling price of a product is ₦150,000 and the VAT rate is 7.5%, then:
Output VAT = ₦150,000 × 0.075
Output VAT = ₦11,250
When filing your returns, you pay the difference:
Formula for Calculating VAT Payable:
VAT Payable = Output VAT − Input VAT
Example:
If your Output VAT is ₦11,250 and your Input VAT is ₦7,500, then:
VAT Payable = ₦11,250 − ₦7,500
VAT Payable = ₦3,750
If your input VAT is higher, you can carry it forward as a credit for future months.
How to File VAT Returns in Nigeria
Understanding the math is one part — actually filing your VAT is another.
Here’s the simplified process:
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Compile Data: Add up your sales, purchases, input VAT, and output VAT for the month.
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Complete VAT Return Form: You can do this online via the FIRS e-portal.
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Pay Your VAT: Submit payment for the VAT due (output minus input).
Deadline: VAT returns are due by the 21st day of the following month.
Common Mistakes People Make with VAT
Even experienced professionals trip up sometimes. Watch out for these:
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Mixing up VAT-inclusive and VAT-exclusive prices.
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Forgetting that some items are exempt or zero-rated.
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Using outdated VAT rates after government updates.
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Failing to keep receipts or accurate monthly records.
Pro Tips for Getting VAT Right
Keep learning — tax laws in Nigeria change often.
Use accounting tools for efficiency, but always double-check manually.
When unsure, consult a tax professional — it’s cheaper than paying penalties later.
Final Thoughts
Calculating VAT manually might look intimidating at first, but once you understand the logic behind it, it’s actually straightforward.
Knowing how to handle VAT correctly helps you stay compliant, build financial discipline, and make smarter business decisions.
So next time you look at an invoice or a price tag, you’ll know exactly what that 7.5% means — and where it’s going.
Read more: Current Corporate Tax Rate In Nigeria
