VAT Input Credits on Services: The Hidden Win in Tax Reform

The Change Nobody's Talking About

While everyone focuses on the 0% income tax bracket, there's another provision in the Nigeria Tax Act 2025 that could save businesses millions: expanded VAT input credits.

What Changed?

Before 2026

• Input VAT could only be claimed on **goods purchased for resale**
• Services, capital assets, and overhead expenses were NOT claimable
• Many businesses were "VAT negative" (paying more VAT than they could recover)

After 2026

• Input VAT claimable on **services**
• Input VAT claimable on **capital assets**
• Much broader definition of "business expenses"

Real-World Impact

Example: Professional Services Firm

Monthly expenses with VAT:

• Office rent: ₦500,000 + ₦37,500 VAT
• IT services: ₦200,000 + ₦15,000 VAT
• Consulting fees: ₦300,000 + ₦22,500 VAT
• Equipment lease: ₦150,000 + ₦11,250 VAT

Total input VAT: ₦86,250/month = ₦1,035,000/year

Under the old rules, none of this was claimable. Under the new rules, it's fully recoverable.

Example: Manufacturing Company

Capital equipment purchase: ₦50,000,000 + ₦3,750,000 VAT

Previously: VAT was a sunk cost

Now: ₦3.75 million recoverable as input credit

What Qualifies?

Now Claimable

• Professional services (legal, accounting, consulting)
• IT and software services
• Marketing and advertising
• Capital equipment and machinery
• Office equipment and furniture
• Vehicle purchases (for business use)
• Training and development services

Still Not Claimable

• Personal expenses
• Entertainment costs
• Items for exempt supplies
• Items for zero-rated supplies (already 0%)

How to Claim

1. Collect valid VAT invoices from all suppliers

2. Ensure invoices show supplier TIN, VAT amount, and your company details

3. Record in your VAT returns as input VAT

4. Net off against output VAT (VAT you collected from customers)

If Input > Output

You're entitled to a VAT refund from FIRS. In practice, refunds can take time, so many businesses carry forward credits.

Action Items

1. Review supplier invoices - ensure you're collecting VAT invoices

2. Update accounting systems - track input VAT on services

3. Train your team - accounts payable should know the new rules

4. Audit historical purchases - some input VAT may be recoverable

Conclusion

The expanded VAT input credit rules are a significant win for Nigerian businesses, especially service-based companies. Make sure you're set up to capture this benefit from day one.

Use our VAT Calculator to model your VAT position.