New Value Added Tax Obligation on Consumers: Examining the Reverse Charge Mechanism in the Finance Act, 2019

Abstract

The article reviews the Reverse Charge Mechanism (“RCM”) regime in Nigeria introduced by the Finance Act 2019 and its effect on (i) the general consumers to whom it applies and (ii) the suppliers of taxable goods and services. Although not entirely new, the current regime of RCM is a milestone in Nigerian VAT enforcement effort. First, it finally resolved the raging controversies on the application of RCM to services supplied to a Nigerian resident by a non-resident. Second, it extended RCM beyond cross-border transactions and the oil and gas sector. Like the RCM regime for imported services, but unlike that of oil and gas operators, the operation of the current regime of RCM will be triggered only upon the failure of the suppliers to charge VAT on the invoice of taxable goods and services forwarded to the consumer. The reading of the statute shows that only consumers qualifying as “taxable person” under the current law will incur most of the liabilities in the existing law. However, all consumers may well be liable for tax evasion. The performance by the consumer of its obligation under the new RCM regime will discharge the supplier’s VAT remittance liability, including the penalty for failing to render VAT returns. The RCM could not have come at a better time for a country battling a revenue crunch and laxity in tax compliance.

Keywords: tax, value-added tax, reverse charge mechanism, tax compliance

JEL Classification: K