Nigeria Customs Implements VAT Charges on Imported Diesel


Nigeria’s Federal Inland Revenue Service (FIRS) has issued a letter to diesel suppliers in the country, informing them of the new requirement to pay value-added tax on imported diesel. This move comes as the VAT Modification Order 2021 excludes certain petroleum products from VAT, but diesel is not included in the exempted category and is now subject to value-added tax.

The directive has raised concerns among diesel suppliers, who fear that it will lead to increased business costs, reduced profit margins, and negative repercussions for customers, inflation, and the overall economy.

The letter, dated June 8th, 2023, was sent by MBA Musa IN, the Assistant Comptroller-General of Tariff and Trade, on behalf of the Deputy Comptroller-General of Tariff and Trade, to the diesel suppliers. Nairametrics obtained a copy of the letter, which references an earlier FIRS communication dated May 31st, 2023.

As per the recently issued letter, the VAT Modification Order 2021 provides exemption from value-added tax for petroleum products falling under HS codes 2709.00.00.00 – 2710.19.12.00. However, diesel or AGO is categorized under HS Code 2710.19.21.00 and is not exempted from VAT.

Hence, going forward, all imports of diesel are required to undergo VAT assessment and payment at the point of entry into Nigeria.

The letter further emphasized that diesel importations are subject to destination inspection and import guidelines, necessitating the processing of Form M and PAAR, as well as accurate declarations in the NICIS II system.

The decision to impose VAT on diesel importations is based on the compliance requirements of the VAT Modification Order 2021.

The letter

“I am directed to forward a letter from Federal Inland Revenue Service on the above subject matter. The VAT Modification order 2021 only exempts Petroleum products of HS codes 2709.00.00.00 – 2710.19.12.00 from payment of VAT. AGO or Diesel falls classifiable under HS Code 2710.19.21.00 and is not exempted from paying value-added tax.”

“Subsequent upon the above, all future importations of the product should assess and pay VAT at the point of entry into the country.”
“Also note that AGO or Diesel are not exempted from destination inspection or import guidelines and as such are expected to process Form M and PAAR as well as make declarations appropriately in the NICIS II system.”

The recent requirement for diesel suppliers to pay value-added tax on imported diesel has generated surprise and dissatisfaction among many in the industry who have historically not paid value-added tax on the product.

Several suppliers, who preferred to remain anonymous, expressed their concerns and confusion regarding the new directive, emphasizing the potential increase in their operating costs and its impact on profit margins.

One supplier acknowledged receiving the letter and stated their engagement with relevant authorities to seek alternatives to paying the tax.

Another supplier voiced worries about the repercussions of the directive on customers and the broader economy. They highlighted the widespread use of diesel in Nigeria for power generation and transportation, and the potential implications for businesses and households.

The supplier explained that imposing VAT on diesel imports would result in price hikes to compensate for the additional costs. This, in turn, would impact customers reliant on diesel and contribute to inflation, ultimately affecting the overall economy. They appealed to the government to reconsider the decision and exempt diesel from value-added tax, emphasizing the potential benefits for revenue generation and economic growth.

The supplier further suggested that instead of implementing value-added tax on diesel imports, the government should prioritize enhancing local refining capacity and reducing dependence on imported petroleum products.

“We have four refineries in Nigeria that are supposed to produce diesel and other products, but they are not working optimally. If the government can fix them and make them work efficiently, we will not need to import diesel or pay value-added tax on it. We will also save foreign exchange and create jobs for Nigerians,” he said.

The introduction of value-added tax (VAT) on diesel imports in Nigeria has the potential to impact the country’s inflation rate.

The inclusion of VAT on diesel could result in higher prices for the fuel, which is extensively used for power generation and transportation, particularly by businesses. This increase in diesel prices could lead to elevated costs for businesses and households, potentially influencing the overall prices of goods and services. Consequently, this may contribute to inflationary pressures within the economy.

However, the implementation of VAT on imported diesel could also positively affect government revenues. By imposing VAT on diesel suppliers, the government has the opportunity to generate additional income through the taxation of this essential fuel product.


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