Unpaid VAT can cost you a capital allowance
Why a Nigerian company can lose the capital allowance on an asset when the VAT or import duty on it was not paid, and how to check each purchase.
By Achekam · · 5 min read · For Running a business businesses in Nigeria
A company buys a delivery van, a generator or a production line. The price is negotiated hard, and sometimes the seller offers a better deal "without VAT", or the asset comes in through a route where the import duty is quietly left unsettled. It looks like a saving on the day.
Under Nigeria's current tax rules, it can turn into a larger cost later. The Nigeria Revenue Service has made clear that the tax relief a company claims on its assets depends on the VAT, and any duty or levy, having been dealt with properly. Skip them, and the relief on the asset can be lost. This article explains the rule, the NRS's own illustration, and the checks to build into every asset purchase.
Capital allowances are claimed instead of depreciation
A company's accounts charge depreciation on its assets, but depreciation is not what reduces its taxable profit. The NRS says capital allowances on qualifying capital expenditure, such as plant, machinery and industrial equipment, are claimed in place of depreciation, at prescribed rates and conditions.
So the depreciation in your books and the allowance in your tax computation are two different numbers, worked out under different rules. The rest of this article is about one of the conditions on the allowance. The wider computation of company income tax is covered in company income tax under the new Act.
The rule: an allowance only where VAT was charged and duty paid
The NRS sets out the condition in its Information Circular No. 2026/01 on the ascertainment of companies' income tax. Where VAT, import duty or a levy is due on qualifying capital expenditure, capital allowance is granted only to the extent that VAT has been charged and the duty or levy paid.
PwC's Worldwide Tax Summaries describe the same principle more broadly: expenses are deductible for income tax, and capital allowances are claimable on qualifying assets, only where VAT and any applicable import duty have been paid. The Nigeria Tax Act, 2025 itself, in section 21(p), says an expense on which VAT was due but not charged is not deductible for income tax.
The NRS's circular on the ascertainment of income tax of companies sets out the rule at paragraph 4.1(b) with a worked illustration, and is the document to show anyone who suggests a VAT-free deal on an asset.
The motor vehicle illustration in the NRS circular
The NRS's own example is a motor vehicle. A company that did not pay the VAT due on a motor vehicle, it says, cannot claim capital allowance on it.
Follow the consequences through in words. The company saved the VAT on the day it bought the vehicle. It then depreciates the vehicle in its books as usual. But when its tax computation is prepared, the allowance that would have reduced its taxable profit over the vehicle's life is not available, because the VAT condition was never met. Depending on the asset and the rates, the lost allowance can outweigh the VAT that was saved.
The rate matters too. Under the Nigeria Tax Act, 2025, VAT is charged at 7.5% on the value of all taxable supplies, subject to the exempt and 0% supplies the Act lists, and a taxable person must collect VAT at that rate on its taxable supplies. A seller who offers to leave it off is not doing you a favour.
The fixed-asset register in Achekam
Achekam's fixed-asset register lets a business add assets at cost, depreciate them monthly by straight line or reducing balance with a journal each month, and dispose of them with the profit or loss posted. That gives you a clean record of what each asset cost and when it was bought.
What it does not do is work out tax allowances. The register handles accounting depreciation; the capital allowance computation, including whether the VAT condition was met for each asset, is prepared separately by you or your accountant. The register is not included in Business Essentials.
Supplier bills that default to 15%: correcting the VAT line
The asset usually reaches the books through a supplier bill. In Achekam, a business records supplier bills line by line with VAT, a bill without a purchase order waits for approval before it posts, and the bill can be paid in full or in parts from the bank account you choose.
There is a limit you need to know about. Supplier bills and purchase orders do not use a Nigerian business's own VAT rate: they offer 15% or 0%, and default to 15%. A Nigerian asset purchase with VAT at 7.5% therefore cannot be entered at the correct rate on the bill's VAT line today. Agree with your accountant how the VAT on such a bill is recorded until this changes, and always check the posted bill against the supplier's invoice before approving it.
The supplier's invoice is your evidence that VAT was charged, so check it carefully. The Nigeria Tax Act lists what a VAT invoice must show, including the supplier's tax ID, a sequential invoice number, the supplier's name and address, its registration number, the date of supply, the purchaser's name, the gross amount, and the VAT charged with its rate. Whether you can also claim that VAT back is a separate question, covered in claiming input VAT in Nigeria.
Asset purchase checklist
- Is VAT charged on the supplier's invoice at the correct rate?
- Does the invoice show everything the Act requires of a VAT invoice?
- For imported assets, has the import duty, and any levy, been paid, with the receipt kept?
- Has the bill been checked against the invoice, given that Achekam's bill VAT line defaults to 15%?
- Is the asset added to the fixed-asset register at cost, with the invoice filed?
- Has your accountant noted the asset for the capital allowance computation, with the VAT and duty evidence?
Pick the largest asset your company bought in the last year and run it through the list. If the VAT or duty evidence is missing, find it now, while the supplier can still help.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
