When a government customer withholds your VAT
How a Nigerian supplier invoices, files and books VAT that a ministry, agency or appointed agent withholds and pays to the NRS instead of to the supplier.
By Achekam · · 4 min read · For Running a business businesses in Nigeria
A supplier to a state ministry sends an invoice with VAT on it. The payment that arrives weeks later covers the price but not the VAT. Nobody has made a mistake: the ministry kept the VAT back and is meant to pay it straight to the NRS.
For the supplier, that changes three things. The invoice has to be laid out so the VAT can be separated at a glance. The monthly VAT return has to show that part of the output VAT was settled by someone else. And the books have to cope with an invoice that will never be paid in full by the customer. This guide works through each, for businesses that sell to government bodies or to companies the NRS has appointed to withhold.
Who withholds VAT from suppliers
Two groups of customers withhold. Under section 154(1) of the Nigeria Tax Act, 2025, as the NRS restates it, all Federal, State and Local Governments and their Ministries, Departments and Agencies must collect or withhold VAT on taxable supplies made to contractors, covering all payments, and remit it to the NRS. And the NRS says a person it appoints as an agent must withhold the VAT stated on its suppliers' invoices, so that the VAT is not paid to the supplier, and remit it on or before the 14th day of the month after the transaction.
There is one exception worth knowing from the supplier's side. Under section 150(4), as restated by the NRS, where a person appointed as a VAT collection agent makes a taxable supply, the recipient has no obligation to withhold unless the appointed agent fails to collect. If your own business has been appointed to collect, your customers should not be withholding from you.
The NRS sets all of this out in its Guidelines on the Withholding of VAT, Information Circular No. 2026/18, which covers who withholds and how the withheld VAT is remitted and reported.
Gross, rate and VAT on separate lines
The same guidelines say suppliers to appointed withholding agents, whether service providers, contractors or vendors, must state separately on each invoice, bill or debit note the gross amount of taxable supplies, the VAT rate and the amount of VAT charged.
A worked example in words: a road maintenance contractor invoices a state agency for a month's work. The invoice shows the value of the work, the VAT rate and the VAT amount as three distinct figures, then the total. The agency pays the contractor the value of the work and pays the VAT to the NRS. Because the figures were apart on the invoice, nobody has to calculate anything to split them.
When the agency remits, the Act requires a schedule showing the supplier's name, Tax ID and address, the invoice number, the gross invoice amount, the VAT and the month. Ask the customer for a copy of the line that relates to your invoice, or other evidence of the remittance. It is your proof that the VAT was paid over.
Your return: total output VAT less what was withheld
The NRS explains how a supplier reports this. A supplier whose output VAT was withheld at source reports the total output tax on all its supplies in its monthly VAT return, deducts the output tax withheld at source to arrive at net output tax, and deducts input tax on all supplies, including those whose output tax was withheld. Any excess input VAT can offset future VAT or be the subject of a refund request.
So the withheld VAT is still declared. It is shown, then taken off, rather than left out. The ordinary return dates still apply; see VAT return due dates and nil returns.
Input VAT on those supplies still counts
The point that suppliers miss is the last one. Losing the output VAT to withholding does not cost you the VAT you paid on materials, fuel or subcontractors for the same job. The NRS says input tax on all supplies, including those whose output was withheld, is deducted. A contractor whose customers withhold most of its output VAT can find itself in credit month after month, which is when the refund route becomes worth using.
Recording the short payment in Achekam
On the invoice side, a Nigerian business in Achekam picks a tax code on each line, and only standard lines carry VAT, at the approved rate for its country, which keeps the VAT visible as its own figure. While the Nigerian VAT rate rule still awaits platform approval, Achekam refuses to charge standard-rate VAT on a Nigerian invoice rather than guess a rate.
On the payment side, Achekam records customer payments against one invoice or across several, and a part payment leaves the invoice part-paid. Its receipt screens cannot yet settle the withheld part of an invoice. Until they can:
- Record the amount the customer actually paid as a receipt; the invoice stays part-paid by the VAT amount.
- Keep the VAT amount open rather than writing it off.
- Note on your own list the invoice, the VAT withheld and the evidence you hold.
- Agree with your accountant how the open VAT amounts are cleared once the return showing them is filed.
The same approach for income tax withheld from fees is set out in fees paid net of withholding tax.
Matching withholding evidence to invoices
Each month, before the return:
- list every invoice to a government body or appointed agent in the month;
- mark which were paid net of VAT and by how much;
- collect the remittance evidence for each;
- total the VAT withheld for the return's deduction line;
- chase any customer whose evidence is missing.
A ministry that withholds is not a bad payer; it is following the law. Treat its withholding as part of how the contract is paid, and keep the paper that proves it.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
