You Collected Less VAT Than You Paid. Can Your Business Get the Difference Back?

For many businesses, VAT is viewed simply as a tax collected from customers and remitted to the Nigeria Revenue Service (NRS).

But what happens when the VAT your business pays on qualifying purchases is higher than the VAT it collects from customers?

Under Nigeria’s new tax framework, that difference does not necessarily disappear.

In certain circumstances, it can become a VAT credit, and where the excess remains unused, the business may be entitled to request a refund.

Here is how it works.

First, understand Input VAT and Output VAT

The easiest way to understand the new VAT refund framework is to separate two figures:

• Input VAT is the VAT a business pays on qualifying taxable purchases, including certain services and fixed assets.
• Output VAT is the VAT the business charges on its taxable supplies.

At the end of a tax period, these figures are compared.

If output VAT is higher, the business generally remits the difference to the NRS.

But if input VAT is higher than output VAT, the excess can be carried forward as a credit against VAT in subsequent months. This is provided for under the Nigeria Tax Act 2025.

A simple example

Imagine a business has:

• Input VAT: ₦7.5 million
• Output VAT: ₦3 million

The difference is:

₦7.5m − ₦3m = ₦4.5 million

The ₦4.5 million does not automatically become a cash refund.

The business can first utilise the excess as a VAT credit against subsequent months. If the excess VAT remains unutilised, the business may request a refund from the NRS, subject to the applicable requirements.

So, when might this situation arise?

A VAT credit position can occur for several legitimate business reasons.

1. Your business is investing heavily before sales increase

A growing business may spend significantly on equipment, technology, services or other qualifying inputs before generating corresponding taxable sales.

The result can be substantial input VAT with relatively little output VAT in the same period.

The 2025 Act specifically allows qualifying input VAT on taxable supplies, including services and fixed assets, to be deducted where it relates to making taxable supplies.

2. You have made a major capital investment

Suppose a manufacturing company acquires qualifying machinery and incurs significant VAT on the purchase.

If its output VAT for the period is relatively low, the business could end up with more input VAT than output VAT.

That excess may be carried forward, subject to the rules.

3. Your business makes zero-rated supplies

This is particularly important.

A business can make supplies that are subject to VAT at 0% while still incurring VAT on qualifying inputs used to make those supplies.

The Nigeria Tax Act 2025 provides that a person whose supplies are chargeable at 0% may request a refund of VAT paid on taxable inputs consumed in producing those supplies.

This means zero-rated does not necessarily mean “no VAT consequences” for the business.

4. Your taxable sales temporarily fall

A business may continue paying VAT on qualifying operating inputs even during a period when its taxable sales decline.

This can create a situation where input VAT exceeds output VAT.

Again, the immediate treatment is generally to utilise the excess as a credit against subsequent VAT liabilities, rather than assuming an automatic cash refund.

But not every VAT you pay is refundable

This is where businesses need to be careful.

The fact that VAT appears on an invoice does not automatically mean that the entire amount can be claimed as input VAT.

Under the Nigeria Tax Act 2025, input VAT is deductible only to the extent that it was incurred for the consumption, use or supply in the course of making taxable supplies.

Where an expense relates to both taxable and non-taxable supplies, only the portion attributable to taxable supplies is deductible.

So proper records matter.

Businesses should be able to support their VAT position with appropriate invoices, transaction records and other documentation required under the applicable rules.

There is also a deadline for VAT refund claims

This is one detail businesses should not overlook.

Section 56 of the Nigeria Tax Administration Act 2025 provides that a VAT refund request must be made within 12 months of the transaction that gave rise to the refund. A claim made after that period lapses.

For a valid request, the Act provides that the NRS should, within 30 days of receiving the request, refund the tax or make the amount eligible for set-off against another tax liability of the taxpayer.

The NRS has also issued refund guidance setting out the administrative process and supporting documentation for refund claims. Recent reporting on the guidelines notes that claims can cover situations including excess input VAT, certain zero-rated or exempt transactions, and other forms of overpayment, subject to the relevant conditions.

What should businesses do?

• Do not treat VAT as just a payment obligation. Treat it as something that needs to be properly tracked.
• If input VAT consistently exceeds output VAT, don’t simply allow the balance to sit unexplained in your accounts.
• Review whether the VAT is allowable, maintain the necessary documentation, monitor your credit position and determine whether carrying it forward or pursuing a refund is appropriate.
• The new VAT framework creates a route for businesses to recover legitimate excess VAT, but eligibility, documentation and timing matter.
• Good tax management is therefore not only about knowing how much tax to pay.
• It is also about knowing when your business has a legitimate tax credit and how to properly recover it.

A note for businesses

VAT treatment can depend on the nature of the transaction, the type of supply and how the related input is used. Businesses should therefore assess their specific circumstances before treating an amount as refundable.