TAX – May 2015 – L2 – SC – Q6 – Value-Added Tax (VAT)

Analyze VAT compliance, loss carry forward, and compute tax liabilities for Hidden Treasures Limited based on provided financial data.

Question

HIDDEN TREASURES Limited is an agro-allied and trading organisation which specialises in Crop and Grain production, Animal husbandry, Sale and distribution of Grains (i.e. cowpeas, guinea corn, millet, rice, beans and groundnuts).

The company has been in business for many years and it has been filing annual Income Tax returns regularly except VAT returns. On 16 March 2015, the Federal Inland Revenue Service (FIRS) served a notice of Tax Audit covering 2010 – 2014 financial years.

The management believed erroneously that since it deals in VAT exempt goods, it did not need to file VAT returns on a monthly basis.

In preparation for the visit of the FIRS, the company’s management invited you on 23 March 2015, to their office and gave you the following extracts from the company’s Statement of Comprehensive Income and agreed Capital Allowances:

Year ended	Agric Production (₦)	Grain Distribution (₦)
Year ended 30/09/2010	Loss (770,000)	(225,000)
Year ended 30/09/2011	Profit 630,000	280,000
Year ended 30/09/2012	Loss (600,000)	(150,000)
Year ended 30/09/2013	Profit 990,000	140,000
Year ended 30/09/2014	Profit 30,000	120,000

Agreed Capital Allowances are as follows:

Tax Year	Capital Allowance (₦)
2011	70,000
2012	65,000
2013	125,000
2014	115,750
2015	85,000

You are required to:

a. State the provisions of the VAT law with regard to rendition of returns by Vatable persons. (2 Marks)

b. Show by analysis the amount of losses carried forward under each income head shown above. (8 Marks)

c. Compute the tax liabilities for each year. (5 Marks)

Answer

a. Provisions of the VAT Law with Regard to Rendition of Returns by Vatable Persons (2 Marks)

Monthly Filing Requirement: Under the Value Added Tax (VAT) Act, all vatable persons are required to file VAT returns with the Federal Inland Revenue Service (FIRS) on a monthly basis, no later than the 21st day of the month following the month in which the transaction occurred.
Exempt Goods: Even if a taxpayer deals in VAT exempt goods, they are still required to file NIL returns to comply with regulatory requirements.

b. Analysis of Losses Carried Forward Under Each Income Head (8 Marks)