Minister of Finance Issues VAT Modification Order


The Honourable Minister of Finance, Budget and National Planning (“the Minister”) recently issued the Value Added Tax (“VAT”) Act (Modification Order), 2020 (“the Order”), which is effective from 3rd February, 2020. The Order modifies and expands the list of exempted goods and services in the First schedule to the VAT Act and provides clarification on the exempted items already listed in the VAT Act.


Section 38 of the VAT Act (“the Act”) empowers the Minister to amend, vary or modify the list set out in the First Schedule to the Act. Pursuant to these provisions, the Minister has issued the Order to modify and expand the list of items to include certain listed items and sets out their Common External Tariff (CET) codes. The Order also provides further clarification on amendments introduced by the Finance Act, 2019 (FA) to the VAT Act.

The Order defines a number of VAT exempt items listed in the First Schedule to the VAT Act which include Basic Food Items, Baby Products, Medical and Pharmaceutical Products, amongst others.

Specifically, the Order defines Basic Food Items as agro and aqua based staple food and include honey (raw or semi processed), white and brown bread, cereals (raw or semi processed), cooking oil, milk (whether fresh, liquid and powdered), fruits (whether fresh or dried), roots, live or raw meat, water (including table water) amongst others. The Order however, excludes Basic Food Items sold in restaurants, hotels, eateries, lounges and other similar premises and those sold by contractors, caterers and other similar vendors from enjoying the VAT exemption.

In addition, the Order defines Baby Products as products made for the use of babies from birth to 36 months (3 years) of age, this include baby activity and entertainment products, baby bathtub, sponges, towels, baby creams, powders, baby carriage and parts, baby garments and clothing of any material, feeding products such as water bottle, sanitary wares such as diapers.

Pharmaceutical Products are defined as components and finished products of both modern and traditional medicine intended for human use in the diagnosis, cure, mitigation or prevention of disease or injury, while Medical Products according to the Order refer to devices requiring calibration, maintenance, repair, user training and decommissioning used for the specific purposes of diagnosis and treatment of disease or rehabilitation following an injury.

The Order further exempts residential accommodation rented by persons other than corporate entities from VAT. It also exempts Shared Passenger Road Transport Service available for use by the general public. However, hired or rented vehicles or transportation apparatus for private use are not VAT exempt.


The Order modifies the First Schedule to the VAT Act by effectively expanding it and providing relevant interpretations of terms that had previously led to contentions between tax authorities and taxpayers.

However, some areas of contention still remain, for example, the exclusion of basic food items sold in in restaurants, hotels, eateries, lounges and other similar premises from the general definition of the term seems to import a limitation that is not provided in the VAT Act or the Finance Act, 2019.  But more importantly, the recent decision of the Federal High Court in Lagos in the case of Registered Trustees of Hotel Owners and Managers Association of Lagos v  Attorney General of the Federal & Minister of Finance (Hotel Owners’ Case) which held that the Minister lacks the powers to amend or vary the schedule to an Act may bring up questions concerning the validity of the VAT Modification Order. Although the subject matter in the Hotel Owners’ case centred around the validity of the Taxes and Levies (Approved list for Collection) Order, 2015 issued pursuant to the Minister’s power under the Taxes and Levies (Approved List for Collection) Act, given that the powers exercised by the Minister in issuing the VAT Modification Order, which are provided under the VAT Act are similarly worded like those under the Taxes and Levis Act, it is imperative for the Minister to quickly address any concerns that may be occasioned by the decision in the Hotel Owners case pertaining to the validity of the VAT Modification Order. Pending any further developments regarding the VAT Modification Order, taxpayers are advised to consult with their tax advisors to determine the application of the Order to their businesses and how they can take advantage of the exemptions listed in the Order.

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