The Federal Ministry of Finance has issued a Value Added Tax (Modification) Order, 2020 sequel to the Finance Act 2019 which amended a number of provisions in the Value Added Tax (VAT) Act. Commencement date is 3 February 2020.

The Order clarifies and expands the list of exempt items as contained in the First Schedule of the VAT Act.

 The Order outlines the items that are VAT exempt including basic food items, baby products etc.

Basic Food items are defined as agro and aqua based staple food including:

• Honey (if raw or semi-processed)
• Bread & cereal (if raw or semi processed)
• Cooking oil & culinary herbs (if raw and unprocessed)
•  Fish (other than ornamental)
• Flour and starch (refined or unrefined),
• Fruits (including dried),
• Milk (including powdered),
• Nuts and pulses (including roasted, fried, boiled, salted)
• Roots (also in the form of flakes)
• Salt (excluding industrial)
• Vegetables (dried or ground)
• water (excluding sparkling or flavored)

 According to this Order, food items sold in restaurants, hotels, eateries, lounges, and other such places; or by contractors, caterers and other similar vendors, are NOT VAT exempt.

Education books and materials – The Order expands the VAT exemption to cover electronic books. It also clarifies that the exemption relates to music materials, maps and charts, and materials used in vocational and religious education, among others.

 Baby Products: refers to products made for the use of babies from birth to 3 years, and include baby activity and entertainment products, safety accessories, cribs, feeding and grooming items, clothing, and raw materials for production of diapers, and so on.

Medical products and services: The Order exempts healthcare related equipment, services and medicine for both humans and animals from VAT. However, cosmetology and fitness devices, spa, gymnasium and similar services are not VAT exempt.

Transportation – Shared passenger road transport services available for public use are VAT exempt.

Residential rent – The Order specifies that the rental of residential accommodation by persons other than corporate entities is VAT exempt.

Petroleum products – Petroleum products are exempted from VAT, including aviation and motor spirit, kerosene, natural gas, other liquefied petroleum gases.

Renewable energy – Wind and solar powered generators and other equipment are VAT exempt.

Conclusion

The new Order has bought some clarity to VAT exempt items but still left some ambiguities. The Order is silent regarding some exemptions introduced by the finance Act such as tuition, locally manufactured sanitary towels, land, money, and contract of employment.

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