November 8, (THEWILL) – Walk into any nursery, primary, secondary, or tertiary institution in Nigeria, from private academies in Lagos and Abuja to community schools across the country and ask the management about Value Added Tax (VAT).
The standard response is almost always the same: “We are an educational institution, so everything we do is completely tax-free. “That widespread assumption is a severe operational misunderstanding. Under the Nigeria Tax Act (NTA) 2025, educational services and materials do enjoy significant VAT relief, but they do so under two entirely different legal mechanisms: Exempt Supplies (Section 185) and Zero-Rated Supplies (Section 186).
While parents and students pay 0% VAT at the till in both cases, the underlying accounting rules behind them determine whether a school gets to claim back millions of Naira in input costs or absorb them as an unrecoverable expense. If school proprietors, finance directors, and book publishers fail to grasp this distinction, they face unexpected cash flow drains, distorted fee structures, and sudden audit liabilities.
The Statutory Breakdown: Section 185 vs. Section 186 To understand how the tax framework treats education, we must examine the specific statutory classifications established under the NTA 2025:
- Plays and Educational Performances (Section 185(k) Exempt):
The law explicitly exempts plays and theatrical performances conducted by educational institutions as part of learning. Being classified as “exempt” means this activity sits completely outside the VAT net. No VAT is charged on entry tickets or audience fees.
- Books and Educational Materials (Section 186(c) Zero-Rated):
Educational books and learning materials are classified as taxable supplies chargeable at a statutory rate of zero percent (0%).
- Tuition and School Fees (Section 186(m) Zero-Rated):
Tuition relating to nursery, primary, secondary, or tertiary education is similarly categorized as a zero-rated taxable supply (0% VAT).
Key Statutory Interpretations and Practical Compliance Rules. Why does the law separate school drama plays from school tuition and textbooks if the end customer pays 0% VAT on both? The distinction lies in Input VAT recovery and monthly filing mechanics:
The Input VAT Recovery Rule under Section 155: A supplier making zero-rated supplies (such as tuition under Section 186(m) or educational books under Section 186(c)) remains fully inside the VAT framework. Because these items are technically taxable supplies at 0%, the school or educational publisher is legally allowed under Section 155 to recover or claim refunds for the Input VAT paid on operational purchases, printing equipment, software licenses, or direct overheads.
The Blocked Input VATÂ Rule for Exempt Items: Conversely, an entity making exempt supplies (such as educational plays under Section 185(k)) cannot reclaim any Input VAT incurred on stage equipment, costume hire, hall rentals, or production costs. That Input VAT is permanently blocked. The school must absorb it as a business expense, directly cutting into operating margins or forcing ticket prices upward.
Apportionment Rules for Mixed Educational Operations: Most schools do not run a single activity; they collect tuition (zero-rated), sell textbooks (zero-rated), host ticketed drama performances (exempt), and sometimes rent out school halls for weekend events (standard 7.5% VAT).
In these mixed operations, finance teams are required by law to strictly apportion their Input VAT. Claiming Input VAT on an exempt drama production against general taxable income is a direct violation that triggers tax penalties during an audit.
Common Compliance Oversight Areas for Educational Institutions
Navigating these dual VAT streams exposes educational businesses to routine operational oversights:
Bundling All School Expenses into a Single VAT Claim: School bursars often group all vendor invoices together and attempt to claim Input VAT across the board. If tax auditors discover that input tax linked to exempt school plays or non-qualifying administrative activities was claimed, the tax authority will disallow the claim and issue back-assessments.
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Neglecting Monthly VAT Filings for Zero-Rated Income: Because tuition and textbooks attract 0% output VAT, many school owners assume they have no obligation to file monthly VAT returns. However, institutions are still required to register for VAT and submit monthly VAT returns to maintain their compliance status if they do not meet the threshold requirements for a small business.
Misclassifying Commercial School Activities: Selling customized school uniforms, operating commercial transport fleets, running external tuck shops, or leasing facilities to third parties do not automatically share the zero-rated status of core tuition. Treating these commercial extras as zero-rated tuition exposes the institution to unpaid Output VAT liabilities.
Actionable Steps for School Management and Publishers
To protect operating margins and remain fully compliant under the NTA 2025, educational leaders should adopt these proactive controls:Separate Revenue and Expense Accounts by Tax Treatment: Set up distinct accounting codes in your ledger for zero-rated tuition and books, exempt educational performances, and standard-rated commercial services.
Track Input VAT Meticulously at the Point of Purchase: Ensure vendor invoices clearly distinguish between VAT paid on textbook production or teaching resources (recoverable under zero-rating) and VAT paid on cultural or play productions (non-recoverable under exemption) Maintain Auditable Returns for Zero-Rated Supplies: File regular monthly VAT returns reflecting zero-rated tuition and book sales. This formalizes your right to claim input tax credits and prevents administrative fines for non-filing under the NTAA.
The Bottom Line
The Nigeria Tax Act 2025 provides generous tax relief for education, but it demands strict technical compliance in return. Zero-rated tuition and books allow institutions to shield families while recovering input costs, whereas exempt educational performances require schools to absorb input taxes quietly. Knowing which side of the line your educational revenue falls on isn’t just a technical exercise—it is the foundation for running a financially sound and audit-proof institution.
NOTE: The views expressed in this article are strictly those of the author and do not necessarily reflect the official position of his employer.
By Tomi Akinwale
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Akinwale is a chartered accountant, tax consultant, and professional advisor.
