October 11, (THEWILL) – For decades, many Nigerian finance managers treated different taxes as completely separate, independent silos. If a company bought goods from a local vendor who failed to charge Value Added Tax (VAT), or imported capital equipment through a freight forwarder without paying the required customs duties, the finance team often treated it as a minor transactional issue. When filing annual Corporate Income Tax (CIT) returns, they simply claimed the full operational expense under the long-standing assumption that any cost is deductible as long as it was “wholly and exclusively” incurred for business operations.
If your accounting team still operates with that mindset, your business may be facing significant tax exposure.
Under Section 21(p) of the Nigeria Tax Act (NTA) 2025, the government has established a strict statutory cross-link between transactional taxes and profit taxes. The provision explicitly mandates that if VAT was due on a business expense under the Act but was not charged, or if applicable import duties and levies were not paid on imported items, the entire underlying expense becomes non-deductible for income tax purposes.
The Statutory Hammer: Understanding Section 21(p)
To grasp the commercial significance of Section 21(p), it is essential to look at how corporate income tax calculations operate.
To determine chargeable profit, a business takes its gross revenue and subtracts allowable operating expenses. Under standard tax principles, if a company spends N100 million on legitimate logistics services or raw material imports, that N100 million reduces its taxable income, yielding direct tax savings at the applicable corporate tax rate.
Under Section 21(p), if that N100 million invoice lacked a valid 7.5% VAT charge, or if customs clearance documentation fails to verify full payment of applicable import levies, the tax authority is required to disallow the entire N100 million expense.
Consider the financial impact: by failing to ensure a 7.5% VAT charge or missing a customs levy at the port, a business forfeits a 100% tax deduction, effectively exposing its operational costs to a full corporate income tax charge. Section 21(p) directly links vendor tax compliance and customs documentation to corporate income tax liability.
Key Operational Questions Facing Corporate Leaders
This strict provision introduces critical legal and administrative questions for CFOs, corporate legal counsel, and tax practitioners:
Can a tax deduction be preserved if unremitted VAT or underpaid customs duties are settled post-audit?
Section 21(p) strictly prohibits the deduction if tax was not charged or duty was not paid. Does settling the outstanding principal tax alongside administrative penalties under the Nigeria Tax Administration Act (NTAA) legally remedy the original defect, or does the initial omission permanently lock out the expense deduction?
How will tax authorities treat self-corrected errors versus audit discoveries? If a business voluntarily identifies an un-vatted invoice through an internal review, files an amended return, and remits the missing VAT prior to a formal tax audit, will revenue authorities accept the amended expense deduction?
Conversely, if the omission is uncovered during a statutory tax audit, will auditors enforce an absolute disallowance of the income tax deduction alongside penalty assessments?
What constitutes sufficient proof of compliance for imported goods? In complex supply chains involving third-party clearing agents, does a corporate taxpayer bear full exposure if an agent issues a clearance invoice but fails to remit the exact statutory customs levies to the government?
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Real-World Procurement Traps: Where Businesses Face Exposure
This statutory requirement impacts several routine corporate procurement workflows:
Unregistered Local Suppliers: Engaging informal contractors or vendors who issue non-VAT invoices automatically exposes the hiring entity to the loss of its income tax deduction on those expenses.
Discrepancies in Customs Clearance: Relying on third-party freight forwarders without verifying official customs documentation—such as Single Goods Declarations (SGDs) and official bank assessment receipts—leaves imported inventory and equipment vulnerable to expense disallowance.
Cross-Border Service Invoices: Paying foreign digital service providers or offshore consultants who fail to charge or register for Nigerian VAT under applicable digital economy provisions creates direct tax risk for the local recipient under Section 21(p) where theocal party fails to self-charge.
Actionable Steps to Protect Your Business Deductions
To manage compliance risks under Section 21(p), organizations should align their procurement, legal, and tax controls:
Enforce Strict Vendor Onboarding: Require all suppliers to provide verifiable Tax Identification Numbers (TINs) and issue tax-compliant VAT invoices prior to processing payments.
Verify Customs Clearance Documentation: Mandate that all imported items are backed by verified customs documentation, including official assessment notices and duty payment receipts, before capitalizing or expensing those costs.
Institute Regular Internal Tax Reviews: Periodically audit vendor accounts and accounts payable ledgers to detect uncharged VAT or documentation gaps early, allowing for timely self-correction before formal statutory audits commence.
The Bottom Line
Section 21(p) of the Nigeria Tax Act 2025 emphasizes that corporate tax compliance can no longer be managed in isolation.
If Value Added Tax and import duties are not verified and correctly handled at the transactional level, the commercial impact will be felt directly on the corporate bottom line. Maintaining rigorous procurement controls and verifiable tax records is now an essential safeguard for protecting corporate profitability.
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.
