An expense is not deductible in Nigeria if VAT was due on it but was not charged. For imported items, the same applies when the import duty or levy was not paid. A company that claims such an expense loses the deduction, and the tax it saved comes back as extra income tax when the books are audited. The case below is an anonymised composite of situations we see often, and the numbers are illustrative.
Is an expense deductible in Nigeria if VAT was not charged?
The general test is that an expense must be incurred wholly and exclusively for business. On top of that, the PwC Worldwide Tax Summaries entry on Nigerian deductions (last reviewed 29 May 2026) states that any expense on which VAT is due but was not charged is not deductible for income tax. The same applies to an imported item where the applicable import duty or levy was not paid.
The rule reaches assets too. An asset qualifies for capital allowances only if any VAT due on it was charged or, for an import, the duty was paid. So a missing VAT line on an invoice can cost you twice: the cost is disallowed or the allowance is refused, and the supplier's gap becomes your tax bill.
What happened to the Abuja construction company?
The company had spent ₦240 million over the year on subcontract labour, equipment hire and haulage from 31 vendors. Their invoices carried no VAT line. Finance had treated "no VAT on the invoice" as "no VAT due" and deducted the full ₦240 million in the income tax computation.
During a tax audit, the reviewer sampled the invoices and asked one question: why is there no VAT here? The company had no answer on file. The reviewer proposed to disallow the whole ₦240 million. At the 30% company income tax rate, that meant ₦72 million of additional tax, before any penalty or interest.
How was the exposure reduced?
The rule bites only where VAT was due. So the first job was to find out, vendor by vendor, whether it was. VOG took four steps.
- Classify every vendor. We matched each of the 31 vendors to its VAT status and to what it actually supplied.
- Set aside supplies where no VAT was due. ₦96 million of the spend was on supplies that carried no VAT, so the rule did not apply. We documented the basis for each one.
- Press registered vendors to correct. Vendors that were VAT-registered and should have charged VAT issued corrected invoices and remitted the tax. That cleared another ₦79 million.
- Concede what cannot be defended. The remaining ₦65 million came from vendors that should have charged VAT and never did. We accepted that disallowance and agreed it with the reviewer instead of arguing it.
The disallowed amount fell from ₦240 million to ₦65 million. At 30%, the extra tax dropped from ₦72 million to ₦19.5 million. The company kept ₦52.5 million it would otherwise have paid.
Why is a missing VAT line your problem and not only the vendor's?
Because the deduction is yours. The vendor answers for the VAT it failed to charge. You answer for the expense you claimed against it. Many finance teams only learn the difference at audit, when the reviewer starts from the invoice and works back.
The line between supplies that carry no VAT and supplies where VAT was simply left off is where most of the money sits. Our piece on zero-rated versus exempt VAT explains how to tell them apart.
What this means for your business
- Check VAT before you pay. Query any invoice from a supplier of taxable goods or services that shows no VAT line, and record the reason if none is due.
- Hold vendor tax details. Keep each vendor's tax ID and VAT registration status on file, and refresh it every year.
- Review before you file. Run a pre-filing scan of large expense lines and fixed asset additions for VAT gaps, so the correction happens before the return and not after the audit.
If an audit is already on the calendar, start with our checklist for preparing for an NRS tax audit and add a vendor VAT review to it.
FAQ
Is an expense deductible in Nigeria if the invoice has no VAT on it?
It depends on whether VAT was due. If the supply carries no VAT, the expense can still be deductible if it meets the wholly and exclusively test. If VAT was due and left off, the expense is not deductible for income tax.
Does the same rule apply to assets?
Yes. An asset qualifies for capital allowances only where any VAT due on it was charged, or where the import duty was paid on an imported item.
Can a vendor fix a missing VAT charge after the fact?
In the case above, VAT-registered vendors issued corrected invoices and remitted the tax, and that restored the deduction. Whether this works for you depends on the vendor's status and the facts, so get advice before you rely on it.
Not sure what your expense ledger would show under audit? VOG Global Consult, Area 10, Garki, Abuja, reviews vendor VAT status and expense deductibility before the NRS does. Contact us at vog.global to book a review.