This publication highlights specific tax considerations for players in the Nigerian Electricity Supply Industry (NESI or “the Industry”). Private players did not begin to participate in the NESI until about 15 years ago. Prior to then, it was completely under the control of the Government, so tax was not necessarily a big issue. However, with the introduction of private companies into the Industry, tax has become a burning issue. The new entrants and tax administrators are still trying to understand the peculiarities of the Industry and the peculiar tax challenges associated with it.

We have summarised a few of the recent issues below:

1. The impact of Value Added Tax (VAT) (Modification) Order, 2021 on operations of NESI

VAT has been a contentious issue in the power sector since privatisation. The conversation started from whether electric power qualifies as a good on which any input VAT incurred, can be recovered from the output charged and collected. It subsequently moved to the ability of Distribution Companies (DisCos) to recover any VAT paid for the supply of electricity to the Nigerian Bulk Electricity Trading Company (NBET) given the high collection losses in the sector. Collection losses are still very high in the Industry; therefore, DisCos lose a significant amount of value including the corresponding VAT. They may therefore be in a position where they constantly pay out of pocket as they are unable to collect sufficient output VAT to enable them to recover any input paid. This is without prejudice to the argument of whether any input VAT is paid to NBET in the first instance.

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