AI agents for business finance: what they can and can't do
What AI agents can do in bookkeeping, close, collections and compliance today, where a person must stay in charge, and how to judge a product.
The short answer
Under the Nigeria Tax Act 2025, medical products and medical services are zero-rated for VAT, so a pharmacy charges 0% VAT on medicines while other goods it sells, such as cosmetics, are taxed at the standard 7.5% unless separately relieved. A pharmacy run by a sole owner pays personal income tax on profit to the state IRS; one run as a company pays company income tax, which is 0% for small companies.
VAT on medicines: zero-rated, not just exempt
People often search for "VAT-exempt medicines". Under the Nigeria Tax Act 2025 (NTA), in force from 1 January 2026, the more accurate word is zero-rated. A Mondaq review of the Act's VAT provisions (May 2026) lists, under section 187, zero-rated supplies that include medical services and medical products, alongside basic food, tuition and educational books.
The difference matters for a pharmacy:
| Zero-rated | Exempt | |
|---|---|---|
| VAT charged to customer | 0% | None |
| Is it a taxable supply? | Yes, at 0% | No |
| Can the seller recover input VAT on its costs? | Generally yes | No |
Because zero-rated sales are taxable supplies at 0%, a VAT-registered pharmacy can generally claim input VAT it pays on costs related to those sales. Forvis Mazars (March 2026) notes that from 1 January 2026 input VAT on services and fixed assets used for taxable supplies is claimable, with claims made within five years.
What is not a medical product
Most pharmacies also sell items that are not medicines: cosmetics, toiletries, snacks, drinks, baby items, perfumes. VAT stays at 7.5% under the NTA, and those items carry it unless they fall into another relief such as basic food. A pharmacy that is VAT-registered therefore has a mixed till, and it needs its point-of-sale system to tag items correctly. The exact scope of "medical products" is set by the Act and any regulations; if an item is borderline (supplements, medicated cosmetics, devices), ask the NRS in writing.
Does a small pharmacy need to register for VAT?
The Nigeria Tax Administration Act 2025 (NTAA, s.147, NRS-published text) defines a small business as one with gross turnover of ₦100 million or less a year and fixed assets of not more than ₦250 million, excluding professional services. The June 2025 gazette print said ₦50 million, and some summaries still quote it. A small business is exempt from VAT registration, charging and returns, but may opt in by written notice (s.22(4)-(5)).
Opting in can make sense for a pharmacy whose sales are mostly zero-rated, because it may then recover input VAT on rent, equipment and services. Weigh that against the monthly filing duty: returns by the 21st of the following month (NTAA s.22(1)). If you dispense medicines and also provide clinical services through pharmacists, check whether the professional-services exclusion affects your classification.
Income tax: depends on how the pharmacy is owned
| Structure | Tax on profit | Return |
|---|---|---|
| Sole proprietor or business name | Personal income tax, 0% to 25% (NTA bands) | Annual return to state IRS |
| Limited company, small | 0% company income tax, no development levy | Annual return to NRS within 6 months of year end |
| Limited company, not small | 30% company income tax plus 4% development levy | Annual return to NRS |
A company is small if turnover is ₦100 million or less and fixed assets do not exceed ₦250 million (PwC, May 2026). Every company files a return yearly whether or not it owes tax (NTAA s.11(1)). Stock write-offs for expired drugs are part of computing profit; keep evidence of how and when expired stock was destroyed.
Worked example: VAT on a mixed basket
- Prescription medicines
- ₦12,000 at 0% VAT = ₦0
- Body lotion (standard-rated)
- ₦4,000 at 7.5% = ₦300
- Total VAT on the receipt
- ₦300
- Customer pays
- ₦16,300
The receipt should show the VAT rate per line. Section 153 of the NTA, per the Mondaq review, requires a VAT invoice to show the supplier's tax ID, invoice number, date, purchaser's name, gross amount, VAT charged and rate.
Payroll and records
A pharmacy with staff deducts PAYE and files the annual employer return by 31 January (NTAA s.14). Keep sales records, supplier invoices, stock and expiry registers, and VAT workings for at least six years after the year of assessment (NTAA s.31). Follow VAT filing deadlines and input vs output VAT for the mechanics.
What to check first
- Work out last year's turnover and the value of your fixed assets, and check them against the ₦100 million turnover and ₦250 million fixed-asset limits, which apply to both the VAT small-business exemption (NTAA) and the 0% company income tax rate (NTA).
- Decide whether opting into VAT is worth it, given your mix of zero-rated medicines and standard-rated shelf items.
- If VAT-registered, set your till to tag each product with the right rate and print the rate on receipts.
- Keep supplier invoices showing the VAT you paid, so input VAT can be claimed.
- Keep an expiry and destruction register, with dates, quantities and witnesses, to support stock write-offs.
- Register for a Tax ID and run PAYE if you employ pharmacists, technicians or sales staff.
A pharmacy that also runs a clinic or offers consultations should look again at the professional-services exclusion in the small-business definition, since it can change which rules apply.
Where Pryme fits
Pharmacies are one of the sectors in Spaces, Pryme's merchant ecosystem in Lagos, Abuja and Port Harcourt; a pharmacy with a Pryme Business Account can join and accept customers whose Loans on Spaces are spendable only with Spaces merchants. This article is information, not tax advice.
Questions people ask
Is there VAT on drugs in Nigeria?
Medical products are zero-rated under section 187 of the Nigeria Tax Act 2025, per the Mondaq review, so medicines carry 0% VAT.
Do pharmacies charge VAT on cosmetics?
Yes, if the pharmacy is VAT-registered, items that are not medical products or otherwise relieved carry the standard 7.5%.
Does a small pharmacy need to register for VAT?
Not if it is a small business under the NTAA (turnover ₦100 million or less, fixed assets ₦250 million or less). It may opt in to recover input VAT.
What tax does a pharmacy pay in Nigeria?
Personal income tax on profit if owned by an individual, or company income tax if a company: 0% for small companies, 30% plus 4% levy otherwise.
Sources
- Mondaq: Examination of the VAT provisions under the Nigeria Tax Act 2025 (28 May 2026) · accessed Oct 2026
- Forvis Mazars: 2025 NTA VAT key business changes (16 Mar 2026) · accessed Oct 2026
- Nigeria Tax Administration Act 2025 (gazette copy) · accessed Oct 2026
- PwC Worldwide Tax Summaries: Nigeria, taxes on corporate income (reviewed 29 May 2026) · accessed Oct 2026
- DLA Piper Africa: FAQs on payroll taxes and employer liability (28 Aug 2026) · accessed Oct 2026
- Nigeria Tax Administration Act 2025, ss.22 and 147 (NRS-published text, edited 1 Jan 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.