Nigeria’s VAT system splits digital and physical healthcare

Nigeria’s ongoing tax reforms have introduced a divergence in the Value Added Tax (VAT) treatment of healthcare services, creating a split between traditional medical care and emerging digital health offerings such as telemedicine.

While core healthcare services remain zero-rated, digital services are increasingly being drawn into the VAT net, raising compliance concerns for providers.

“While traditional in-person consultations remain zero-rated, digital health services such as telemedicine are subject to consumption-based VAT,” Abayomi Sule, a healthcare fintech specialist, wrote in an article titled Understanding Tax Compliance and Incentives for healthcare businesses in Nigeria.

He highlighted a shift that could affect how healthcare providers structure and price their services.

The development follows broader reforms aimed at expanding the tax base while preserving exemptions for essential sectors.

Under Section 186 of the Nigeria Tax Act (NTA), medical services rendered by qualified practitioners, including diagnostics, surgeries, and hospital treatments, remain exempt, alongside pharmaceutical products and critical medical equipment.

However, the same clarity does not extend to digital healthcare.

“Telemedicine services are subject to consumption-based VAT,” Tamarix Law said in a recent analysis, pointing to a distinction that effectively separates digital delivery from traditional care for tax purposes.

This distinction is beginning to create operational challenges for providers offering hybrid services.

“Health app subscriptions and digital diagnostic services require VAT assessment, while online pharmacy platforms must navigate collection requirements,” Tamarix Law noted, highlighting the additional compliance layer introduced by the reforms.

For operators, the issue goes beyond classification. Healthcare providers that combine physical and digital services may now face mixed supply scenarios in which different parts of the same business are subject to different VAT treatments.
This complicates input VAT recovery, requiring businesses to apportion tax credits across taxable and zero-rated activities, and increasing the risk of misclassification during audits.

At the same time, the reforms retain key incentives for the sector. Hospitals, pharmacies, and diagnostic centres can recover input VAT on equipment purchases, facility upgrades, and operational expenses, improving cash flow and reducing the cost of investment.

Essential healthcare services, including laboratory tests, surgical procedures, ambulance services, and rehabilitation therapies, remain VAT-free, reinforcing government efforts to keep basic care affordable.

The compliance burden is expected to deepen as the Nigeria Revenue Service rolls out a digital-first tax administration system. Since the third quarter of 2025, businesses have been required to adopt electronic invoicing, real-time VAT reporting, and automated audit trails, with all tax filings integrated through a single taxpayer identification system.

Healthcare providers are therefore under pressure to upgrade billing systems and maintain detailed digital records to align with the new requirements.

While these measures are intended to improve transparency and reduce tax leakages, they also raise the cost and complexity of compliance, particularly for small and medium-sized operators.

The shift comes at a time when Nigeria’s digital health sector is expanding rapidly. The market is projected to reach about N185.66 billion in revenue by the end of 2026, with long-term estimates pointing to a $1.5 billion opportunity as investment shifts from basic telemedicine platforms to deeper infrastructure such as electronic medical records and digital supply chains.

Despite macroeconomic headwinds, the sector has shown resilience, with funding rising from $5.5 million in 2019 to a peak of $54.67 million in 2023 before moderating to $18.23 million in 2024, reflecting a transition toward a more mature ecosystem.
Adoption has accelerated since the COVID-19 pandemic, driven by rising smartphone penetration and demand for remote care.

Millions of Nigerians are expected to rely on virtual consultations in the coming years, particularly in underserved areas where physical healthcare infrastructure remains limited.

“Core medical consultation services retain zero-rating benefits,” Tamarix Law added, but noted that the treatment of digital services introduces a divergence that may require clearer regulatory guidance as the sector evolves.

As Nigeria’s tax system adapts to a more digital economy, analysts say aligning VAT rules with changing service delivery models will be critical. Without further clarification, the current framework risks creating uneven tax outcomes within the healthcare sector, leaving providers to navigate a complex and evolving compliance landscape.