FIRS says no immediate plans to double VAT to 10% as govt’ battles to raise revenues

There are indications that the Federal Government may not be considering doubling Value Added Tax (VAT) to 10% – at least in the near term – even as it looks desperately to expand sources of revenue, following the sustained drop in oil prices.

There had been persistent reports that the government was planning to raise VAT in order to increase tax income, but the Federal Inland Revenue Service  (FIRS) which presently faces immense pressure to rev up collections, says its immediate plan is to bring every ‘taxable’ individual and entity  into the tax net.

Although Nigeria has one of the lowest VAT rates in the world, experts say medium term efforts must involve a legislation to explore what opportunities exist with VAT which largely benefits states.

“You cannot just wake up one morning and increase VAT, it has to go through the National Assembly (for legislation) and get the presidential approval. People were talking about it, there has not been solid pronouncement by government,” said Emmanuel Obeta, director of communication at the FIRS, responding to BusinessDay’s questionstions on the touted VAT raise.

Nigeria depends on crude exports for about 70 per cent of government revenue and more than 90 percent of foreign exchange. The price of Brent crude has dropped by more than half since peaking in June last year, undermining President Muhammadu Buhari’s ability to deliver on his election promises since he took office in May.

Buhari just yesterday sought the approval of the National Assembly for a N465, 636,926,857 supplementary budget for the 2015 fiscal year, but finding money to fund the critical additional spending remains a huge task, as government income continues to dwindle.

Gross Statutory Revenues dropped to N321.996 billion in October, N47.144 billion lower than September levels and N191.697 billion below budget estimates. The revenue challenge was further worsened by a decline of over N44 billion in non-oil revenue collection, the Federal Account Allocation and Committee indicated in a communiqué , after sharing N389.936 billion for the three tiers of government last month.

The country’s tax system is not only burgeoned by low compliance by those already captured in the tax net, but tax base is really small, as government still struggles to figure out the actual number of the huge population that is eligible to pay taxes and even the exact amount they ought to be paying.

Lagos, Nigeria’s commercial centre and the highest generator of taxes for instance, currently has about  four million people in its tax net, but the government there claims that tax paying adults should be up to eight million plus.

Former president Jonathan, who three years ago, engaged the services of McKinsey & Co. had hoped government could ramp up that initiative to contribute an extra N160 billion in tax receipts and an aggregate of about N460 billion over and above the 2014 levels in the 2015-2017 period.

McKinsey diagnostics, in 2012, showed that 75 percent of “registered” firms in Nigeria were not in the tax system and 65 percent of registered tax payers did not file their returns in two years.

It was estimated that tax leakages due to unpaid real estate rentals in Nigeria amounted to about US$250 million per annum at the time.

75 percent of the Micro, Small and Medium Enterprises (MSMEs) were not yet in the nation’s tax system, while up to 35 percent of companies operating under the Pioneer Status Incentives abuse their tax exempt status.

Opeyemi Agbaje, Chief Executive Officer, Advisory Services, affirms that the number of captured tax payers is quite small, relative to the population.

“The government strategy should be expanding the number of tax payers rather than trying to increase collection from the existing payers.”

KEHINDE ABDULSALAM