The renewed suggestion by Nigeria’s revenue agency –Federal Inland Revenue Service (FIRS) – to raise Value Added Tax (VAT) from the 5 percent currently to 10 percent, could usher in another era of debates on the efficient utilisation of VAT proceeds after several intentions by FIRS past leaders in that direction failed.
Recently, Samuel S. Ogungbesan, acting executive chairman, Federal Inland Revenue Service, disclosed plans by the government agency to increase the Value Added Tax from the current 5 percent to 10 percent, even as it moves to clamp down on recalcitrant companies.
Value Added Tax (VAT) is a form of consumption tax, levied at each stage of the consumption chain and borne by the final consumer of the product or service.
Currently, one of the major tasks facing President MuhammaduBuhari administration is how to contend with 2015 budget financing in the wake of over 50% decline in oil price and rising threats from declining non-oil revenue.
Among other tax rates, Nigeria’s VAT rate at 5 percent is amongst the least in the world, a situation some revenue/tax experts said could be driving the new leadership of FIRS into new decision to standardise the nation’s VAT rate.
“Nigeria needs to raise tax revenues, Nigeria has the lowest tax rate in the world with 5 percent Value Added Tax (VAT) – with 10 percent being the standard globally,” Ayo Teriba, CEO of Economic Associates said at BusinessDay conference on the impact of falling oil prices on the Nigerian economy. “We need to overhaul the country’s fiscal expenditure, fiscal policy needs to be more active,” Teriba added.
According to the FIRS, all goods manufactured/assembled in or imported into Nigeria, except those specifically exempted under the law are VATable goods. Examples of VATable goods include jewelries, shoes, bags, television, among others. Also, all services rendered by any person in Nigeria except those specifically exempted under the law are VATable. Examples of VATable services are: services rendered by lawyers, engineers, accountants, contractors, and consultants.
The FIRS boss said the agency tried different options in the past to enforce compliance, including the option of sealing companies that evade taxes, but discovered that it adversely affected man hour, the Gross Domestic Product and the economy as a whole.
He said: “If we achieve our revenue targets, to a large extent government deficits will be reduced. Our plan is to bring every business into the tax net; this economy can survive outside oil.”
Goods that are not subject to VAT include: all medical and pharmaceutical products, basic food items, book and educational materials, baby products, fertilizer (locally produced), agricultural and veterinary medicine, farming machinery, and farming transportation equipment. Other goods that are not VATable are plant and machinery imported for use in the Export Processing Zone (EPZ) or Free Trade Zone; provided that 100percent production of such company is for export; all commercial aircraft and aircraft spare parts imported for use in Nigeria; and amorphous pet chips (HS Code 3907.6000.00).
Services exempted from VAT include medical services, services rendered by community banks, people’s bank and mortgage institutions, plays and performance conducted by the educational institutions as part of learning, and all exported services.
Zero-rate VAT applies to non-oil exports, goods and services purchased by diplomats, as well as good and services purchased by humanitarian donor-funded projects.
Before now, Taiwo Oyedele, tax partner, PwC Nigeria had noted that, “Nigeria does not have a well-administered VAT system that is in line with international norms although the VAT rate of 5percent is much lower than the global average rate of between 18percent and 20percent. He noted that other countries are looking into introducing VAT into their systems as a means of efficiently collecting revenue.
“Studies have shown that other countries with higher rates like United States and South Africa have got a lot to show for it, in terms of good infrastructural facilities and social amenities in the country that is adequately sufficient and highly beneficial to the present citizens and their future generations” according to Adeleke Adeoluwa Abiola, tax consultant with TAC Group. TAC is a composite Professional Service & Business Consulting organization providing Professional Services, Business Consulting & Financial Advisory Services to clients in various sectors of the economy.
“The administration of VAT is relatively easy, unselective and difficult to evade. Countries all over the world look for ways to boost their revenue; this facilitated many nations to introduce VAT on goods and services. To boost tax re venue we need to boost revenue collected from VAT.
“This can be achieved not necessarily by increasing the VAT rate of 5percent percent but by closing every VAT revenue leakage, sensitising the managers of companies operating in Nigeria on the need to remit the VAT revenue collection and proper training of the Federal Inland Revenue staff in charge of VAT revenue collection”, according to a report co-published by John Chika Onwuchekwa, of Department of Accounting, Rhema University, Aba, Abia State, and Suleiman A.S. Aruwa, Department of Accounting, Nasarawa State University, Keffi.
Iheanyi Nwachukwu
