Some tax experts say decentralising Value Added Tax (VAT) collection could add complexity to tax administration and negatively impact the ease of doing business in Nigeria.
Africa’s biggest economy in 2017 moved up 24 places on the doing business ranking, then it moved up 15 places in 2019, making it among the top 10 most improved economies in the world, according to the World Bank’s ease of doing business ranking.
Adetola Aibangbee, a fiscal policy expert and non-executive board member at the Federal Inland Revenue Service (FIRS) during a tax webinar organised by KPMG Nigeria on Friday, said that due to the way the country is structured, it will not be good for the economy when states start to collect VAT.
“If we have that, what then now happens is that the part of the country which is producing what we eat which is predominately tax exempted will need to start charging some form of tax on what they are producing so that they can remain competitive and that translates to increased cost of doing business and erodes our ease of doing business ranking,” Aibangbee said at the webinar themed “The VAT debate in Nigeria: Matters arising and the way forward”.
She also added that in terms of Personal Income Tax (PIT) that states are entitled to collect; they have not seen an adequate structure to effectively and efficiently collect the tax.
Similarly, Taiwo Oyedele, a West Africa tax leader at PwC Nigeria told BusinessDay that the ease of doing business normally looks at the time of compliance, cost of compliance and the number of payments.
He added: “If I have to do something in Lagos and I create a branch in another state and they say I have to do it again, then it complicates my business.
Decentralisation on the surface may be good for fiscal federalism but it is usually counter-productive for ease of doing business except you limit it to businesses that operate in a single locality.”
Over the past two months, the Federal Government has been locked in a legal battle with the Rivers and Lagos State governments over who should collect VAT. Other states in the country are also considering enacting their own laws to collect VAT in their states.
According to Governor Nyesom Wike of Rivers State, the collection of VAT by a Federal Government agency in Rivers and State and distribution of same to other state governments negates the principle of justice and fairness.
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For example, in June 2021, VAT collected in Rivers State by FIRS was N15.1billion, but the state was only given N4.7 billion from the taxes. Lagos accounted for N46.4 billion VAT collection in the same month, but was only allocated N9.3 billion from the proceeds.
Generally, VAT is the tax on the final consumer, but now questions will rise on where is the final consumer collection point, Mark Abani, founder/CEO of MSCA Projects Worldwide Limited, pointed out
“Is the tax point going to be in the place of business of the supplier or is it going to be in the place where import is consumed. How are we going to deal with the input and output VAT charges or are we going to be passing on increasing costs to the taxpayers? So there are quite a lot of technical matters that are going to arise there,” Abani said
He further said that there would be a lot of confusion that will affect foreign direct investments (FDI) and foreign business in Nigeria.
Currently, the VAT war has left businesses confused over how to pay the VAT and to whom. In Rivers State, for example, the state government has signed into law its VAT Law No. 4 of 2021, making it legally binding on businesses operating in the state to pay to the state tax authority.
Governor Wike cited the ruling of a Federal High Court in Port Harcourt that ceded the right to collect VAT and PIT to state governments as against FIRS.
While in Lagos, the government is insisting it is its prerogative to collect, having also enacted its own VAT law.
Titilayo Fowokan, the group head at strategic tax and compliance at Dangote Industries Ltd, highlighted further concerns agitating the minds of industry players such are multiple registrations as businesses will now have to register with different states at different purposes, the issue of different penalties, double taxation, additional compliance cost, different tax rates, and input claims.
“Audit is also a concern, how to manage the audit across the states so that it does not have a costly experience for the taxpayers. Then there is the technology gap. Not all states will be able to get the necessary technology to be able to collect VAT,” Fowokan added.
These issues raised are so fundamental and finding a solution is necessary and important, said Abiola Sanni, a professor of commercial law (taxation), Faculty of Law, University of Lagos
Sanni advised that in solving this type of problem, there should be an organic review of the problem through a study group so that we can have a proper evaluation and then look at the other current issues that manifest, the implications and then the alternative ways of solving them.
On his part, Muda Yusuf, the former director-general of Lagos Chamber of Commerce and Industry (LCCI) said the emphasis should be on greater equity in the distribution of what is collected and not on states being saddled with the responsibility of VAT collection.
