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Unlike most advanced and developing countries,
where the bulk of tax receipts are generated from
collection of Value-Added Tax (VAT) the reverse
is the case in Nigeria, where the tax-to-GDP
ratio is poor. In this report, Ibrahim Apekhade
Yusuf examines the issues
With over 35 million taxpayers currently in the
nation’s tax net, revenue generation through
taxes may have risen significantly. But the irony,
however, is that the receipts from collection of
Value-Added Tax (VAT) still leaves nothing to
cheer about as it contributes a paltry one per cent
to the nation’s Gross Domestic Product (GDP).
What VAT is all about?
According to the Federal Inland Revenue Service
(FIRS), VAT is governed by Value Added Tax Act
Cap V1, LFN 2004 (as amended). VAT is a
consumption tax paid when goods are purchased
and services rendered. It is a multi-stage tax
borne by the final consumer. All goods and
services (produced within or imported into the
country) are taxable except those specifically
exempted by the VAT Act. VAT is charged at a
rate of 5%.
A view of the VAT ecosystem
The National Bureau of Statistics, NBS, had last
year released the sectoral report for Value Added
Tax for the 2017 fiscal period, stating that the
country generated a total of N972.34bn from VAT.
An analysis of the VAT report showed that the
amount was collected from 28 sectoral activities
during the period under review.
A breakdown of the amount showed that the sum
of N204.77bn was generated in the first quarter
while the second, third and fourth quarters
recorded N246.3bn, N250.56bn and N254.1bn,
respectively.
In the report signed by the Statistician General of
the Federation and Chief Executive, NBS, Dr. Yemi
Kale, the bureau said the manufacturing sector
generated the highest amount of VAT revenue at
N119bn.
This was closely followed by the professional
services sector with N87bn.
The report read in part, “Sectoral distribution of
VAT data for Q4 reflected that the sum of
N254.1bn was generated as VAT in Q4 as against
N250.56bn in Q3 and N207.35bn in Q4 2016,
representing 1.41 per cent increase quarter-on-
quarter and 22.55 per cent increase year-on-year.
“Out of the total amount generated in Q4 2017,
N121.09bn was generated as non-import VAT
locally, while N79.44bn was generated as non-
import VAT for foreign. The balance of N53.57bn
was generated as Nigeria Customs Service import
VAT.”
It is, however, instructive to note that 55 per cent
of the revenue generated from VAT receipts was
being collected from Lagos State while the
balance of 45 per cent is being generated from
the remaining 35 states of the federation and the
Federal Capital Territory.
Rivers, Kano and Kaduna account for six per cent,
five per cent and one per cent of VAT collection,
respectively.
A peep into Africa
According to new data from Revenue Statistics in
Africa released in Addis Ababa at a meeting of tax
and finance officials from 21 African countries
hosted by the Department of Economic Affairs of
the African Union Commission (AUC), the average
tax-to-GDP ratio for the 16 countries covered in
this second edition of the report was 19.1% in
2015, an increase of 0.4 percentage points
compared to 2014. Every country has experienced
an increase in its tax-to-GDP ratio compared to
2000, with an average rise of five percentage
points.
Making a case paradigm shift in VAT
administration
It is the considered view of many that the
nation’s tax ecosystem, especially the VAT, needs
to be changed to achieve the greater good for all.
One of those who share the view and very
strongly too that there is need to shake things up
in the VAT space is Omooba Olumuyiwa Sosanya,
a renowned accountant.
Speaking in an interview with our correspondent,
Sosanya, founding president, Association of
National Accountants of Nigeria (ANAN), said at
the centre of the issue of dwindling VAT receipts
is the problem of inefficiency in the administration
of the VAT.
According to him, “The problem is
overcentralisation of the administration. VAT is a
federal government tax controlled by Federal
Inland Revenue Service (FIRS). It is this
overcentralisation that leads to inefficiency in the
administration.”
Way forward
In the view of Sosanya, “We should decentralise it
and allow the state to administer the VAT. As of
now, all the state administers what we call
Personal Income Tax. What is being generated on
this compare to what could be generated if the
states are allowed to collect the VAT is huge.”
Pressed further, he said, “Take Lagos State for
instance, the total amount of money that is being
generated on VAT is over 55 per cent. The FIRS
doesn’t have any avenue of determining the
genuine turnover from VAT. The Service is
overwhelmed in the administration of VAT.
Whereas if you allow the state to administer the
VAT which is decentralised, each of the state will
have time to update their staff to register the
chargeable person.”
Most of the accountants, engineers, and
consultant companies, he stressed, “Are not
collecting VAT. And from my own estimation,
about 70-75 per cent are outside the VAT and
that’s what brought us to this mess. There is no
way we should not be collecting over 800 billion
naira monthly. And when this is done, I’m not
saying the rate of VAT should be increased
because a lot of people have been agitating for
that. If we do that, what we get is that the
revenue for FIRS will be less because the people
will now understand their taking. However, if we
expand on it, it will bring more chargeable
persons and businesses and that will generate up
to N800 billion to N1trillion in a month. Some
people will argue that the Ghana VAT is about 20
per cent. This is because the total of Ghana VAT
is decentralised. Even if you’re a barbing saloon
you’re captured, restaurants are captured, all
private sector in Ghana is captured, the same
thing obtains in South Africa. The rate of VAT is
less in Nigeria and look at the population of
Ghana and South Africa, they are about 200
million, so we are supposed to generate more.”
In the view of a tax expert, Bamidele Samson,
some of the obstacles hampering the growth of
VAT are the problem of inadequate personnel to
drive the revenue mobilisation in that space, non-
compliance of business owners, lack of
transparency, evasion of VAT-able goods and
services.
VAT increase likely soon
Nigeria is working on modalities to increase VAT
on some items which include carbonated drinks
and other luxury items in 2019.
Giving insight on the planned VAT rate, Finance
Minister, Hajia Zainab Ahmed, says the increase
will help the government in providing
infrastructure for its people.
The minister stated this recently at the
inauguration of the Strategic Revenue Growth
Initiative in Abuja.
Writing in her twitter handle, @ZShamsuna, the
minister said, “Revenue enhancement has become
a critical challenge in terms of the need to
mobilise fiscal resources to deliver on our socio-
economic development targets as in the ERGP &
@NGRPresident has mandated us to generate
more revenues, whilst proactively monitoring
collections.
“Given the current fiscal terrain & revenue outturn
performance – with the realisation of our
budgeted revenue at about 50% as at Q3 2018,
we have quite a distance to transverse to achieve
the ERGP’s target of a tax to GDP ratio of about
15%.”
It is, however, not the first time the federal
government will raise duties on luxury goods. In
December 2016, the government raised duties on
luxury goods and beverages imported into the
country under the Economic Community of West
Africa’s (ECOWAS) Common External Tariff (CET)
regime.
source: thenationonlineng.net/vat-revenue-poor-nigeria-experts/