Tougher Times Ahead As Federal Government Plans An Increase In The Rate Of Value Added Tax By Five Per Cent Only
There are strong indications that the Federal Government is set to double the rate of the mandatory value-added tax (VAT) to 10 per cent, a proposal that has been under consideration for many years. Indications to this effect emerged weekend at an interactive session with Journalists in Lagos where the Acting Executive Chairman of the Federal Inland Revenue Service (FIRS), Mr. Sunday S. Ogungbesan, explained the need for an upward adjustment from the current 5 per cent VAT rate.
Prior to the parley, industrialist and President of Dangote Group, Alhaji Aliko Dangote, had called for an increase in the VAT rate. He had argued that it was the most effective way to address dwindling revenue of the country.
But Ogungbesan informed that government had concluded plans to commence the implementation of the 10 per cent VAT in July 2015, which reflected in the high revenue target of N4.5 trillion given to FIRS among other revenue generating agencies of government.
He said that FIRS was given a VAT target of N1.2trillion for the year, and N641.85 billion for January- June, 2015 and that only 61 per cent of the half year target, amounting to N390.36 billion, was achieved as at June, 2015. According to him, there is urgent need to take a second look at the current VAT rate in light of dwindling oil revenue which impacts negatively on the annual budget of the nation, as “all eyes are on FIRS” to do better in its revenue generation.
He lamented that amidst inappropriate taxation being perpetrated by the state and local governments, the FIRS did not have accurate data to determine the level of tax compliance in the country and the country’s actual Tax-GDP ratio. “The Federal Inland Revenue Service which everyone is quick to make reference to is administering only the Federal Capital Territory (FCT), not the entire country; that makes it difficult for us.
“When we compute Tax to GDP ratio, we hear that Nigeria is not doing well compared to other countries … They forget that the various levies at the local government councils and at the state level, including the personal income taxation administered by the 36 state governments, should be included in the figures because they are all income taxations even though they are in the names of levies,” Ogungbeson observed.
He said that if accurate data were obtained and the states and local governments co-operated with FIRS to streamline the tax system, Nigeria would be doing close to 17.5 per cent Tax-GDP ratio which he said, was far from the global 20- 22 per cent benchmark. “We are not assessing ourselves correctly, and they expect us to perform.
Why don’t we increase VAT to 10 per cent as a quick way of going about it?” the FIRS boss argued, noting that the increase ought to have taken effect from 1st July 2015 but had to be suspended for wide consultation with stakeholders. He said that the media interaction with Journalists was part of the consultation being considered by FIRS because, “we felt we cannot implement the adjustment without consulting with stakeholders.” Other stakeholders to consult, according to Ogungbeson are Labour, the Academia and Organised Private Sector.
He blamed Nigerians for engaging in fraudulent accounting practices and patronizing quack tax practitioners who encourage the racketeering going on in Nigeria’s tax system, a trend he said was being contended through various means, including introducing a system that made it difficult for tax evaders to operate their bank accounts.
Former Finance Minister and Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, had made attempts in the past to increase the VAT rate to 10 per cent, but was met with stiff opposition at various stages of the policy implementation, by both the public and experts.
The UNION leant that the immediate past administration of former President Goodluck Jonathan would have announced the commencement of the increased VAT rate effective July 2015, and that the upward adjustment had been agreed with the state governments and other strategic stakeholders.
VAT is a consumption tax levied at each stage of the consumption chain, and is borne by the final consumer. It was introduced by the VAT decree No. 2 of 1993, to replace the old sales tax and requires a taxable person upon registering with the Federal Board of Inland Revenue to charge and collect VAT at a flat rate of 5% of all invoiced amounts of taxable goods and services
.Ogungbesan also disclosed that Nigeria has only 250,000 tax paying businesses against the about 400,000 registered at the Corporate Affairs Commission.