‘Government should adjust VAT to meet macro-economic goals’

Nigeria may need to adjust its Value Added Tax (VAT) rates in consonance with macro-economic objectives and efficient tax administration machinery, a tax partner at Akintola Williams Deloitte, has said.

Arowolo, who stated this on Thursday at the maiden edition of The Guardian’s Economic Forum Series on Tax, attributed the country’s low revenue from VAT to heavy dependence on oil revenue, adding that there are viable alternatives yet to be explored.

While comparing trends in selected African countries, Arowolo noted that Nigeria’s VAT rate stands at a meagre five per cent, unlike South Africa’s which stands at 14 per cent; Kenya, 16 per cent, and Ghana, 17 per cent.

According to him, there are opportunities for Nigeria to earn a share of the globally projected income of $4 trillion in revenue from VAT on e-supplies expected to come to pass by the year 2020.

He however explained that until the Federal Government focuses on non-oil revenue generation, through tax as the primary option, the potential for improved earnings might not be realised.

“E-commerce rules need to be addressed as the use of payment cards accounted for $640 million added to Nigeria’s Gross Domestic Product (GDP) between 2011 and 2015. With many transactions being completed online, there is a great opportunity to earn more if the potential is fully explored,” said Arowolo.

He added: “Though Nigeria and Eritrea continue to account for single digit VAT in the continent, the drive for regional integration will compel rate adjustment in Nigeria. Tax rates should be proportional to living index.”

On the prospects for VAT increase, Arowolo urged government to eliminate leakages such as ambiguity in the VAT Act, information asymmetry, constraints to innovation, limited automation, illegitimate input VAT claim, transfer mispricing, as well as protracted audit processes.

To do this, Arowolo said: “Government needs to adopt strategies to get the 20 per cent that contribute 80 per cent or more of Nigeria’s tax revenue to as near 100 per cent compliance as possible, adopt strategies that nurture compliance by those not yet in the tax net, destroy the perception of ‘untouchable taxpayers’ through relentless detection and enforcement measures, and accelerate data integration across all available databases.”