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How government can raise N3.5tr from VAT, by FSDH

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FSDH Merchant Bank

The scripting of appropriate reforms for informal sector taxation, tackling the non-remittance challenges and improving the consumption patterns of through policy developments hold the key to the realisation of N3.47 trillion in Value Added Tax (VAT) base by 2023.

A research by FSDH Merchant Bank Limited noted that the nation’s large informal sector, put at 41.43% of the Gross Domestic Product (GDP) by the National Bureau of Statistics, while the International Monetary Fund (IMF) estimated it at 65% in 2017, has been difficult to capture in VAT.

The bank’s Head of Research, Ayodele Akinwunmi, while presenting the monthly economic and financial market outlook titled: “Monetary Policy Easing: Fiscal Policy Choices”, noted that if consumption grows and the ratio of VAT revenue to GDP increases to 2.5% from 2019 through 2023, government may raise VAT revenue from N1.09trillion in 2018 to N3.47trillion in 2023.

According to the Federation Account Allocation Committee (FAAC), consumption and revenue data showed that the ratio of VAT revenue to household consumption averaged 1.07% between 2014 and 2018, which is too low, but with great potential to hit 2.5 if harnessed.

“The non-remittance of VAT collected by certain collection agents and weak consumption in Nigeria are major challenges. Government needs to devise ways to increase its ability to generate more revenue without necessary increasing tax rate as this may reduce household consumption and compliance.

“It will also require government to spend money in some critical sectors of the economy to stimulate household consumption to drive economic growth,” he said, noting that prioritisation of investments is key.

These measures, he said, relate to the provision of a more conducive business environment, to attract investments, both domestic and foreign, as well as ease the flow economic activities.

“Leverage existing associations/ecosystems in the informal sector, government can encourage and aid VAT collections and remittance; continue to work with the deferent operators in the financial industry to increase inclusion and reduce the informal sector economy.

“Enforcement of appropriate sanctions on any agent who defaults in VAT collections and remittances is important, after a proper sensitization on their roles in VAT collections and remittances.”

“Deploy technology to capture VAT payers and collection agents and give them incentives at the end of a fiscal year,” he added.


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