Despite challenges posed by the Covid-19 pandemic in 2020, Value Added Tax of Nigeria increased from N1,190 billion in 2019 to N1,531 billion in 2020, tax professionals said on Thursday in Abuja.
They, however, recommended a review the tax policy by the Federal Government to be in line with ECOWAS best practices.
The experts stated these in an interview with journalists during the closing ceremony of a three-day workshop on the harmonisation of Nigeria’s VAT Act with ECOWAS directives.
The experts who bear their minds included the Technical Assistant to ECOWAS Commission for the support programme for tax transmission in West Africa, Andrew Onyeanakwe; Director of Customs Union and Taxation in ECOWAS, Gbenga Falana and Executive Director, African Centre for Tax and Governance, Ndajiwo.
The programme which was organised by the ECOWAS Commission under the context of implementation of Support Programme for Tax Transition in West Africa also evaluated the performance of VAT in Nigeria from 2011-2020.
The PATF aimed to improve management of domestic taxation and ensuring better coordination in ECOWAS and West African Economic and Monetary Union regions.
According to Onyenaekwe, even though COVID grounded economic activities and ironically increased revenue for Nigeria.
Onyenaekwe said, “During COVID, telcos made so much money, because everyone was at home buying data. We consumed so much of our expenses on telecommunication. As they made money, they remitted VAT and after that we had a rate increase from 5 per cent to 7.5 per cent.”
According to him, the programme was to expose to the stakeholders a study that was carried out regarding the harmonization of the Nigerian VAT Act in the ECOWAS directives
He said, “Experts brought out a lot of things that are not in line with our VAT Acts and the ECOWAS directives and one of them was the issue of rates. Nigeria’s rate is at 7.5 per cent and ECOWAS directives states a minimum of 10 per cent.
“Nigeria’s VAT Act does not allow a claim of input tax on capital goods, services and overhead, those are the things we’re saying that Nigeria should look into and harmonize the VAT Acts with the ECOWAS directives
“ECOWAS has a VAT guide and the essence is to help practitioners and administrators on how to improve their revenue, not just by increasing rate, but looking at the issues of compliance and ensuring that VAT is really a broad day tax and to make sure everyone is paying.
“We also looked at the performance of VAT in Nigeria; from the report, we observed that even though our VAT Act has been increasing from 2011 to 2021, the efficiency of the revenue has been decreasing, which means something is wrong
“The likely factors responsible for that are the government policy, which has to do with the number of exemptions that Nigeria grants and the other issue is that of compliance. Those are the things needed to be looked into to ensure the efficiency of our VAT increases.
“The ECOWAS average is almost 40 per cent, but Nigeria has an efficiency of less than 20 per cent, meaning we have to improve our policy and compliance
“Our tax policy recommends that there should be a gradual shift from direct taxes which is corporate income tax (personal income tax) to VAT because VAT is a consumption tax that we would get more money from VAT.”
Falana said, “Looking at the issue of VAT collection, during the COVID year, we need to understand that VAT is a consumption tax. There are certain things, whether you work or not, it is expected that one would eat and engage in other economic transactions.
“What happened during the COVID year was that there was a lot of spending pattern change from the ordinary person going to the market. We all spent more on telecom, there was a lot of data consumption.
“The likes of Facebook and Amazon grew astronomically in revenues. In that year, there was a direction of investment in technology, that brought a lot of tax payers into the space which contributed to the increase we saw during that period.
“The way to go has been through technology, we need to consider the macro economic variables because there’s inflation. That’s why we talk about efficiency and when it comes to VAT performance, we’re not where we should be yet. But we have the potentials to get there.
“Nigeria’s tax policy should be reviewed, speaking from the fact that there’s an identified gap, review would come. We can’t leave the tax review forever, it’s over five years since the last review and there’s a change in business reality and dynamics, so we need to review tax policies.”
Ndajiwo identified eleven factors including poor social contract between government and the citizens leading to low trust, tax expenditure, low VAT rate and inefficiency and complexity of the tax system as challenges facing VAT performance in Nigeria.
