Why southeast ranks low in VAT collection

As the debate over whether the state or Federal Government should collect Value Added Tax (TAX) is yet to settle, inability to invest at home, rising insecurity, high migration rate and exportation among others have been identified as possible reasons for low collection of VAT by states in the southeast region.

Sources indicated that there are high investments by people of the zone outside the region, adding that over 70 per cent of Igbo investments are located away from the region, while its people live in the regions where their investments are situated.
 
VAT is the tax applied on finished goods and services or at some point along the production chain. The tax is usually paid by the end user. Presently, the VAT in Nigeria is 7.5 per cent, which is said to be low compared to other countries.

A recent demographic representation of VAT collection by regions in Nigeria released by the Federal Inland Revenue Service (FIRS) showed that the southeast zone, which has five states, collected the lowest figure when compared with other zones in the country.

The record, which projected figures for eight months (January – August) last year put the entire VAT collection by the southeast at N21 billion. The zone was closely followed by the Boko Haram ravaged Northeast with N38 billion and Northwest with N59 billion and South-South with N126 billion. The North Central recorded N261 billion and N495 billion for Southwest.

A further breakdown of the VAT collection by states in the region showed that, Abia generated a little above N2 billion; Imo N1.94 billion; Ebonyi N7.2 billion; Anambra N5.9 billion and Enugu N5.4 billion.

The figures when put together are grossly low compared to what a state like Kano alone produced within the same period.
It was gathered that while investors of Igbo origin have concentrated their investments in cities like Lagos, Abuja, Kano, Kaduna and even Port Harcourt, the industrial hubs in the region like Onitsha, Nnewi in Anambra State and Aba in Abia State are left bare.
 
Findings by The Guardian indicated that major industries that ordinarily should produce to improve VAT realisation in the zone are either comatose, not operating in full capacity or moving the products outside the zone where there is market and consumed by end users away from the zone.
 
When they held their 33rd Annual General Meeting of the Manufacturers Association of Nigeria (MAN) for Anambra, Enugu and Ebonyi state chapters in Enugu, late last year, the manufacturers identified infrastructure deficit, unfriendly tax regime, growing insecurity among others as responsible for the low industrialisation in the zone.
 
Vice Chairman of the branch, Lady Ada Chukwuedozie, who gave a lecture at the event, added that manufacturers in the region are leaving in their numbers to other zones because they have failed to benefit from certain policies of the government like their counterparts in the northern and western parts of the country.

Chukwuedozie, who is the Executive Director, Dozzy Oil and Gas Limited, Lagos, pointed out that poor road network to link with other regions, rising insecurity, access to energy due to poor grid power and the absence of gas lines have seriously challenged manufacturing in the region, stressing that there is no way any company can survive with lack of basic infrastructure.

Although she explained that the Federal Government had good intentions when it moved to diversify the economy from oil to gas with the Gas Master Plan, the idea, according to her, had given more advantage to manufacturers in the Northern and Western parts of the country than those of the southeast region, making it difficult for them to compete effectively.

She said the Nigeria Gas Master Plan, which was conceived to increase and improve local usage and feed gas-based industries, among others, was yet to benefit manufacturers in the region, despite the huge deposits in the region.

Chukwuedozie also noted that Southeast had the least number of 330kv substations in the country, adding, “because of the transmission constraints, a manufacturer in the Southeast is unable to enter into a bilateral power procurement with generating firms in the region.”

On the rail line network, she explained that while attempts had been made to replace the narrow gauge with a standard gauge in the western part, the move to rehabilitate the narrow gauge on the eastern plank would create compatibility issues and difficulty for manufacturers.

Findings indicate that Igbo businesses alone in the southwest, especially Lagos State, are the highest compared to that of other regions in the area. Igbos are also said to dominate major markets such as Alaba International, Jankara, Ladipo, Oyingbo, Computer village among others.
 
They are very active at the Apapa ports, oil and gas and own a good number of hospitality businesses operating in the state.
At Abuja, the Igbo people are said to control about 75 per cent of businesses in the city in housing and hospitality as well as spare parts and building materials trade in Zone 5, Apo, Zuba and Mararraba. They are also found in Estate businesses.

It is a similar story in Kano, Kaduna and Port Harcourt, Rivers State, among others. In Kano, findings show that their presence is felt in all the local government councils of the state building and setting up businesses and residing there. Ndigbo dominate most building materials, spare parts and pharmaceutical businesses there.

Speaking on why the Southeast region had accounted for low VAT collection, a professor of International law, Prof. Jehu Onyekwere Nnaji, who however, described the figures as “unbelievable”, stated that it could have been caused by several factors.

Hear him: “Most end products produced in the Southeast are marketed outside the geopolitical zone.  Many Southeast producers have the production sites cited outside the zone hence the VAT collected on such goods or services add to the overall tax generated in that zone where they are collected. 

“As can be seen from the above scenarios, it is logical to extrapolate that VAT collection in the Southeast is diminished when compared to other geopolitical areas. Migration is another factor. Many Southeasterners are itinerant and migrate often. Since VAT is end user tax, the final consumer pays at the location of sale. While the technology or producer is from the Southeast, he has rendered the service in a different location hence the place of origin forfeits the VAT, which in turn counts towards the tax base of the geographical area where consumption takes place.

“Exportation is another reason the Southeast does not have a high level of VAT collection. Many of the goods produced in the Southeast are exported and exports are VAT free as the – would-be VAT is collected at the point of sale, which is outside the shores of Nigeria hence the VAT revenue does not count towards the VAT base of Southeast Nigeria.”
 
But a lecturer in the department of Economics, Nnamdi Azikiwe University, Kachi Nwabufor, insisted that the economy of the Southeast had not been much inclined to manufacturing, adding that its consumption space had been limited by low production.
 
“People site industries where they feel that whatever they manufacture would be consumed. If you look at it, there is huge investment in cities where people are likely to buy the products. Aside from this, you have other economic variables that could influence the choice of an investor. These are tax regime, security, infrastructure, including electricity, roads, and nearness to market among others. That is why, when you go to a place like Ogun State, you see a cluster of industries. The truth is that most of the products produced there are not consumed in the area, but there are other factors that propel their being sited there.

On what the response had been since the Foundation was set up, Ogbu further told The Guardian yesterday, “the publication has jolted a lot of interest and people are calling us from all over the world and asking where and when they can invest and we are saying they should hold on. There are few things we must put in place. You don’t just collect people’s money. The idea is developing a lot of interest. This thing is supposed to increase Igbo citizenship. People have been saying ‘Akurulo’. This is the vehicle for it. Interests have been developed and people are calling, but we are saying we are working to set up the institutions and then they can invest.”

On what the Fund is doing to improve VAT generation and collection in the zone, Ogbu said: “This is the whole essence. You will see that in our statement, we are talking about dealing with issues of unemployment and for you to solve that, you must produce goods and services. So, if you are producing goods and services, of course you are recreating your economy. If you begin to lift the living standards of the people, they will be able to buy goods and services; they will begin to travel and the VAT will naturally increase. The crisis we have in the southeast is the absence of the manufacturing hubs. Except for what is happening in Nnewi and a little bit of Aba, which needs upgrading, which needs technical and knowledge inputs in order to raise them to a certain level.

“Part of the problem is that the southeast is not a production hub, like Lagos is that we are currently not competitive in terms of infrastructure. So, if Alaigbo and Ndigbo Development Foundation can handle critical and social infrastructure, if they take off, they will reduce the cost of doing business in Alaigbo and make this place a more investment friendly, so that people can now begin to invest and we can improve our earning.”

MEANWHILE, a Finance Consultant, Ukeh Chinonso, who praised the initiative, however, said a lot of determination was required to enable it succeed, stressing that the low inflow in the zone had been compounded by insecurity and the intensified agitation for Biafra, whereby active working days are now observed as sit at home.

He stated that the developments are shrinking the economy of the zone further and hampering revenue inflow, insisting that efforts must be made to address them.
 
“I love the desire to take up our destiny in our own hands, but we cannot do much when we sit at home while others are engaged in active production ventures. We sit at home every Monday or any day the leader of the IPOB, Nnamdi Kanu is appearing in court as well as any other day the Biafra agitators are celebrating. Opportunities created in those days are lost by our inability to maximise it. If the revenue inflow must improve, we must find permanent solution to these disturbances,” he stated.
 
He noted that speculations that businesses were now moving out of the region to other areas with stable polity was real, adding that “some neighbouring cities like Asaba, Port Harcourt, Akwa Ibom are beginning to benefit from the incessant sit-at-home in the southeast region.”