The Federal Inland Revenue Service (FIRS) has set a revenue collection target of N5 trillion from Value Added Tax (VAT).
The Head, Policy and Legislation Division of FIRS, Matthew Osanekwu, stated thisduring a media briefing on the achievements of the Support Programme for Tax Transition in West Africa (PATF), where the European Union expressed concern over the high level of tax evasion in Nigeria.
The EU blamed the menace on absence of transparency in the tax management process.
Osanekwu said that the government is undertaking a review of tax exemptions granted to companies operating in Nigeria.
The PATF, a programme funded by the EU is geared towards improving management of domestic taxation and ensuring better coordination in ECOWAS and West African Economic and Monetary Union (WAEMU) regions.
Speaking on the achievements of the PATF programme, a tax expert and member of the PATF steering committee, Andrew Onyeanakwe, said the project has resulted to the development of regional tax management tools and and harmonization of the methodology for evaluating tax expenditure in ECOWAS Member States.
He said the programme has also led to the establishment of the institutional mechanism for monitoring and evaluating ECOWAS fiscal transition and the harmonization of the laws of the member states of the ECOWAS concerning VAT.
Osanekwu stated that despite Nigeria having the lowest VAT rate in the West African region, the country has been able to improve its tax collection performance.
He confirmed an ongoing discussion between the Presidential Committee on Fiscal Policy and Tax Reforms and myinistry of Finance on the need to review the current VAT rate.
Osanekwu said, “From 2019, our VAT has increased significantly. In 2019, we collected N1.1 trillion while in 2020, we collected N1.5 trillion. In 2021, we moved to N2 trillion. It moves further in 2022 to N2.5 trillion, and I can also report that 2023 VAT collected moved to N3.6 trillion.
“Our VAT rate was initial five per cent. So, after our policies, VAT was moved to 7.5 per cent and that assisted in increasing VAT revenue. There is ongoing discussion with the Presidential Fiscal Tax Reform Committee to align with ECOWAS directive. That means Article 30 of ECOWAS is being looked at currently and the presidential committee is discussing with the Minister of Finance, and all stakeholders to see how we review that current rate.”
According to him, the agency has broadened the range of tax collections, adding that before 2019, the country didn’t collect VAT from non-resident suppliers, but now does..
Osanekwu said, “We also looking at our exemptions. We have a lot of exemptions and we are reviewing them and work is almost completed. Some of these recommendations will be put forward to the tax reform committee that’s going to be reviewing the law.
“We also discovered that’s there is a lot of tax gap or VAT gap. VAT gap analysis is already being conducted and as soon as that is completed, it will open up areas where we have gaps to improve our VAT collection. So the three areas we are looking at are tax policy aspect, tax law and tax collection.
“When we look at those angles to analyze our VAT gap, I can assure you that VAT will move from the current N3.6 trillion to five trillion going forward”.
The Head of Cooperation at the Delegation of the European Union to Nigeria, Massimo De Luca, while expressing satisfaction on the achievements of the PATF programme, tasked government on the need to entrench transparency in managing tax revenues.
According to him, people tend to evade tax when there is no corresponding benefits from payment of tax.
He said: “We are happy with this project because we got traction and it got real results. We believe that developing willing citizenry participation in the tax system and how resources are used transparently is fundamental.
“I mean, in Europe, there are countries where citizens are happy to pay up to 55 per cent of their income in taxes. We should ask ourselves why are Nigerians not happy to pay that kind of amount, and it’s all about the services you get in return and transparency of the use of the resources that we you have. There is no quick fix. In Denmark, the amount is very high and not only VAT, but also on direct taxation.
The Deputy Director, Tax Policy in the Federal Ministry of Finance, Dalhat Kamal, argued that increasing the VAT rate would not necessarily result in an incremental VAT revenue.
According to him, an effective tax system must be friendly to be able to get more people on the tax net.
He said, “The question should be how do we get those not in the tax net on the tax net. Is it by increasing the rate? You should know that even if you increase the rate by 100 per cent, you can have a reduction in tax revenue. The issue of tax involves stakeholders engagement because it has to do with policy.
“Yes, Nigeria has one of the lowest tax rate in West Africa region but what matters is the management of this VAT. You can have 100 per cent rate on VAT but when it is not carefully managed, I assure you the objective of setting that rate won’t be achieved.”
He also emphasized the need for Nigeria to review the way and manner tax expenditure are managed.
Friday Olokor, Abuja
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