Oyedele

Nigeria urgently needs tax reforms to enable the government remove tax dis-incentives from the system, according Mr. Taiwo Oyedele, Head of Tax and Corporate services, Prize Water Coopers Nigeria.

Oyedele who spoke at the Annual Conference of the Financial Correspondents Association of Nigeria (FICAN) yesterday in Lagos at Golden Tulip Hotel, noted except the country harmonizes its Taxes, it would find it very difficult to generate revenue efficiently.

According to him, Value Added Tax (VAT) needed reforms before any meaningful increase could be made.

Recently, the Federal Executive Council approved increase VAT rate from 5 percent to 7.5 percent. A value-added tax (VAT), experts say is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale.

Oyedele noted that of the 354 different taxes in the Nigeria, the Federal Inland Revenue Services raises over 90 percent of its revenues from only five taxes.

He criticized the recent increment of VAT rate, argued that moving from 5 percent to 7.5 percent was not going to solve Nigeria’s revenue problems.

The tax expert cautioned that increase in tax rates usually brings down compliance which subsequently drags down what is realized in the end all over the world.

He noted that Nigeria which realized N1.1 trillion in VAT last year may not be different from other countries where rate increase has been counter productive.

“With all things being equal, usually around the world when you increase tax rate, compliance would go down because you give incentives to people not to pay,” he said.

“If we are to assume that Nigerians want to comply, we would make an additional N550 billion and 50 per cent goes to the 36 states, 35 per cent goes to the local government which is 774 of then and the federal government keeps about 15 per cent. The 15 per cent is less than 90 billion is a drop in remuneration in terms of the deficit of the federal government.

“At the state level, this 2019 all the 36 states in Nigeria have a budget of N9 trillion and I looked at how much they made last year, their IGR was N1 trillion and their share from the federation account was N2.5 trillion which means that last year, was one of the most successful years for us in tax collection and If we repeated it in this 2019, they would make N3.5 trillion and they would want to spend N9 trillion. This extra N550 billion that they would get does not even meet the middle at all.

“Government intention to use it to pay minimum wage doesn’t make a lot of sense to me because the states who are struggling to pay minimum wage and would struggle at N30,000 are the ones that would get the least from the VAT. The state that gets the bulk of VAT, don’t even need it because they don’t need the increase to pay minimum wage.

“The question also is, does government not engage with private sector and what I tell them behind closed doors as a member of the national tax policy implementation committee, on one hand; I think the minister was too much in hurry to announce the increase in rates. Some of us argued against it because I think the VAT system needs a reform first before an increase in rate.

“In the other countries they compare us with, those countries have threshold so small businesses don’t have to worry about VAT and are excluded from VAT burden. Secondly, those other countries give you full credit for every VAT you pay whether you are consuming services or assets but in Nigeria, there is no input VAT. The effective cost in VAT is more than that 5 per cent we see.

“The other point is that, when you think about the VAT system, I would say, we have to create a Nigerian solution for a Nigerian problem. There is report that says Nigeria is the number one in the world in terms of percentage of our income that we spend on food. That percentage is 60 per cent on the average. And in Nigeria, if you go to the poorest people, that percentage is between 80 to 120 per cent. Which means that poor people in Nigeria, cannot even feed with what they earn. They have to borrow or buy food on credit, just so they can survive until tomorrow.

“Now when you are increasing VAT rate in an environment like that, you have to exclude those that are already vulnerable, by making what they consume to survive to be zero interest or exempt them”

KPMG, a tax consultancy firm, had also faulted Nigeria’s argument for increasing VAT, noting that the government was increasing VAT rate because Nigeria felt it has the lowest rate in Africa at 5 percent without acknowledging the difference between the VAT regimes in the other countries and Nigeria, where the VAT regime is a variant of a sales tax.

KPMG recalled that VAT rate had been increased to 10 percent in 2007, but the rate was returned to the 5 percent rate following opposition by certain sectors. Some believe that the government needs to consider this as an opportunity for a broader VAT reform in Nigeria, beyond merely increasing the VAT rate.

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