VAT designed to support the poor, not a burden – FIRS

Joseph Inokotong, Abuja

The Executive Chairman, Federal Inland Revenue Service (FIRS), Tunde Fowler has stated that Value Added Tax (VAT) is a consumption tax primarily designed to support the poor people, and not to create hardship for them.

Fowler allayed fears that the increase in VAT may cause hardship for the poor, stating that VAT is charged on consumption and capacity to consume.

Said the FIRS Chairman: “When you don’t consume certain categories of goods and services, you are not liable to pay VAT charges on those items. VAT is not charged on all medical and pharmaceutical products. It is not charged on basic food items.

It is not charged on books and educational materials. It is not charged on baby products, fertilizers, locally produced agricultural and veterinary medicine. VAT is not charged on farming machinery and farming transportation equipment.

“VAT is not charged on all exports, plant machinery and goods imported for use in Export Processing Zones and free trade zone: Provided that 100 percent production of such company is for export.

“Other services exempted from VAT are Medical services, Services rendered by Community Banks, People’s Bank and Mortgage Institutions, plays and performances conducted by Educational Institutions as part of learning and all exported services are exempted from VAT.

Fowler noted that the revenue generated from VAT is channeled towards assisting the poor by providing basic amenities that are needed in the society.

Fowler made this clarification in Lagos recently at the maiden edition of the Nigeria Tax Outlook (NTO) Stakeholders Roundtable Series organised by Nigeria Taxpayer Hub.

“I was at a programme at the Senate. I was talking about projection in 2019 for the VAT. And I was asked a question about what my personal views were about the VAT and some people got it a bit wrong. Let me clarify some things.

“I understand that some people misunderstand what the VAT is. VAT is a consumption tax. If you don’t have money to purchase certain categories of goods and services and you don’t consume them, then VAT is not your problem.

The VAT is used to assist the needy. VAT provides support for the needy, not a hardship on them. 85 percent of VAT collected is shared among states for them to provide free education, free health services, provide basic amenities among others.

“We can see what the Federal Government is doing with the tax money. Look at the rail system, the Abuja-Kaduna rail is complete. Look at the Lagos-Ibadan expressway, look at the education system, the school feeding program among others.

If at the state level, your government cannot justify the taxes you pay to them, you have the right to vote them out in the next four years”, Fowler said.

Fowler said that if countries like United Arab Emirate (UAE), Saudi Arabia who are rich in oil resources would be laying emphasis on taxation, Nigeria should also emulate them.

The FIRS Chairman also explained that Nigeria’s economy is only picking up in recent times because former administrations over-looked tax reforms and depended on the depletable mineral resources.

“In the 1960s African countries were getting their political independence from their colonial masters. Shortly after, they started discovering mineral resources. For instance, in 1970, Nigeria had the oil boom.

African countries erroneously thought that discovering the mineral resources was all they needed. But you would realise that the persons who processes the minerals and sells it back to you actually makes more profit than you.

The African Union has what is called the 2063 Agenda which simply means that by the year 2063, Africa as a continent will no longer require aid; that by then we would have been able to source enough Internally Generated Revenue (IGR) to fund our own programmes.

I however have a different opinion. I believe that no developed nation will be willing to carry any country until 2063. I believe in what the AU said that if we don’t develop our own countries, no other country will do that for us”, he said.

At a Senate hearing last week Tuesday, Fowler called for an increase in the number of Nigerians and companies paying VAT and not a 50 per cent increase in VAT rate.

He also called for a reduction in Companies Income Tax (CIT) rate for small businesses so as to improve compliance.

Though he indicated that there should be an increase in VAT rate by the end of the year, he NEVER, for once suggested a 50 per cent hike of any percentage increase at all.

Rather, he promised improved collection in CIT, Petroleum Profits Tax and VAT in 2019 relative to the collection performance of the Service in 2018, which collected N1.1 trillion VAT, N1.42 trillion in Companies Income Tax (CIT) and N2.4 trillion in Petroleum Profits Tax (PPT).

Said Fowler at the Senate hearing, “My personal opinion is that the rate of CIT should remain at 30 per cent, to make sure that we do not reduce the tax rate, without getting others who are not in the tax net into the tax net.

For small businesses, it’s a discussion we are having with the Ministry of Finance for people who are having a certain turnover. I believe that that can be reduced to may be 20 per cent to promote the small-scale businesses.

But in terms of immediate reduction, I think we should try and stabilize to ensure a 90 per cent compliance of those in the tax net. I’m sure that at the end of the year, we can consider reducing our corporate income tax rate.

“In terms of VAT, the Service has increased VAT collection over the last three years by over 25 per cent. In terms of whether there should be an increase. I believe there should be an increase.

One issue about taxation is that it should be fair to all. We have discovered after the VAIDS (Voluntary Assets and Income Declaration Scheme) that a high percentage of businesses are collecting VAT and not remitting. We’ve also tried to address this issue.

We’ve issued new VAT certificates. We have appealed to the public that if they are charged VAT and they are not sure it had been remitted they should contact us.

We even gave a small promotion that for every 25 names, that they give to us, we give them a little gift either a power bank or something to show appreciation.

But that aside, we are also on the streets. We have a team called FEETT, Federal Engagement and Enlightenment Tax Teams, going around to confirm that they (businesses) are registered for VAT.

And I believe with the substitution of over 50,000 bank accounts that we just started this week I am sure that those businesses that have been collecting VAT and not remitting the same or not remitting any tax payment, are beginning to ensure that the level of tax compliance thus improve.

And I believe that by the end of this year, government and Nigerian people should be ready for an increase in VAT.

At the Lagos event, experts in tax practice, administration and tax consultants from KPMG, Pedabo, Deloitte, Ascension, PWC, Anderson Tax, Lagos State Internal Revenue Service (LIRS), Drudge among others, pointed ways forward for tax practice in Nigeria.