FIRS seeks stakeholders support on VAT

FIRS seeks stakeholders support on VAT

The FIRS has commenced an aggressive campaign to create awareness on issues relating to Value Added Tax (VAT) in the country. It believes that in order to achieve this, various stakeholders in the country need to be carried along. They believe that there is now the need  for the country to start looking inwards in it revenue generation effort instead of over dependence on revenue from crude oil. Our Editor-in-Chief, SUCCESS UCHIME, in this write-up takes a look on the VAT regime in Nigeria.

FIRS Chairman, Babatunde Fowler

 

The Federal Inland Revenue Service (FIRS) in its efforts to consolidate and sustain the Value Added Tax (VAT) in the country is seeking the support and cooperation of various stakeholders in the industry. It is also making intensive moves to build a strong partnership with the relevant industry’s players to shore-up Nigeria’s tax revenue and improve on the country’s tax administration.
    This move by FIRS becomes imminent considering the not very common nature of the VAT regime in Nigeria. Many factors have been pushed forward for this scenario, one is that majority of Nigerians are still left in the dark as to its existence, two, the issue of the low credibility of government is also there, and this has made so many Nigerians to scorn the registration and the eventual compliance to VAT.
    Various stakeholders are of the view that adequate enumeration of businesses and their owners be made in each local government and state levels. This they suggest will help the government to keep up-to-date data base on such businesses and their operators. They also suggest that adequate sensitization through seminars and workshops should be organized to carry the people along. Along the same line, functional VAT offices should be established in each of the local government councils to serve as its coordinating offices. Such offices should seek to create better image of the FIRS as most business owners and consumers alike have developed strong skepticism to the proper administration of taxes in the country.
   The stakeholders fear that the greatest challenges facing VAT is the issue of lack of adequate trained personal, mobility to reach remote areas, low level of literacy as well as poor social or political climate. These factors they opined will seriously hinder the effective administration of the tax. Again, they nurse the fear on the ability of FIRS to administer VAT judging from their performance of administering personal income tax and other relevant taxes over the years.
    They pointed that Government should as a matter of urgency put in place working system on how it will retrieve such VATs when deducted from the consumer. For this has been the case with taxes in Nigeria. They believe that it is not just enough to charge VATs on the consumers by business owners, but putting adequate machineries on ground to recover such taxes become very crucial. This it has been proven will encourage the payers to continue to pay. By way of definition, VAT is tax on the supply of goods and services which are eventually born by the final consumer and all the taxes are collected at each stage of production and distribution chain.
     In a study, “A Review of Value Added Tax (VAT) Administration in Nigeria,” by Olaoye Clement Olatunji, he opined that any country seeking to improve its revenue generation should opt for a concept enabling it to best realize its objectives with due regards to its peculiar socio-economic make-up and that one of these ways is by taxation.
     He defined a tax as a means by which, a government appropriates part of the private sector’s income. The accumulated revenue is used in meeting recurrent expenditure. Tax he stated occupies a unique position, because it is an important part of government policies, and that the ability of a government to generate revenue from this sector affects services offered by such a government.
    VAT he observed was first introduced by France in 1954, and that it has been embraced by well over seventy countries all over the world. These include the entire organization for Economic Co-operation and Development of countries, Japan, Canada, the state of Michigan in the USA and many African Countries.
     In Nigeria, he pointed out that the march towards VAT system started with acceptance of the recommendation of a study group on indirect taxation in November, 1991. The decision to accept the recommendation was made public in the 1992 budget speech of the then Head of State. This resulted in setting up the Modified Value-Added Tax (MVAT) committee on 1st June, 1992 as recommended by the study group. The recommendation of the committee that VAT should be administered by an independent commission was rejected by the government then. Tax administration was however given to Federal Inland Revenue Services, which was already charged with the responsibility of administering most other taxes in Nigeria.
     According to him, the introduction of VAT in Nigeria through Decree 102 of 1993 marks the phasing out of the Sales Tax Decree No. 7 of 1986. The Decree took effect from 1st December, 1993, but by administrative arrangement, invoicing for tax purpose did not commence until 1st January, 1994.
     The instrument that introduced VAT spells out goods and services that attract the tax. It shows, for instance that food items do not attract VAT resides, sellers of goods on which VAT is paid must first of all registered with the FIRS, the aim is to ensure that the 5% VAT paid on goods and services is effectively deducted from business owners. But, this is by far exactly what is happening now in the system.
      The chairman, FIRS, Babatunde Fowler, has in a forum said that the government is more than ready to ensure maximum increase of tax revenues pointing out that the era of absolute dependency on oil proceeds is over. According to him, FIRS is poised to take the lead in tax revenue collection in the country.
       He assured of the preparedness of the service to share information and ideas with the States Board of Internal Revenue (SBIR) as this will enable it take tax administration in the country to another level. He said that the issue of revenue collection cannot be realized without the partnership and collaboration of all the players within and outside the system. Building a synergy for a healthy exchange of information between his organization and SBIRs, becomes very paramount to the service.
      Fowler is of the view that the synergy will definitely produce the best form of revenue generation in FIRS and by extension the states as well as ensure that over dependency on oil revenue becomes a thing of the past. He said the service has put machineries in place that will take the country out of the present economic difficulty. One of such is for the Service to raise revenue accruing from tax collection to “records high” so that government programs would be well funded.
    FIRS has maintained that all  goods and services are ‘VATable’, except those that are exempted under schedule 1 of the Act, and the goods include, all medical and pharmaceutical products, basic food items, books and educational materials, baby products, fertilizer, locally produced agricultural and veterinary medicine, farming machinery, and farming transportation equipment. Others include all the plants and machineries imported for use in the Export Processing Zones (EPZs), plant, machinery and equipment purchased for utilization of gas in downstream petroleum operations, tractors, ploughs, and agricultural equipment and implements purchased for agricultural purposes.
    While the services under exemption include, medical services, services rendered by community banks, and mortgage institutions, plays and performances conducted by educational institutions as part of learning, and all export services.
     FIRS also maintained that VAT is leviable at the time of supply of goods and services, and that VAT paid on inputs are creditable against output tax, while tax returns are to be submitted on monthly basis.
     On VAT registration, it said that a taxable person shall within six (6) months of commencement of this Act or within six (6) months of commencement of business, whichever is earlier registered with the Board for the purpose of this Act. While every government ministry statutory body and other agency of government shall register as agent of the Board for the purpose of collection of tax under this Act.
     Again, every contractor transacting business with a government ministry, statutory body and other agencies of federal, state or local government shall produce evidence of registration with the Board as a condition for obtaining a contract. On registration by non-resident companies, it said that the non-resident company that carries on business in Nigeria shall register for the tax with the Board using the address of the person with whom it has a subsisting contract as its address for the purposes of correspondence relating to the tax.
     FIRS in urging businesses to keep proper records and accounts said that a registered person shall keep such records and books of all transactions, operations pertaining to imports and other activities relating to taxable goods and services, as they are sufficient enough to determine the correct amount of tax due under the Act.
     If the issue of taxation in Nigeria should succeed as in other countries of the world, the onus lies on FIRS and it other subsidiaries in other levels of government to pursue this with all diligence, sincerity and transparency it requires. Nigerians should see in practical terms what the income accruing from taxes is used for, as it is done in other developed and developing countries. The funds should not be diverted into private use as has been the case Nigeria. Nigeria’s case should not be different.