As falling oil prices force the government into policy redirection towards tax revenue, Value Added Tax (VAT) –a form of consumption tax, yielded approximately N802.95bn into Nigeria’s VAT pool account in 2014.
In 2013, actual VAT revenue was N802.67bn against the government’s VAT revenue target of N945.28bn. The Federal Inland Revenue Service (FIRS) surpassed the preceding year VAT revenue by N28million; while it came short of the 2014 government target of N849.33billion by N46.38bn or 5.46%.
BusinessDay checks show that in the first quarter (Q1) of 2014, Value Added Tax yielded N212.38bn into government coffers. In Q1’14, the VAT revenue target was set at N211.36bn.
Out of the N212.38bn actual VAT revenue in Q1’14, N41.27bn was realised by Nigerian Customs Service (NCS) as import VAT revenue; while N171.11bn was revenue from non-import VAT.
In Q2’14, VAT yielded N197.25bn into the government treasury. NCS import VAT revenue was N50.36bn, while non-import VAT revenue was N146.89bn.
Nigeria, Africa’s largest economy by GDP size recognizes VAT pool account which is the subject of horizontal revenue sharing.
Section 40 of the Value Added Tax Act, as amended, provides that proceeds of VAT account should be allocated based on 50 per cent to the States and the Federal Capital Territory (FCT); 35 per cent to the Local Governments and 15 per cent to the Federal Government.
The provision of Section 40 further provides for the principle of the derivation of not less than 20 per cent to be reflected in the share of States and Local Governments.
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While many African countries are considering putting VAT into their tax systems, analysts say, Nigeria VAT administration system falls below international norms.
Nigeria’s VAT rate of 5% is much lower than the global average rate of between 18% and 20%.
A look at some African countries VAT rate shows: Algeria (17%); Benin Republic (18%); Botswana (12%); Burkina Faso ((18%); Cameroon (19.25%); Cape Verde (15%); Central African Republic (19%); Egypt (10% (standard), 25% (luxury goods); Gabon (18%); Kenya (16%); Mauritius (15%); Morocco (20%); Nigeria (5%); Senegal (20%); South Africa (14%);Tunisia (18%); and Zambia (17.5%.
In the third quarter (Q3) 2014, VAT revenue was N192.08bn. Details of this figure show that Nigerian Customs Service import VAT revenue was N48.76bn while non-import VAT revenue stood at N143.31bn.
In Q4’14, N201.24bn revenue came from VAT. Non-import VAT revenue was N155.58bn, while N45.66bn was realised by the Nigeria Customs Service as import VAT.
In a recent move which received approval and knocks from a cross-section of Nigerians, Ngozi Okonjo-Iweala, the country’s finance minister and coordinating minister of economy, said N480bn would be generated into federal government coffers through taxes on luxury items as well as stoppage of abuses of investment incentives, such as exemptions and waivers.
“We need to reform our tax system. Tax systems are meant to be responsive. We need a ‘living tax system’. Government should be able to treat tax as a fiscal stimulus, particularly as a country seeking growth”, said Eben Akinyemi, principal partner of Stransact Partners.
Akinyemi said, “We need to reduce taxes and not go back to the people who find it difficult to pay taxes. Government should first enforce compliance of tax, then introducing more taxes.”
Iheanyi Nwachukwu
