Nigeria demonstrates potential to earn more on VAT

… generates N269.79bn in Q1
… rate hike above 5% in offing
IHEANYI NWACHUKWU
Nigeria has again shown the possibility of improving revenue from Value Added Tax (VAT) as disclosed in the latest data by National Bureau of Statistics (NBS).
Value-Added Tax 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.
The sectoral distribution of Value Added Tax (VAT) data for first-quarter (Q1) of 2018 shows that N269.79billion was generated as VAT as against N254.10 billion generated in fourth-quarter (Q4) of 2017 and N221.38 billion in Q1 of 2017.
The first-quarter 2018 revenue from VAT represents 6.17percent increase quarter-on-quarter and 21.87percent increase year-on-year (yoy), according to the National Bureau of Statistics.
Other manufacturing generated the highest amount of VAT with N30.14billion generated and closely followed by Professional Services and Commercial and Trading both generating N16.58billion and N14.93billion respectively while Mining generated the least and closely followed by Pharmaceutical, Soaps & Toiletries and Textile and Garment industry with N46.25million, N243.44million and N285.43million generated, respectively.
Out of the total amounted generated in Q1 2018, N121.40billion was generated as non-import VAT locally while N98.40billion was generated as non-import VAT for foreign. The balance of N50.00bn was generated as Nigeria Custom Service (NCS)-import VAT.
In Nigeria, sustained economic development is possible if there is improved inflow of tax revenue. This will help the economy achieve a level of social infrastructure that will stir up investment, which in turn will bring about further economic growth.
The International Monetary Fund (IMF) says that the typical developing economy collects just 15percent of GDP in taxes, compared with 40percent collected by a typical advanced economy.
For instance, Nigeria’s VAT rate has remained at 5 percent and one of the lowest across Africa. Value-Added Tax in South Africa was set at a rate of 14 percent and remained unchanged since 1993.
“Recent statistics put Nigeria’s tax to GDP ratio at 6percent which is one of the lowest in the world. Essentially tax’s contribution to the economy is low. To make Nigeria more competitive, we have to build our economy and the key issues include speedy implementation of tax policy,” said Taiwo Oyedele, Partner, West Africa Tax Leader.
The Nigeria Tax Policy (NTP) Implementation Committee has recommended two Executive Orders and five Amending Bills, which among others include Value Added Tax Act (Modification) Order; and Value Added Tax Act (Amendment) Bill.
“The proposed changes to the tax laws are expected to: increase Governments’ revenue simplify paying taxes and doing business promote Micro, Small and Medium Enterprises protect most vulnerable persons in the society remove obsolete, ambiguous and contradictory provisions in the law,” said according to Abiola Sanni, a professor of tax and fiscal matters at University of Lagos.
“It is expected that the drafts Executive orders and Bills will be exposed to key stakeholders for their review and feedback. The challenge is to ensure that the Executive Orders are signed and the Amending Bills are enacted into Acts of National Assembly timeously,” he said.
The country announced on February 21, 2018 that the VAT rate would be increased by one percentage point to 15percent, while some of their basic foodstuffs, as well as paraffin, remain zero rated.
For South Africa, the new VAT rate became effective from the April 1, 2018. VAT rates across other African Countries show: Togo at (18%); Tunisia (18%); Uganda (18%); Zambia (16%); Zimbabwe (15%); Ghana (15%); Equatorial Guinea (15%); Ethiopia (15%); Egypt (14% -15% on Communication Services); Burkina Faso (18%); Burundi (18%), and Cameroon (19.25%).
Other African countries and their VAT rates are: Botswana 12percent; Benin (18percent); Algeria (19percent); Cape Verde (15percent); Central African Republic (19percent); Chad (18percent); Democratic Republic of the Congo (16percent); Gabon (18percent); Gambia (15percent); Guinea (18percent); and Guinea-Bissau (15percent).
The VAT rate for Ivory Coast is 18percent; Kenya (16percent); Madagascar (20percent); Malawi (16.5percent); Mauritius (15percent); Mali (18percent); Morocco (20percent); Mozambique (17percent); Namibia (15percent); Niger (19percent); Republic of Congo (16percent); Rwanda (18percent); Senegal (18percent); Sudan (17percent); and Tanzania (18percent).
“Automation of VAT collection in key sectors which will facilitate reduction in compliance cost in the long term,” said Tunde Fowler, Executive Chairman, Federal Inland Revenue Service (FIRS)/ chairman, Joint Tax Board.
“A look at the world’s most developed economies and societies shows that there is clearly a relationship between tax and development, as these are countries with established tax systems where public infrastructure, institutions and systems can be sustainably developed and maintained from tax revenue”, Fowler told teeming audience recently at the CITN annual tax conference 2018.
In Nigeria, today being Monday, May 21 is the due date for filing Value Added Tax returns for the month of April, 2018, according to Federal Inland Revenue circular.
According to the Joint Tax Board (JTB), there were only 14 million taxpayers in Nigeria as at May 2017, compared to an estimated 69.9 million economically active people while Nigeria tax to GDP ratio is rather poor at 6percent.
“Base Erosion and Profit Shifting (BEPS) is a major game changer for both tax administrations and taxpayers. However, to enjoy the benefits of BEPS outcomes, Nigeria needs tax law reform,” said Wole Obayomi, Head of Tax, KPMG Africa.