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Nigeria has an opportunity to make its VAT law reflect the aspirations outlined in the National Tax Policy. Rate hike alone won’t fully solve the revenue challenge. There are other fundamental issues to be fixed in the VAT (+other) law. Otherwise, it’ll be problem changing name.
One side of the story: Nigeria has lowest VAT around. But also true is that it’s one of few with no threshold for registration. Ghana, Kenya, SA exempt MSMEs with turnover below certain threshold to ease doing doing biz. Input VAT in Nigeria is also limited unlike most counties.
On one hand, Nigeria is pushing hard on its agenda to make doing business easy. It’ll be self-defeating to increase VAT rate and refuse to balance the burden on small biz through appropriate policies. MSMEs should be excluded from VAT to alleviate their burden.
Ensuing full input VAT deductibility will make Nigeria operate a true VAT. By the current design, what Nigeria has is essentially a sales tax. No VAT system operate like Nigeria’s. VAT on capex and opex are ineligible for input claim in Nigeria. Only trading stock does.
Key issues to be fixed in Nigeria VAT law include - full input claim, registration threshold, shift from credit to cash, activation of refund system. With these, a rate increase will not only be justifiable but impact on the economy will be largely positive. No to quick fixes.
Nigeria has revenue challenge. True that. But quick fixes are counter-productive. It wasn’t low VAT rate that led us here - so don’t expect rate hike to solve the problem. This economy need to grow. We’ll achieve more by making the economy more productive than raising rates.
Tax represent a fraction of the economic wealth. Whilst it’s somewhat less true for indirect taxes (like VAT), it’s only a buoyant economy that guarantees high tax revenue. If you like, raise the rate to 50%, a poor man does no good to the tax man. Let’s make wealth.
The current revenue challenge create an auspicious opportunity to make REAL changes in our tax system. Again, quick fixes won’t help us. Our issues extend beyond VAT rate. The economy needs a whole revamp of the regulatory framework. Like it was done with National Tax Policy.
Let’s make a wholesome change. What much can we expect with 1979 laws that are being patched? 1993 laws (for VAT) require more than casual review. Discard the old and design a new law. Attempt at issuing circular to “digitize” a 1979 word to tax 2019 digital economy does no good.
Do you know the number of people collecting VAT and failing to remit? Are we done tracking those? Have we extracted the value inherent in the new consolidated national taxpayer database? What about more effectiveness in what currently exist whilst working on fundamental reform?
It may be too simplistic a model to think that increase in VAT rate alone will deliver additional revenue without considering possible economic losses through increased operating cost (which may lead to shutdown). I’ll rather we optimize the available AND focus on complete reform
There’s a massive opportunity to leverage the current executive-legislative harmony and make fundamental changes. Don’t bore the HONs with piecemeal legislative requests. Let there be a major regulatory reform. This will allow for thoroughness and linkages with PEBEC, ERGP etc
Recall recent notice on “VATing” electronic transactions? Beyond the usual extended meaning that’s often applied to old codes and standard “all-covering” powers of VAT law, no specific regulation exist yet on taxing digital economy. Total reform’ll help shape new Legal framework.
