Tax expert, Taiwo Oyedele, has urged the Federal Government to review its Value Added Tax (VAT) law and better policing of its borders to improve its VAT collections.
Oyedele, Head of Tax and Corporate Advisory Services, PricewaterhouseCoopers (PwC), West Africa, gave the advice in an interview in Lagos.
He said the government could shore up its revenue through a review of VAT waivers and come up with a framework for VAT on imported services and digital transactions.
“At the moment, we have a lot of issues with Nigerian VAT law because most times policymakers talk about the rate alone without saying anything about the rest of the law.
For instance, the country loses lot of revenue from the importation of a lawyer from Ghana who pays nothing for services rendered in Nigeria because he pays no VAT for such services whereas his Nigerian counterpart does.
“The implication is that it makes the country’s lawyer less competitive because there is no legal provision in the VAT law that imposes five per cent VAT on such imported services.
“The Federal Inland Revenue Service (FIRS) has seen this loophole and it is trying to block the leakage through the back door by issuing circulars to that effect.
“The truth is that you cannot use circulars to impose tax, it has to be by law, so the government needs to amend the law to block this leakage and others,” he said.
Oyedele said that the government should also have a regulatory framework for generating revenue from digital transactions.
The digital economy is the worldwide network of economic activities, commercial transactions and professional interactions that are enabled by Information and Communications Technologies (ICT).
He said that though some of the digital transactions operators such as Uber, Bolt (Taxify), office sharing and even technology platform providers like Facebook, Google, online stores and blogs pay VAT, the taxes were not backed by law.
According to him, people place adverts on these platforms.
“The government should explore these opportunities and back it up with law to ensure that not just few people pay taxes but all operators,” he said.
He said South Africa had just released a regulation on its digital economy, adding that Nigeria should follow suit.
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Besides, Oyedele noted that four per cent cost of VAT collection by FIRS was too high by global benchmark standards, while 15 per cent allocation of VAT to Federal Government was no longer justified.
“VAT law was introduced in 1993 and took effect in 1994; all over the world, including Nigeria, consumption tax is usually a state and local government tax.
“But along the line, it was discovered that some states do not have capacity to collect the tax and agreed that the Federal Government should collect the tax on behalf of states.
“That is why the Federal Government gets 15 per cent as cost of administering it while states get 85 per cent.
“Technically for VAT, Federal Government gets 15 per cent and FIRS gets 4 per cent bringing total accrued to the Federal Government to 19 per cent.
“Globally, the standard benchmark for collecting tax is one per cent, even many tax authorities in some countries collect less than one per cent,” he said.
He added that should Federal Government take lesser percentage it would free funds for states to meet their financial obligations and become more financially stable.