The Federal Government through the Federal Inland Revenue Service has grown its proceeds of Value of Added Tax by 20 per cent to N1.2tn in the first six months of 2022.
According to different reports by the National Bureau of Statistics, the total sum generated through VAT stood at N1.008tn in the first two quarters of 2021.
In the corresponding period of 2022, data from the NBS also showed that the sum of N1.188 was generated through VAT, indicating a 20 per cent growth within the last year.
The significant increase in VAT collection in the past two years is not unconnected with the decision by the Federal Government in 2020 to increase the VAT rate from five per cent to 7.5 per cent due to a significant decline in oil prices that had impacted government revenue.
The Federal Government’s plan to retain the collection of Value Added Tax despite a Federal High Court ruling, hit a brick wall as the National Assembly rejected a proposal seeking to shift the collection of VAT from the concurrent to the exclusive legislative list, effectively leaving the decision to the Supreme Court which is hearing the matter.
A Federal High Court had last year ruled that states had the powers to collect VAT. However, the Federal Government opposed the ruling and continued to collect VAT while it projected that it will collect N2.2tn in 2022 through the Federal Inland Revenue Service.
The Deputy-President of the Lagos Chamber of Commerce, Dr Gabriel Idahosa faulted the Federal Government’s tax administration framework.
According to him, the amount generated through VAT in the country was significantly lower than what ought to be generated with proper tax administration.
Idahosa said, “We are collecting very little VAT. That N1.2tn is small compared to what can be collected in Nigeria. VAT ought to be collected from every business activity in Nigeria except for those products that are not VATable like food and healthcare. Every trader in Mushin, Oshodi or Balogun market, Onitsha market and all the markets in Nigeria are supposed to be paying VAT. Right now, it is only the structured organisations that are paying.”
Idahosa advised the government to place more emphasis on expanding the dragnet of taxable business in line with the model already being employed by a number of advanced economies.
He added, “That is why the finance people talk about the taxable income, addressable tax. The tax coverage of Nigeria is far lower than what should be covered. If we invest in expanding that dragnet of taxable businesses, then we be making more trillions of naira through VAT.
In most countries, they don’t actually tax income that much, because they see income as an inefficient form of taxing. They would rather tax VAT very high, and make income tax nil, because VAT is a tax at the point of spending money, so you cannot hide that, but aby tax on income is inefficient to the extent that if you hide your income, it cannot be taxed.”