When the Federal Government first mooted the idea of Value Added Tax (VAT) in Nigeria, it was with the aim of increasing government’s revenue.
At that time, there were hues and cries from the Nigerian public which described the policy as another avenue by government to further burden the already financially-burdened masses.
But over twenty years down the lane, Nigerians seem to have settled seamlessly into the culture of having to pay VAT in every transaction they undertake.
The policy was introduced under the military unitary system of government. Whilst the 1999 Constitution has incorporated VAT as a subsisting Law in Nigeria, its implementation remains unitary in nature. 15% of the revenue accruing from VAT is retained by the Federal Government whilst the States and the Federal Capital Territory share 50% of VAT revenues and the balance 35% is distributed among all the local government areas in Nigeria.
Any individual, corporation sole, group, body corporate or organisation that consumes buys, procures or imports taxable goods or services is liable to pay the tax.
During direct sales or open market transactions, a buyer or consumer shall pay the tax to the seller together with the cost of the goods or services bought. The seller then nets off the VAT paid at the time of purchase of the stocks sold from the VAT collected on the stocks sold and credit the balance to FIRS.
Where the goods or services were supplied to a government Ministry, Department or Agency (MDA) or a company engaged in oil operations, the VAT payable by the MDA or oil company is deducted or withheld at source (at the point of payment). It is then credited directly to FIRS on behalf of the supplier.
A taxable person, whether Nigerian or resident outside Nigeria, who fails or refuses to register for VAT administration within six months of engaging in any economic activity in the territory of Nigeria is liable to
pay a penalty of N10,000 for the first month that the failure occurs and a further penalty of N5,000 for each subsequent month in which the failure continues.
In addition to the fines for non registration, Section 32 of the VAT Act authorises the FBIR to seal up the premises from where the economic activity in question is being carried on within the territory of Nigeria.
Therefore, to ensure that all VAT collected are remitted to the government in a timely manner, the VAT Act (as amended) provides that where a taxpayer does not remit the VAT collected within time, he or she shall be liable to the value of the VAT that ought to have been remitted in the first place, to a penalty sum equal to 5% per annum of such sum , plus a further interest at commercial rates on the VAT not remitted with 5% per annum interest charge.
Other offences under the VAT Act include: Failure to issue a VAT invoice is an offence that on conviction attracts a fine of 50% the costs of the goods or services for which the invoice was not issued.
Failure to collect VAT is an offence that attracts a penalty of 150% of the amount not collected in addition to a 5% interest charge above the Central Bank of Nigeria rediscount rate.
Evasion or participation in the evasion of this tax attracts a fine of N30,000.00 or two times the amount of the tax being evaded, whichever is greater, or to imprisonment for a term not exceeding three years.
Production of a false document or the making of a false statement to FBIR is an offence and the offender is liable on conviction to a fine twice the amount of the VAT that is under-declared.
Failure to notify FBIR of a change of address within one month of such change attracts a penalty of N5,000.
To buttress this, Nigeria realized N659.1 billion as revenue from Value Added Tax (VAT) in 2011, and N74.873billion alone in May 2013 alone, up from N163billion which the country realized in 2004.
This represents an increase of about 400 percent and overall it has been the third highest contributor to tax collection in the last eight years behind petroleum profits tax and companies income tax.
But despite this lofty achievement, much has been lost through non-remittance by commercial banks on the one hand and Ministries, Departments and Agencies of Government on the other hand.
Interestingly, the exact amount lost by government through non-remittance of VAT cannot be quantified, as according to FIRS, the complication of the process makes it difficult to effectively compute the loss of government revenue through non-remittance of VAT.
There have been cases where MDAs have been unable to remit VAT collected from organisations that do business with them thus denying government of the much needed funds for development.
For instance, the Pay Direct platform was introduced by FIRS to curb the non-remittance of VAT payment as banks were discovered to have been manipulating the former system to their advantage.
FIRS admittedly has not been able to put in place a full proof mechanism for monitoring the process, but with the Integrated Tax Administration System (ITAS), kicking off by September, it is expected there would be better monitoring of VAT payment.
As the FIRS Acting Chairman, Mr. Kabir Mashi stated recently in Abuja, the introduction of ITAS would create an efficient revenue management that entails generating the maximum level of revenue without leakages, prompt delivery of quality services to the tax paying public and high level of transparency and accountability.
But a financial analyst, Mr. James Obiebi speaking with FrontiersNews noted that FIRS would have been making more revenue for the government if more companies pay their VAT.
According to him, a lot of businesses collect VAT but fail to remit them. “Over 50 percent of Companies doing business in the country do not pay VAT. I think with a proper monitoring mechanism, Nigeria can do a lot with monies collected from VAT.”
Many businesses have taken advantage to the policy to further exploit their customers as a visit to a popular supermarket in Nyanya showed that VAT is practised by almost every average Nigerian businessman, but the question is how many do really remit the monies collected to government coffers?
According to Mr. Papa Ossom in a chat with FrontiersNews said “I doubt if they pay VAT. It is another of means of exploiting people that patronise them.”
Mr. Obiebi therefore suggested for stiffer sanctions for companies who fail to remit VAT collected from customers.
He said, "a situation where a company is fined N30,000 for non-remittance of VAT money running into millions of Naira is not enough sanction as they would rather pay the N30,000 and pocket the rest than remit the monies collected as VAT from its customers."
Frontiersnews.com
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