Economy like Nigeria should collect more than 5% VAT—Fowler

Kings UBA

5 years ago

Although the Executive Chairman of Nigeria’s revenue agency, the Federal Inland Revenue Service (FIRS), Tunde Fowler expected a critical backlash from his position of Nigeria’s Value Added Tax (VAT) rate, Fowler has maintained that Nigeria should collect more than five percent VAT.

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At the opening of African Tax Administration Forum (ATAF) Technical Workshop on VAT on Monday in Abuja, Fowler noted that Nigeria’s VAT rate at five percent is the lowest in the world and lower when compared to the peculiarities of the Nigerian economy.

Fowler said: “I know there will be a backlash but I believe that an economy like Nigeria should pay more than five percent VAT”, he said.

However, Fowler noted that his agency, the FIRS, would need a law or buy in from important stakeholders to be able to increase VAT rate.

Nigerians reacted negatively earlier in the year when Fowler voted for an increase in Nigeria’s VAT rate from five percent to 7.5 percent.

Fowler at the event also noted that the Federal Inland Revenue Service (FIRS) would impose VAT on online transactions, both domestic and international, from January 2020.

Fowler said many countries had identified Nigeria as a big market and many of them were doing online businesses, adding that there was the need to tap the potentials to generate more revenue for the country.

He, however, said that the date of commencement of the VAT on online transactions would be subject to the government’s approval.

“We have thrown it out to Nigerians. Effective from January 2020, we will ask banks to charge VAT on online transactions, both domestic and international.

“VAT remains the cash cow in most African countries, with an average VAT-to-total tax revenue rate of 31 percent. This is higher than the Organisation for Economic Cooperation and Development’s average of 20 percent.

“This statistics, therefore, is a validation of the need for us to streamline the administration of this tax with the full knowledge of its potential contributions to national budgets.

“It is, however, also bearing in mind the rights of our taxpayers,” he said.

He said in Nigeria, VAT is critical to the development of projects at all levels of government.

“VAT revenue is shared 15 percent to the Federal Government, 50 percent to state governments and 35 percent to local governments.

“FIRS wrote to all commercial banks in May 2018, requesting for a list of companies, partnerships and enterprises with a banking turnover of N1 billion and above.

“This activity is aimed at ascertaining those companies that are compliant with the tax laws and those that are not,” he said.

Mr Fowler, who is also the chairman of ATAF, said the African tax outlook gave some starting points on the questions to ask regarding some aspects of VAT.

“Why does VAT contribute 51 percent to total tax revenue in Senegal but only 17 percent in Nigeria? Why is the ratio on VAT refunds at 49 percent in Zambia but only one percent in The Gambia?” he queried.

Mr Fowler charged participants at the workshop to find answers to the questions and address the gaps in some countries to improve VAT collection.

The Executive Secretary of ATAF, Logan Wort, said the establishment of the ATAF VAT Technical Committee in 2017 had given rise to various debates aimed at giving better policy options for countries.

Wort explained that this would enable member-states to share ideas and techniques on how best to administer, design and audit VAT.