VAT: Presidential committee considers exemption of basic items, review of sharing formula
…Proposes harmonisation of consumption to promote ease of doing business
…Seeks to introduce tax returns on gas companies
An imminent review of the current percentage deducted for Value Added Tax (VAT) and the sharing formula amongst the federal, state and local government councils is on course.
Findings by NewsDirect revealed that this is amongst the proposals made by the Presidential Committee on Fiscal Policy and Tax Reforms led by Mr Taiwo Oyedele.
Among the proposals is the adjustment to VAT sharing formula and basis, which will see a reduction in the federal government’s share of the monthly VAT revenue from 15 percent to 10 percent, while 90 percent go to the states and local governments.
The Committee also proposed key changes to the national tax legislation because as contained in the current VAT Act, the federal government gets 15 percent of the VAT revenue, while states and local governments share 50 percent and 35 percent respectively.
Other proposed changes to be made on the VAT and excise duties include zero rated list expanded to include agriculture, medical and educational and other basic consumptions, full deduction of input VAT on all supplies including services and assets, excise tax simplified and limited in scope with clarity of rates, liable party and timing.
Speaking, Oyedele said, “Nigeria’s VAT system places a huge burden on businesses as they are not allowed to claim the input VAT incurred on services and assets.”
“Some items which constitute basic consumptions (food, education, and healthcare) are liable to VAT rather than being exempt or zero-rated.
“Many small businesses have to contend with VAT compliance in view of the existing low VAT exemption threshold for small businesses.
“Many states charge other forms of consumption taxes in addition to VAT thereby creating multiplicity of taxes. Export of services and intellectual property bear VAT rather than being zero-rated to promote exports.
“To address the above identified problems, we are proposing the following: full input VAT credit for businesses to reduce their cost of doing business and minimise the strain on their cash flows, remove VAT on an expanded list of basic food, educational and healthcare items to protect the poor, harmonise all consumption taxes into one (VAT only) and adjust the revenue sharing formula in favour of states to address multiplicity of taxes.
“Remove VAT on export of service and intellectual property to promote non oil exports, increase the threshold for VAT exemption for small businesses and enhance the VAT refund process to reduce the strain on working capital of businesses.”
It also proposed key changes on tax administration and revenue commission as follows: harmonisation of all administrative provisions in different tax legislations into one; registration requirement with provision for deregistration and cancellation of TIN; provision for mandatory disclosure of tax planning to curb abuse and introduction of estimated tax returns for gas producing companies and LNG companies among others.
The committee however noted that the legislature, executive, and judiciary, among others have vital roles to play in the implementation of this tax policy. It stated that there is need to amend all the necessary laws including the Constitution of the Federal Republic of Nigeria, 1999 as may be necessary to give effect to the tax policy, remove existing conflicts, provide clarity on the taxation powers of each level of government to advance the objectives and recommendations of the tax policy.
To ensure the effective implementation of this national tax policy, the committee stated that the National Assembly shall establish a taxation committee separate and distinct from the finance committee to speed up, focus on and enrich legislative actions on tax matters. Stop the prevalent practice of private tax bills resulting in the proliferation of earmarked taxes on the income of companies.
“The National Assembly shall ensure that Establishment Bills/Acts of MDAs do not contain revenue collection functions, the National Assembly shall abolish all existing earmarked taxes contained in the Establishment Acts of MDAs other than the tax laws.
“The National Assembly and State Houses of Assembly shall ensure that Establishment Acts of MDAs mandate information exchange with tax authorities for tax purposes, enact an Establishment Act to reform the Joint Tax Board to contribute meaningfully to the development of the Nigeria tax system through a broader mandate beyond its current advisory role.
“For effective implementation, the committee also expects the president and governors to ensure that budget speeches and presentations for each fiscal year consistently contain the overriding fiscal policies and summary statements of the expected tax revenue. This will give key stakeholders a sense of what the government plans to do and enable them to plan accordingly.
“The president and governors should work towards ensuring that there is only one revenue agency per level of government. This would streamline revenue administration and improve the efficiency of revenue collection. Ministries, extra-ministerial departments, and Agencies other than tax authorities should not become tax-collecting bodies.
“The executive shall ensure synergy between tax and the government’s socio-economic policies, the Executive shall sponsor a bill to establish a tax court as an independent body to adjudicate in tax matters. The tax courts shall handle appeals of judgments made by the tax appeal tribunal,” it stated.
According to the Committee, the provisions of the policy is aimed to ensuring that all taxable persons can honestly declare their income to the proper and lawful agencies and pay their taxes on time, enhancing free mobility of people, goods, and services without extortion from both state and non-state actors as well as leveraging technology to achieve an efficient and effective tax administration system among others.
It noted the challenges of the Nigeria Tax System to include: weak policy framework, poor coordination, and lack of sustained leadership focus, inequity and trust deficit.
“There is no robust structure for the tax system to address major issues such as the taxation of the informal sector, address obsolete provisions, provide clarity on taxing powers of each level of government, and align tax policies within the overall economic objective.
“There is no clear direction and overall policy objectives for the tax system resulting in multiple taxes, agencies, audits, fragmented databases and identities, and weak structure for collaborations and exchange of information. The political will for difficult but necessary reforms has been lacking, with no sustained commitment to implementing approved tax policies and institutionalised systems of accountability for revenue utilisation, tackling corruption in tax administration, preventing abuse and administering consequences for violations.”
Meanwhile, the Chairman of the committee, Taiwo Oyedele, had earlier said there is a need to review Nigeria’s value-added tax (VAT) rate upward.
He noted that Nigeria’s economy is more than 50 percent in services, prompting an increase in VAT. He added that the review will not affect businesses.
“So we therefore need to adjust the VAT rate upward. We would ensure that it doesn’t affect businesses,” Oyedele said.
He added that food, education, medical services and accommodation will carry zero percent VAT adding that the review will not affect the poor and small businesses.
“We have spoken to businesses about it and they won’t increase the product price. We want to make sure when we do VAT reform, no one will increase the price of commodities. We will work the mathematics with the private sector,” he said.
According to Oyedele, the burden of VAT should be on the ultimate consumer.
“So we must make it transparent and neutral and this is what over 100 countries where they have VAT are doing,” Oyedele said.
