The delegations from the European Union and the Economic Community of West African States to Nigeria have stated that Nigeria’s value-added tax system falls short of ideals.
This was said on Monday during the 4th meeting of the Steering Committee of the Support Programme for Fiscal Transition in West Africa, which was held in Abuja. Massimo De Luca is the Head of Cooperation for the EU and ECOWAS Delegation to Nigeria.
De Luca attributed corruption and inadequate execution as the reasons for Nigeria’s low VAT compliance rate.
Although some businesses might be prepared to pay their taxes, he pointed out that the nation’s current tax structure prevents them from doing so.
Prior to this, Zacch Adedeji, the chairman of the Federal Inland Revenue Service, declared that the organisation will make the nation’s tax system customer-centric in order to facilitate tax payment for both individuals and corporations.
Additionally, he mentioned that the FIRS would create a single point of contact for all national taxes.
VAT is a consumption tax that is paid at the time services and commodities are rendered and acquired. The tax has multiple stages. The final consumer bears the cost of VAT. Everything except those expressly exempted by the VAT Act is subject to taxation.
“You think VAT works in this country?” asked De Luca. No, it doesn’t. The business climate is unstable for long-term investment due to fraud. Since the current VAT system prevents businesses from charging VAT on items and recovering VAT from purchases, the system is unable to accomplish its intended purpose.
He continued by saying that many Nigerian businesses, particularly small and medium-sized businesses, might not be able to recoup their taxes from customers.
He pointed out that Nigeria’s low VAT experience is a result of the lack of cooperation between the country’s businesses and tax authorities.
The truth for a lot of Nigerian businesses is that you can never be sure if the businesses will be able to recoup the VAT on the goods you purchase. Having adequate VAT compliance is very tough, especially for SMEs.
The government and businesses must work closely together to comply with the tax system, but sadly, this is not the case in this instance.
“Nigeria has extremely low VAT. It is five percent of everything, which prevents appropriate revenue production,” he continued.
According to tax expert Andrew Onyenakwe, tax payments in Nigeria are incorrect for all Nigerians.
Although he urged people and businesses to pay their taxes, he also held the systemic corruption responsible for the low tax compliance rate.
He went on to say that although Nigeria has necessary laws to support taxation, there is a low level of compliance.
“When it comes to tax avoidance, we’re all incorrect. Perhaps a few, if we ask how many of the ten companies in our sample pay taxes. First of all, how many companies are legally allowed to operate in Nigeria, and how many of those companies are paying the appropriate taxes? Thus, a plethora of factors are involved. Regarding the tax administration organisations, what percentage of them are operating as intended?
The issue is not with the laws; rather, it is with obeying them. We are dealing with quasi-compliance. We are searching for willing compliance.
“Transparency and accountability bother some taxpayers, which deters them from paying taxes,” Andrew stated.
