BEYOND REVIEW OF VAT LAWS
Federal Inland Revenue Service (FIRS), the agency charged with the articulation and administration of tax policies, recently unfolded plans to overhaul Value Added Tax (VAT) laws in the country. The aim, says the FIRS boss, Mrs. Ifueko Omoigui-Okauru, is to make the VAT Act in Nigeria align with the General Tax System (GTS) in the ECOWAS VAT Protocol.
Besides, she explained at the recent conference on VAT Administration in Africa held in Abuja, that the review would make the VAT system more efficient as a means of wealth redistribution, and increase revenue yield for government.
We heartily welcome this plan. At the moment, Nigeria's VAT regime is considered vulnerable to manipulation.
The idea is, therefore, long overdue. Nonetheless, the review should not aim at VAT alone. Of critical importance should be a comprehensive review of our tax system, of which VAT is just a subset.
The review should involve an integrated plan that must take into cognizance the importance of taxation and the role of VAT as an instrument for revenue generation. This is even more important now with emphasis gradually shifting from direct to indirect taxation as a means of diversifying the revenue base of the country, to reduce dependence on oil as the mainstay of government revenue.
But to make the plan work, it should start with a detailed review of the challenges facing the current VAT regime. FIRS should make a clear distinction between what constitutes VAT and sales tax. At the moment, the concept of VAT appears not fully understood by government and other stakeholders.
The idea of VAT appears more rooted in arcane theory than actual practice. Aggregate charges on VAT do not take into account the actual process of production. One consequence of this is that it leads to multiple taxation, especially at the state level. Therefore, a meaningful way forward is a comprehensive overhaul of the tax system. This should involve major stakeholders, including state governments. Indeed, treating the VAT review in isolation of tax laws will defeat the goals the FIRS intends to achieve with this exercise.
It bears repeating that our tax system is cumbersome. Experts posit that in most instances, unnecessary bureaucracy hampers the system, with little focus on proper legislation, transparency and accountability. This needs to be redressed. Little will be achieved in the proposed new VAT policy regime if government and its relevant agencies are not transparent. What is required is detailed information on tax collection and application of the revenue generated on a regular basis as a mark of accountability and fiscal responsibility. These essentials are currently lacking.
We advise FIRS to be consistent in its policies to enhance the performance of the tax system in terms of revenue yield. For years, this consistency has been lacking largely due to leadership style and absence of clarity of purpose by those charged with articulating and formulating tax policies. In this regard, government should provide the necessary support needed by the tax authorities to make the review a sustainable benchmark for future sources of revenue.
It is also important that the National Tax Policy recently approved by the National Assembly works. We implore the National Assembly to speed up work on the Tax Reform Bill before it. This can be made a lot easier if those entrusted with its implementation are professionals with the requisite competence and commitment to their duties.
Overall, well-coordinated strategy and sincerity of purpose are vital for successful review of VAT and general tax administration in the country.