LET me start this treatise with three Yoruba proverbs. The first one translates loosely as: A man not wanted in a community should not begin to sing. If he does, nobody will join him. Indeed, taxation is not a thing that many people are comfortable with, especially when they cannot see its corresponding benefits.
The second proverb is: A man being prepared to be roasted should not rub palm oil on his own body (or even stand beside a fire). Generally speaking people often try to avoid paying tax, so the process should not be compounded for the average taxpayer as it is often done by the country’s tax agencies. The last proverb is that palm oil and white clothes are not friends. Law-abiding taxpayers and unstreamlined or difficult payment systems are not compatible.
Any student of taxation knows that one major principle of tax administration is that it must be easy to pay. This is hinged on the Canon of Convenience, among others, as espoused by the great economist, Adam Smith.
Recently, the Acceptance Certificate for asset worth N500,000 was discussed extensively and 99 percent of Nigerians are of the opinion that such policy is outdated because even the cost of one laptop and a table is in excess of N500,000. Thus, asking people to get any acceptance certificate is more or else an attempt to impose unnecessary burden on Small and Medium Entreprises. However, some Federal Inland Revenue Service officials still ask for this during an audit process when everybody knows it is an unreasonable act because there are other ways to verify asset cost.
Now, let me return to the main subject. A March 2023 VAT filing which was meant to be submitted on or before April 21 suddenly requires that one should upload a computer Excel sheet showing the following: name of your customers/client, Tax Identification Numbers, amount of sales, code representing nature of transaction which is either of the following: 0 for vatable, one for zero rated, two for exempted type of services or product and description of product or service.
As a matter of fact, a video was posted on Tax Pro Max asking that each sheet take 1,000-line items (funny numbers). Now, how does one begin to fill an Excel sheet containing all the above fields with 1,000? One may not actually be able to file any returns if one sells small items such as soft drinks.
FIRS claimed that once one has indicated the TIN of a tax payer; the respective VAT against such tax payer will go to the system as input VAT as a second leg. Hence, there is no room for one to post local purchases that will enable one to claim or enjoy input VAT.
The question is, does FIRS think that all tax payers will file their documents at the same time? As a result, if one’s customer is yet to file his own tax returns, it means one will have no input as VAT and that also means one will have to pay double VAT.
Most companies’ CEOs could not sleep from 19th to 21st of April 2023 all over Nigeria because many couldn’t file their VAT. Some eventually chose to give up. Another issue about VAT is that FIRS is yet to understand the reality in business and a good example is as follows: If one buys some goods for N100,000 and sells with 2% profit, it means one will sell the goods for N102,000.
In any case, due to competition, one cannot sell above N102,000 and no buyer will listen to any explanation that one actually charged VAT on the goods and as such the price ought to be higher than N102, 000.
Meanwhile, most times at the source of the goods, there is no VAT input in one’s favour and as such, FIRS is looking at one’s sales of N102,000 and asking people to come and pay VAT of N7,650 (quite logical? Isn’t it?). But it is very unreasonable and against ease of doing business coupled with the fact that it is simply a show of lack of understanding of industrial practice in such sector.
Once a businessman pays N7,650 as demanded, the profit of N2,000 is gone. In addition, the FIRS takes another N5,650 from one’s trading capital. Now who is that stupid businessman ready to pay such money?
Assuming one is trading with N100,000 and one pays the N7,650 VAT, which is rare, but let us assume the money was paid, if the business maintains the same level of transactions over a period of 18 months, the businessman’s entire capital would have been wiped off in the name of VAT without considering overheads. For so many tax payers, nothing was shown as input VAT and yet no room for posting cost which the system uses to calculate input VAT.
Many businessmen often post their cost to Imported Cost so that their actual VAT can be seen. The Excel sheet introduction is not going to work when it comes to imputing VAT claims because the company or the customer bought from may not have filed their tax papers as of the time one is filing his own and as such, there should be a space for the posting of local purchases.
Over the counter transactions also do not give room for a businessman to start asking for Tax Identification Numbers of customers. Yes it is also there that one can put zero if one doesn’t know the TIN, but the question is why the stress?
The FIRS should maintain the status quo ante and allow normal VAT filing to continue as it used to be. They could ask for schedule of sales as mere additional documents with or without TIN and where a customer’s name is unknown, they should allow tax payers to insert “VARIOUS” to combine many customers. The truth is that such a step will favour the FIRS in that no one will claim such VAT as input anyway.
They should leave the role of requesting for additional information with various tax offices. They know what to do to validate claims of sales and purchases. Furthermore, they should use VAT monitoring and audit exercises to cross-check records of filings and stop stressing tax payers with unreasonable additional burdens.
In conclusion, the newly introduced system is counter-productive and that accounts for why FIRS had to extend filing till April 30 for March VAT. If a step is taken to verify collection for the month of March, it will be below expectation. FIRS and indeed all agencies dealing with the public should engage stakeholders and professionals before introducing any policy.
Note that many companies have not recovered from the damage done to the economy by the CBN naira redesign policy and so, introducing this new filing method will amount to adding salt to injury. Such pain is not good for Nigerians at the time of tax payments as it negates the Canon of Taxation and contrary to ease of doing business because productive time is wasted on irrelevant and counter-productive exercises.
All these circulars going around about seminars on the new policy should be converted to apologies to taxpayers as they constitute medicine after death and putting the cart before the horse.
Dr Adeoye, a lawyer and fellow of the Chartered Institute of Taxation of Nigeria, sent in this piece through dga@gbengaadeoye.com.
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