States, LG get 85% of VAT, Nigerians should demand accountability ― CITN President
Says 5% VAT is 25 years old, increase long overdue
Amid outcry over the proposed increase of Value Added Tax (VAT) from 5 per cent, President, Chartered Institute of Taxation of Nigeria (CITN), Olajumoke Simplice has urged Nigerians to demand accountability from their states and local governments who get a total of 85 per cent of the VAT.
Speaking on the sidelines of the 6th CITN Tax Conference (South West) held in Ibadan, with the theme, “Taxation and Social Justice: The Roles and Responsibilities of Stakeholders,” she explained that state governments get 50 per cent from each VAT paid, local governments get 35 per cent share while the Federal Government gets 15 per cent.
Pointing out that VAT was solely taxing on consumption, she bemoaned the failure of Nigerians to ask the government for accountability for the VAT collected over the years.
“The good thing about VAT is that it is not general; it is what you buy, you consume. It is consumption tax; that is, it is when you consume that you pay. It is also a way of telling us to act on your needs, not on your wants. I believe it is the easiest way of the distribution of wealth from the rich to the poor.
“The people should do their part first and then ask for accountability. From the VAT, only 15 per cent goes to the federal government; 50 per cent goes to the state government and 35 per cent goes to the local government.
“So the bulk of the money goes to the state and local government; Federal Government only takes 15 per cent as the cost of collection. It is the people’s duty to ask for accountability.
“Take for example the Agbekoya issue, in the Western region. The government said the people must pay additional tax and the people refused.
“The people maintained that before they can pay additional tax, the government must fix the road to their farms. This became big issues such that soldiers were drafted leading to a clash between the soldiers and farmers. But at the end of the day, reason prevailed. The good roads in the Western region were the roads built in those days,” Simplice said.
Arguing that 5 per cent VAT rate in Nigeria was 25 years old, was among the least globally, she held that an increase in VAT was long overdue.
Rather than the opposition against VAT increase from 5 to 7.5 per cent, Simplice said attention should be diverted to calls for a reduction in income tax, Pay As You Earn (PAYE).
“The VAT increment should have happened so many years ago; it is long overdue. The tax act came into being in 1993 but it did not take effect until 1994. Back then, it was advocated that we start with five per cent and increase it subsequently.
“But 25 years down the line, nothing has been done. In 2007, an attempt was made, it was scuttled; earlier this year, attempt was made, it was scuttled. But you cannot play the ostrich. Our tax rate is the lowest globally apart from Bahrain and two other countries.
“So, if you are playing in the comity of professionals, financial world, you have to play along with the globe. You cannot have five per cent when Benin republic is having 18 per cent. We are saying it is good we increase the rate of VAT.
“But, in our clime, we are also saying that something has to give way. We are calling for a reduction in income tax from about 30 per cent to 20 per cent; and reduction in the rate of PAYE from the highest of 24 per cent to about 17 per cent,” Simplice said.
Other speakers at the event also stressed the need for increased sensitisation of Nigerians on why an increase in VAT had become imperative.
Lead International Tax and Regulatory, Deloitte, Asiata Agboluaje stressed the Nigerians to demand accountability of their government, while urging the government to judiciously use the revenue they collect.
Agboluaje also harped on the need for regular update of taxpayer database, regular review of tax policies, and that tax payers should be treated equally.
She also called for the full deployment of Information technology in revenue collection by the relevant tax authorities.
A tax consultant, Mr Albert Folorunsho urged the government to bring down the high cost of doing business by removing cumbersome start-up processes and providing basic social amenities.
He emphasized the need for the government to introduce presumptive tax and collaborate with stakeholders in taxation while urging tax authorities to remove impediments to voluntary compliance.
In enforcing collection, Folorunso said the focus should be on high taxpayers/high-income earners.
Though he expressed pessimism at the intent of the government to prosecute and jail tax evaders, a discussant, Tayo Okugbenro urged the government to establish tax court to prosecute tax evaders.
Another tax consultant, Akinyele Oladeji bemoaned the failure of the federal and states government to bring the informal sector into the tax net so as to boost their Gross Domestic Product (GDP).
He urged states and the Federal Government to be innovative, come up with incentives to ensure that everyone in the formal and informal sector pays their taxes.