Tax experts have continued to share their thoughts and experiences on global best practices on the administration of Value Added Tax (VAT). One fact that runs through the conversations so far is that no country across the world administers VAT through states or sub-national units; and the reason is that VAT is operated on input-output mechanism which shields taxpayers from incidences of double taxation. Another reason is around capacity and convenience to administer VAT.

Currently, given the fact that VAT is administered centrally by the Federal Inland Revenue Service (FIRS), the VAT system in Nigeria has an in-built refund or credit mechanism which eliminates the cascading effect that is a feature of the retail sales tax. This means that the final consumer is protected from bearing the brunt of the cascading effect of retail sales tax. Tax experts advise that this shield will be removed if sub-national units take the responsibility of VAT administration.

Further to above, a finance analyst, Ashabi Vincent noted that the input-output tax mechanism in VAT also makes it self-policing. “In essence, it is the Output tax less Input Tax that constitutes the VAT payable and it is the equivalent of the VAT paid by the final consumer of the product that will be collected by the government. Although VAT is a multiple stage tax, it has a single effect and does not add more than the specified rate to the consumer price no matter the number of stages at which the tax is paid”, he said.

In a recent meeting with journalists in Abuja, the FIRS corroborated the above. According to the Group Lead, Special Tax Operations Group, Matthew Gbojunbola, the current VAT Act in Nigeria is in line with global best practices as it allows taxpayers to offset their input VAT (Allowable Input VAT) against their output VAT, to the extent that such input VAT only relates to such goods that are purchased or imported for resale or form the taxpayers’ stock-in-trade used for the production of new products on which output VAT will be charged.

He said where the output VAT exceeds the recoverable input VAT, the taxpayer is expected to remit the excess to the FIRS.

Mr. Gbojunbola explained that in the case where the input VAT exceeds the output VAT, taxpayer will be entitled to a refund of the excess after following the due process as contained in the FIRS Establishment Act. He said that such refund may not be possible if VAT is administered by states because the administration of VAT will be done by different states tax authorities.

He said: “As to the incidence of VAT, VAT is practiced on an input and output mechanism. What it means is that for a business either importing or buying products, that business will pay VAT either at the port if it importing or with the manufacturer if it buying from a local manufacturer.

“And when that business pays VAT, it is accounted for that business as an input tax, such that if it begins to sell in any part of Nigeria, and charges VAT from its own customers, it is able to rescue the importers pay either by port if it is an imported item or to the manufacturer if it was obtained from local producers.

“And this works only at the national level, VAT can’t work at the sub-national level and there is no country in the world where VAT works at a sub national level. This is because the VAT depends on the input-output mechanism.

“For instance, if a business person buys an item in Osun State and paid VAT, takes the goods to Sokoto state to sell, remember this business person had paid VAT when purchasing the product in Osun state.

“So, when selling in Sokoto state, he will be charged VAT and by the operation of the input-output mechanism, this business person will deduct the input VAT payment in Osun state, from the output charged in Sokoto state, and remit any difference to the relevant tax authorities, in this case because there is a single tax authority handling VAT, it is the same Authority that will receive the VAT in Osun and Sokoto states.

“And so, it is easy to work out the input-output mechanism, businesses won’t be short-changed; there is no issue of consumers having to pay VAT more than once.
“However, if this operating at a sub national level it will mean that when businesses are paying VAT at the state level, the business would have to pay VAT twice in two different states.”

According to him, the revenue from VAT is administered under an arrangement that allows the Federal Government to collect 15 per cent, States 50 per cent and Local Government 35 per cent.

The implication of this, according to him, is that the State and Local Government takes about 85 per cent of VAT proceeds

He said, “The VAT is not paid to the Federation Account but to VAT pool account for distribution to the three tiers of government. It is after the sharing that the portion of the Federal Government is paid to the Consolidated Revenue Fund Account.

“VAT works only at a national level but not at a sub-national level. There is no country in the world where VAT works at the sub-national level.”

He said the VAT Act differentiate between two kinds of VAT; Input VAT and Output VAT.

On the issue of capacity, analysts agree that it takes capacity to administer VAT. In line with this, the FIRS explained that it took the system about ten years to get to where it is now in terms of human capital capacity and deployment of technology for tax administration.

Mrs. Chiaka Ben Obi while shedding light on the capacity of FIRS to collect VAT said: “We are deploying technology. And what has that achieved for us? It has enables us to block leakages that were hitherto present in tax declarations and coming up with tax liabilities. And what bis the name of the technology we have deployed? It is TaxPro Max. TaxPro Max is our own in-house developed tax administration system. For the past ten years, we have been trying to achieve non-human intervention in tax administration, from end to end. We had deployed many third-party technologies for tax administration solution which left up with gaps and we were running like a mini-manual or semi-automated system.

“What we have now with TaxPro Max is that we are managing the life-cycle of taxpayer using technology. From the time a taxpayer registers up until the time ultimately the taxpayer getting their Tax Clearance Certificate. Recall that in the past, when a taxpayer is registering to get their Tax Identification Number, you typically will bring your CAC registered document, your C07, team of directors etc, we don’t do all that now.

“A taxpayer can actually go and register online and do that validation online and be integrated with the CAC. And they check the validity and the authenticity of the taxpayer. And thereafter, a taxpayer can then filing their tax returns and entering all that they need to enter. Another aspect of that has happened again as a result of deploying TaxPro Max that, what is important to a taxpayer is issued a contract and they are paid, the PAYE automatically deducts their Withholding Tax from the taxpayer and remits same to the FIRS”.

She said once the payee deducts that Withholding Tax and remits to FIRS, a receipt is automatically generated which goes to the email of profile of the taxpayer.
“Now, once that receipt is generated, the system also recognises a Withholding Tax receipt has been generated and then converts that to a Withholding Tax Credit Notes which then becomes a credit on the ledger of the taxpayer.

“When the taxpayer therefore goes to file for tax, at the end of declaration of all the requirements in all the schedules, there is a request to the taxpayer if they want to use the credit in their ledger. If the taxpayer says yes, let’s assume that the tax liability of the taxpayer is N100 million, and they have a credit of N85 million in their ledgers, the system will deduct the amount and present N15 million for the taxpayer to pay. The system will also give them the option to pay at the bank or pay immediately.

“If they click to pay at the bank, a document reference number is generated which they can take to the bank. If they go to the bank, that is what they give to the bank teller to process their payment and issue them receipt. If you also choose to pay right away, you will be presented different payment gateways, you will whichever one you prefer and then you pay online.

“So, we have been able to achieve an end-to-end processing of the life cycle of that taxpayer, from the time that taxpayer registers to the time they pay their tax liability and receive their Tax Clearance Certificates. When they make their payments, the next thing a taxpayer wants is to receive their TCC which is a statutory requirement for most of the agencies that give contracts if not all of them. So, those days of going to the Tax Office and applying for TCC are gone. Most time the Tax Controllers who approve issuance of TCC are online. So, you can give a timeline from 10 minutes to at most two days and you will have your TCC sent to your email which you registered with the Tax Office and then you can print it and do whatever you want to do with it. So that is how FIRS has been able to block leakages and we are able to generate more taxes from taxpayers because we have been able to overcome the challenges of the issues of under-declaring and underpayment”, Mrs. Chiaka Obi said.

Nice

It makes sense but i'm still in support of the sub national unit formation for VAT although companies will likely have to pay more ( Not Confirmed As Of Yet ) States are able to keep revenue within them and this whole system of poorer and less industrious states benfitting from more progressive states will finally stop at least in some regard the next step is for us to get LGA Autonomy and then Federalism

,

Rubbish.

1. It is not compulsory to collect VAT. VAT can be scrapped and replaced by a state sales tax. The USA does not collect VAT. In fact VAT as we know it, is a recent tax started by IBB.
What is important is the principle: collect taxes where the items are consumed and that money should go to the state where it is generated.
It makes no sense to give Lagos money to Jigawa or Sokoto money to Edo.

GeorgeTheCoder:
Rubbish.

1. It is not compulsory to collect VAT. VAT can be scrapped and replaced by a state sales tax. The USA does not collect VAT. In fact VAT as we know it is a recent tax started by IBB. What is important is the principle: collect taxes where the items are consumed and that money should go to the state where it is generated.

Yes but America actually practices federalism that's why they're able to hold that system but Nigeria essentially practices a unitary system of government which is why there is still VAT until we get our federalism then we will not have any state sales tax.

Abohboy:



Yes but America actually practices federalism that's why they're able to hold that system but Nigeria essentially practices a unitary system of government which is why there is still VAT until we get our federalism then we will not have any state sales tax.

while calling itself federal Republic of Nigeria

this VAT issue will lead to high price of food & other product of goods and service

abu12:
this VAT issue will lead to high price of food & other product of goods and service

if it will make other lazy state government wake up to start improvising to generate revenue in their states, I have no problem with the problems it will pose

Those countries are also not governed using two different legal codes. With Sharia firmly in place in the north and people like Gumi roaming free, separation of identity has become pertinent in Nigeria.

Let Nigeria be first in something. Let us start with state VAT collection and other will come and learn from us after a while. Wike, you are good to go.

We can always work something out.
Everybody must be up and doing!

Let Nigeria be first for once please

Abohboy:



Yes but America actually practices federalism that's why they're able to hold that system but Nigeria essentially practices a unitary system of government which is why there is still VAT until we get our federalism then we will not have any state sales tax.

In other words, we need to amend the Constitution

Yeye experts

Sirjamo:
In other words, we need to amend the Constitution

We need to take power first before we can amend the constitution and I have just the solution for that but most Nigerians aren't ready to put in the work

When I tell Nigerians this thing will end up in double taxation they argue....I know this country too welll

The issue is fair remittance of taxes.

If the FG collects & shares according to output, no one will bat an eyelid.

But how can the north say it does not want alcohol, destroys alcohol related businesses in its territory, then comes around to collect a higher tax than the states that freely allow various legitimate businesses to thrive.

Also, do the herdsmen pay taxes? Yet, the FG wants to use taxes from other states to build habitats for them.

SarkinYarki:
When I tell Nigerians this thing will end up in double taxation they argue....I know this country too welll

The matter is beyond double taxation. It's about fairness & equity. The north cannot be receiving taxes on businesses & commodities it terms illegal & destroys.

ivandragon:


The matter is beyond double taxation. It's about fairness & equity. The north cannot be receiving taxes on businesses & commodities it terms illegal & destroys.

I am not against it , all I am saying we must make sure it doesn't end in double taxation because it's headed that way already

They have started writing all manner of bulcrap to justify their daylight robbery.

The fact beer and other alcoholic beverages are wantonly destroyed in the Islamic North, even when they're legal is enough reason for this VAT to be paid to states where they are generated.

Had it been that FIRS collected the VAT and remit same amount collected per State to the States, there wouldn't have been any problem.

The sharing formula is nonsense.

So na still grass for suffer for this elephant vs Hippo Cage Fight??

Ever8090:
if it will make other lazy state government wake up to start improvising to generate revenue in their states, I have no problem with the problems it will pose

Rubish how much is this your VAT, highest politician go steal it. Today Niger delta have NNDC, ARMNESTY, MINISTRY OF NIGER DELTA, 13% , none of this state is develop more than Kaduna and Kano.. if you we like creat another tax it would useless if we are not ready to work.

[s]

ivandragon:


The matter is beyond double taxation. It's about fairness & equity. The north cannot be receiving taxes on businesses & commodities it terms illegal & destroys.

[/s]

Outside Lagos which generates 55% of VAT and little Rivers contribution most states in the South do not generate any tangible vat. But your fairness seems to only remember the North.

As the article has shown your bigotry has no basis on the best of practice when it come to VAT.

[s]

LadyExcellency:
Had it been that FIRS collected the VAT and remit same amount collected per State to the States, there wouldn't have been any problem.

The sharing formula is nonsense.

[/s]

Only Lagos 55%, then Rivers, Kano and Kaduna make tangible contribution. If they share it on collection rate. Most states will have nothing.

vedaxcool:
[s][/s]

Outside Lagos which generates 55% of VAT and little Rivers contribution most states in the South do not generate any tangible vat. But your fairness seems to only remember the North.

As the article has shown your bigotry has no basis on the best of practice when it come to VAT.

Lol. Been a while you showed up with your childish crossings.

Don't like what Lagos & Rivers have done? Cry yourself a lagoon.

North destroys alcohol but wants to share the vat... You haven't addressed that issue.

SarkinYarki:


I am not against it , all I am saying we must make sure it doesn't end in double taxation because it's headed that way already

Agreed. But the FG needs to ensure that the sharing is fair.

[s]

ivandragon:



Lol. Been a while you showed up with your childish crossings.

Don't like what Lagos & Rivers have done? Cry yourself a lagoon.

North destroys alcohol but wants to share the vat... You haven't addressed that issue.

[/s]

Ipob terrorist, your useless governors are just as lazy as many states in the North and South, they do not generate.

I asked again aside your bigotry, hatred, tribalism and jingoism what sensible point do you have to make in nairaland? NADA.

The experts left the real issue to be chasing shadows.. how many countries run separate constitution whereby some sections destroy goods of others and still expect to share in the VAT from those goods.

Is Hisbah legal? is Nigeria an islamic state that Kano will be destroying investments of other Nigerians and foreigners on religious grounds..

Did anyone force them to buy the beer or consume it? what of kind of nonsense double standard is that.

The expert are on another page of things.

Firstly , that no country is doing it doesn't mean it can't be done.

Secondly , they are looking at the technical side of the ease of remittance of vat vis a vis company payment to avoid double taxation , we are talking about the legality and equity of how vat is being administered state by state in relationship with state specific laws against vat paying entities.
A country divided against itself will not stand, vat is a secondary issue and is only being used as a tool to correct that anomaly.

abu12:
this VAT issue will lead to high price of food & other product of goods and service

Especially since food prices and others are low now.

Abohboy:


We need to take power first before we can amend the constitution and I have just the solution for that but most Nigerians aren't ready to put in the work

coup plotter . let's see how you take power. funny people