BY VICTORIA ONU, ABUJA
The Federal Government lost over N900bn to waivers given on Value Added Tax transactions in the 2020 fiscal period, investigations have revealed.
The figure is based on analysis of the 2022-2024 Medium Term Expenditure Framework obtained from the Ministry of Finance on Sunday in Abuja.
According to the document, the tax relief was typically granted on a commodity basis. Top 10 commodities, combined, accounted for over 80 per cent of relief.
They are vegetables, melon, roots and tubers; bakery products, monetary intermediation, tropical fruits, cereals (except rice), leguminous crops and oil seeds; central banking, pre-primary and primary education; manufacture of grain meals product; raising of cattle and buffaloes and secondary education.
According to the report, tax exemptions on agriculture, banking and education are the biggest beneficiaries during the 2020 fiscal period.
It stated, “This year’s (2020) estimates distinguished between relief granted in the legislation and compliance burden. If all commodities in the Nigerian VAT system were fully taxable, the country could generate about N6trn from their existing tax structure.
“However, according to the Nigerian Bureau Statistics, the VAT yielded about N1.8trn. The difference between the two is the tax gap and is estimated to be about N4.3trn. Of this, about N900bn is attributable to exemptions set out in legislation; the remaining N3.4trn is attributable to the compliance gap.
“In most countries, their compliance gap is caused by several factors, including underground economic activity, the informal sector, aggressive tax planning and problems in tax administration. However, in Nigeria some firms, notably in the financial sector, are granted relief from VAT.
“Because this relief is not set out in the VAT Act, it is not captured as a tax expenditure in the current estimates. In the years to come, refinements to the estimates will include these amounts.
“As a result, it is likely that the current estimate of the policy gap is too low and the compliance gap too high. The extent of the difference will require additional information on the exemptions granted to specific firms.”
The issue of VAT revenue had become contentious between the Federal Government and state governments, following the judgement of the Federal High Court asking state governments to collect Value Added Tax in their domain.
Consequent upon the court ruling, Governor Nyesom Wike had directed the Rivers State Revenue Service to immediately commence collection of VAT from corporate bodies and businesses in the state.
The development had made more states such as Lagos, Ogun and Akwa Ibom, to enact laws that will enable them to collect the tax in their states.
But speaking on the implication of the judgement, the Group Lead, Special Operations Group, FIRS, Mathew Gbonjubola, said there was nowhere in the world “where the administration of VAT is done at the sub-national level.”
He said that contrary to misconceptions in some quarters, the FIRS administers VAT on behalf of the three tiers of government and not for the Federal Government alone.
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 states and local governments take about 85 per cent of VAT proceeds.
“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,” he said.
“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,” Gbonjubola added.
