Last week, acting executive chairman, FIRS Mr. Sunday Ogungbesan disclosed that the agency plans to partner with Corporate Affairs Commission, CAC, to make it mandatory for companies to obtain their Tax Identification Number at the point of registration and its intension to raise VAT from 5 to 10 per cent, LINUS OOTA writes on the significance of the new development.
One of the major problems facing the administration of President Muhammadu Buhari is how to contend with financing the 2015 budget in the wake of over 50 per cent decline in oil price and rising threats from declining non-oil revenue.
Nigeria VAT rate at 5 percent is amongst the least in the world, a situation some revenue tax experts said could be driving the new leadership of FIRS into new decision to standardise the nation’s VAT rate.
Recent suggestion by Federal Inland Revenue Service, FIRS to raise the present Value Added Tax, VAT from 5 percent to 10 percent, may usher in another era of debates on the efficient utilization of VAT proceeds after several attempt by past FIRS leaders in that direction failed.
Acting executive chairman of FIRS Sunday Ogungbesan recently disclosed plans by the agency to increase VAT from the current 5 percent to 10 percent, even as it moves to clamp down on recalcitrant companies.
VAT is a form of consumption tax, levied at each stage of the consumption chain and borne by the final consumer of the product or service.
Mr. Ogungbesan said, all goods manufactured, assembled in or imported into Nigeria, except those specifically exempted under the law are VATable goods.
Examples of VATable goods according to him include jewelries, shoes, bags, television, among others. Also, all services rendered by any person in Nigeria except those specifically exempted under the law are VATable, examples of VATable services are: services rendered by lawyers, engineers, accountants, contractors, and consultants.
The FIRS boss said the agency tried different options in the past to enforce compliance, including the option of sealing companies that evade taxes, but discovered that it adversely affected man hour, the Gross Domestic Product and the economy as a whole.
He said, “If we achieve our revenue targets, to a large extent government deficits will be reduced. Our plan is to bring every business into the tax net; this economy can survive outside oil.”
Mr. Ogungbesan said that goods that are not subject to VAT include: all medical and pharmaceutical products, basic food items, book and educational materials, baby products, fertiliser (locally produced), agricultural and veterinary medicine, farming machinery, and farming transportation equipment.
Other goods that are not VATable are plant and machinery imported for use in the Export Processing Zone, EPZ or Free Trade Zone; provided that 100 percent production of such company is for export; all commercial aircraft and aircraft spare parts imported for use in Nigeria; and amorphous pet chips.
Services exempted from VAT include medical services, services rendered by community banks, people’s bank and mortgage institutions, plays and performance conducted by the educational institutions as part of learning, and all exported services.
Zero-rate VAT applies to non-oil exports, goods and services purchased by diplomats, as well as good and services purchased by humanitarian donor-funded projects.
But speaking recently in Lagos on the efficiency of FIRS, Mr. Ogungbesan says it generated N1.97 trillion as revenue in the first half of this year adding that the figure represented 98 per cent of the targeted revenue of N2.28 trillion between January and June 2015.
Ogungbesan said the Federal Government gave FIRS a revenue target of N4.57 trillion for the whole of 2015 stressing that Nigeria had the potential to generate more tax revenue if there was a better tax administration system in the country.
The FIRS boss said that his agency was just one of the 37 tax authorities in the country and were administering tax at the federal level, while each state administered its own and called for more collaboration among all the tax authorities in the country.
He said that while the FIRS had 6,900 workers across the country, tax authorities in the states could also strengthen their workforce instead of depending on consultants and expressed regret that while there were 450,000 registered companies in the country, only about 125 were actually contributing taxes.
Ogungbesan said that the rest were portfolio businesses whose promoters were still probably in government services adding that there was the need to review some complex laws inhibiting tax administration in the country.
The FIRS boss also called for a centralised tax administration system, stressing that his agency was already discussing the issue at the level of the Joint Tax Board and called for a strong database on all tax payers as obtained in developed economies.
He said that FIRS is currently discussing with the Corporate Affairs Commission, CAC to make it mandatory for companies to obtain their Tax Identification Number at the point of registration.
The Director, Communications and Liaison Department, FIRS, Mr. Emmanuel Obeta, disclosed this to our correspondent during an interview in Abuja adding that the move is part of measures to be used by the FIRS to capture more companies into the tax net, thus improving revenue for the Federal Government.
The Chairman, FIRS, Mr. Sunday Ogungbesan, had put the number of companies in Nigeria at 450,000, but lamented that only about 125,000 paid any form of tax adding that FIRS was given a revenue generation target of N4.5tn by the Federal Government in 2015 and had so far generated N2.667tn.
He said that the estimated collection for July 2015 was N404bn. This, he said, was 106 per cent of the monthly target of N381.02 billion and brings total collection to date up to N2.374.18 trillion, against the target of N2.667.13 trillion, and improves collection percentage to 89 per cent
Going by Ogungbesan’s summation, not less than 325,000 companies are evading tax, thus denying the FG of huge revenue annually.
But while the Service could not estimate the actual amount lost to tax evasion, Obeta said the FIRS, through the collaboration with the CAC, would be able to determine the level of turnover or business activity of a company within the year.
This according to him will enable the FIRS to discourage situations where organisations submit fake annual returns of their activities within the year
He said, “The collaboration with CAC is still ongoing, such that FIRS will gain an immediate access to all the data of registered companies and such companies can also obtain their TIN at the point of registration from the CAC.
“The number was obtained from a physical validation or enumeration exercise. A lot of the other registered companies are portfolio companies without visible validation of their existence at their given addresses.”
On tax evasion, Obeta said, “It will be difficult to estimate the amount that the Federal Government is losing to tax evasion as we don’t know the actual revenue earned by everybody in the country that are not paying taxes.”
Ogungbesan had said that the service was considering rewarding tax payers, and noted that those evading taxes would first be enlightened on the importance of payment of taxes.
According to the FIRS boss, after the enlightenment, any firm and/or individual that fail to pay their taxes will face the full wrath of the law “The duty of every Nigerian as of January 1 is to go to the tax office and pick a form, to assess himself. We are undergoing a self-assessment tax regime at the moment.
“There is a continuum we call compliance continuum. These are those who are complying and there are those at the extreme end who, no matter what action you take, no matter the intervention, no matter the encouragement, still will not comply,” he said.

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