The Federal Inland Revenue Service (FIRS) has unveiled an ambitious plan, envisioning a significant increase in Value Added Tax (VAT) revenue collection to five trillion naira in the near future.
The objective was established amidst concerns expressed by the European Union regarding the widespread problem of tax evasion in Nigeria, which they attribute to the lack of transparency in the tax administration process.
Matthew Osanekwu, Head of the Policy and Legislation Division at FIRS, expressed confidence during a press conference in Abuja on Thursday: “I can assure you that VAT will surge from the current N3.6 trillion to five trillion naira as we move forward.”
This positive forecast arises from thorough evaluations and substantial reforms implemented within Nigeria’s tax framework.
The announcement coincided with the commemoration of the achievements of the Support Programme for Tax Transition in West Africa (PATF), an initiative funded by the European Union aimed at strengthening domestic tax administration and fostering enhanced cooperation within the Economic Community of West African States (ECOWAS) and the West African Economic and Monetary Union (WAEMU) regions.
Despite having one of the lowest VAT rates in the West African region, Nigeria has consistently improved its tax collection efforts.
Highlighting this advancement, Osanekwu noted that Nigeria’s VAT collection has steadily risen from N1.1 trillion in 2019 to N3.6 trillion in 2023.
He hinted at ongoing deliberations regarding a potential revision of the current VAT rate, which was raised from an initial five percent to 7.5 percent, contributing to the increase in revenue.
“Discussions are in progress with the Presidential Committee on Fiscal Policy and Tax Reforms, as well as the Ministry of Finance, regarding the necessity of revising the VAT rate to be in line with ECOWAS standards,” Osanekwu elaborated.
He also pointed out that FIRS has broadened its tax collection ambit to encompass non-resident suppliers and is rigorously examining the tax exemptions extended to certain enterprises.
“We are in the final stages of reviewing our exemptions, and we anticipate presenting these recommendations to the tax reform committee for consideration of legislative changes,” he clarified.
In addition, Osanekwu revealed that the FIRS is performing a VAT gap analysis to pinpoint and rectify areas where VAT collection could be improved.
“By examining our tax policy, law, and collection procedures, we aim to identify our VAT gap and, through this informed approach, reach our five trillion naira target,” he assured.
Massimo De Luca, Head of Cooperation at the Delegation of the European Union to Nigeria, praised the achievements of the PATF initiative and urged the Nigerian government to enhance transparency in the handling of tax revenues.
De Luca observed, “Tax evasion often occurs when taxpayers do not see the benefits their contributions yield. In Europe, high levels of tax compliance are partly due to the quality of public services rendered and the clear accountability for the use of tax funds.”
Dalhat Kamal, Deputy Director of Tax Policy at the Federal Ministry of Finance, warned that a simple increase in the VAT rate might not directly translate to higher VAT revenue.
“A tax system must be accessible to draw more individuals into the tax base,” Kamal stated. “The efficacy of VAT collection depends not only on the rate but also on its prudent administration. Without meticulous management, we cannot fulfil the objectives of establishing the rate.”
Kamal emphasized the importance of reassessing the management of tax expenditures to ensure that the nation’s fiscal policies are effectively achieving their objectives.
Andrew Onyeanakwe, a tax specialist and member of the PATF steering committee, provided insights into the program’s contributions.
“The PATF has been instrumental in creating regional tax management tools and standardizing the approach to evaluating tax expenditures among ECOWAS Member States. It has also set up a system for the monitoring and assessment of ECOWAS’s fiscal transition and harmonized VAT legislation across its member states,” he explained.