Kemi Adeosun, minister of finance, says raising value added tax (VAT) would be penalising those who pay, maintaining that it is better to bring more people into the tax net.
Speaking at a press conference in Washington, Adeosun said the VAT compliance rate for Nigeria stands at 10 percent, when 50 percent of Nigeria’s gross domestic product is derived from “VAT-able services”.
“On the issue of broadening tax base and raising VAT, currently we have a five percent VAT rate; it is one of the lowest in the world indeed,” Adeosun said.
“But we also have a very low rate of compliance, as low as 10 percent. So our strategy is that we need to get more people to pay, more people to comply first, and when the economy is a little bit more robust, then we can look at raising VAT.
“If only a few people are paying and then you double the rates, then you are penalising those who are complying.”
She said the way to go about increasing government revenue from VAT is to broaden the base before increasing VAT, if the increase becomes necessary.
“The solution is to be getting those who should be paying to pay, and if you look at the percentage of our GDP that is service it is over 50 percent. Most services are VAT-able, so actually the VAT compliance should be much higher than it is.
“I know that the chairman of the Federal Inland Revenue Services has started a very aggressive programme of pulling those who should be paying into the tax net.
“I think that is the right way to go and I think when the compliance has been improved, then we can definitely look at the rate and that is something we can look at towards next year, when we have broadened the base.
“The most important thing we believe is to spread that culture of people complying to tax laws, paying as at when due, because that is really the most sustainable source of funding for any government.”
Adeosun had earlier said that the government had succeeded in bringing 363,000 companies into the tax net in the past two months.
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