Ijezie: VAT Increase Will Support Minimum Wage Payment

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The Managing Partner at Okwudili Ijezie and Co. Chartered Accountants, Mr. Blakey Ijezie, who is also a tax consultant, in this interview says the recent increase in the Value Added Tax will heighten inflationary pressure. Dike Onwuamaeze provides the excerpts:

You recently said Nigeria does not practice pure Value Added Tax (VAT) system. What is pure VAT?

When we set out in 1993, the committee headed by Mr. Emmanuel Ijewere, former ICAN President, recommended that Nigeria should toe the Modified Value Added System (MVAT) system. By the time the decree came out in 1993 for implementation in 1994, the M was dropped. That was how we ended up with VAT. Why I said that it is not pure VAT is that there are some input VAT that were not allowable, which would have meant that you should deduct the input VAT before you pay the balance to the government. But the inputted VAT is not deductable and what you pay is the entire output VAT that makes our own to be higher. When people says that our VAT rate is five per cent and starts to compare it with Ghana’s 12.5 per cent, they fail to compare apple with apple because Ghana is practicing pure VAT, while we are practicing a modified version of VAT system.

So, why do you believe the time was not ripe for the recent VAT hike?

Nigeria became the poverty capital of the whole world in 2019. So, the time is not ripe. What government should have done was to reduce the cost of governance and wasteful expenses. Why renovate the National Assembly with N37 billion? The money should be used for more productive activity. We are made to understand that the tax increase is to enable the state and local governments fund the new minimum wage, but it is neither here nor there. The Ministry of Finance ought to have thought outside the box and increased the tax net by getting more people into the tax base rather than increasing VAT by 50 per cent. I wholly disagree that we have to live with the new Finance Act. It has to be amended. It is only death that is irreversible. I am still calling on the government to stomach its pride and reduce this tax by retaining it at five per cent. They should look at the suffering faces of the citizens and do the needful by reducing it. If not, my prediction is higher inflationary trend of 15 to 20 per cent.

But don’t you think attaching TIN to bank accounts will help to widen the tax base?
It is so on paper, but going by policy implementation in Nigeria it will be a problem. I thank government for linking bank accounts with Tax Identification Number (TIN) and advise them to focus on that so that we will not need this VAT increase. They should focus on using BVN, TIN to get a lot of artisans that are not on in the PAYE category into the tax net. That, to my mind will be the focus and not increasing the rate of VAT.

So, what were the loopholes you identified in the Finance Act?
There are a lot of them but I will limit myself to two. One, exempting businesses that are below the threshold of N25 million from paying Company’s Income Tax (CIT) and registering for VAT is a major loophole. How will you verify a business that is not more than N25 million turnover threshold? Now, most medium size businesses will claim to be below that threshold. And some imaginative accountants will assist them to achieve that. But the good thing is that with the BVN and TIN as well as by utilisation of technology, the FIRS will be able to tell who is below or above the thresholds. However, it will be complicated going after tens of millions of small enterprises.

It will be like using N50 to chase an income of N5. It is most likely that the government will ignore them to focus on large firms that will yield appreciable income. The second threshold is about the expansion of the exemption list. It is like government was under pressure to show that they care for the poor masses. But increased consumption of these exempted items will lower the revenue accruable to the government. From another perspective you can say that it is a good one for the poor so that they will not be under VAT pressure.