Dike Onwuamaeze
The Founder and Chief Executive Officer of the Centre for Promotion of Private Enterprise (CPPE), Mr. Muda Yusuf, has advised the federal government against using the Federal Inland Revenue Service (FIRS) to collect value added tax (VAT) from business owners operating in the informal sector because the cost of the exercise would be much more than the amount that could be collected.
Yusuf, gave the advice in a statement yesterday.
He stated: “We advise against the decision of the FIRS to undertake VAT collection in the informal sector for the following reasons: The economics of collection does not support the move. The cost of collection would be much more than the amount that could be collected.
“Over 98 per cent of the informal sector traders are microenterprises who do not fall within the threshold of entities that are liable for VAT payment.
“The informal sector associations are highly fragmented. It would be impractical to develop a partnership framework with the market associations for the collection as contemplated by the FIRS.”
According to the statement, most informal sector operators were yet to recover from the shocks of the fuel subsidy removal and the associated inflationary impact.
“Most informal sector operators have no records which could be used for purposes of assessment. So, there is therefore a high risk of arbitrary assessment,” he added.
He also pointed out that the literacy level of the operators in the informal sector was very low and would create communication issues.
Moreover, he pointed out that the political cost to the government would be very high since, “most operators in the informal sectors are already paying all manner of levies to local governments, and several non-state actors. The government need not burden them with additional taxes.”
He, therefore, tasked the FIRS to, “think of more creative ways of taxing the informal sector players in ways that will be more cost effective, less disruptive and with minimal political cost.
“More importantly, the FIRS should adopt the Pareto Principle of focusing on the few players and individuals that could give the highest revenue yield. This is a model appropriate for an economy with high level of inequality like ours.”
