The Federal Government has unveiled an ambitious strategy aimed at enhancing the reach and effectiveness of its Value-Added Tax (VAT) collection. Under this plan, the government intends to employ additional tax agents across five key sectors. The objective is to maximize VAT coverage and collection, aligning with the provisions of Section 14 (3) of the VAT Act, and ultimately achieve the projected earnings from VAT revenue over the next few years.
Value-Added Tax (VAT) is a consumption tax at a rate of 7.5 percent that is administered by the Federal Inland Revenue Service (FIRS). It is levied on the purchase of goods and the rendering of services, and its ultimate burden is borne by the end consumer. The revenue generated from VAT plays a vital role in supporting various government initiatives and programs.
The 2024-2026 Medium Term Economic Framework outlines a comprehensive strategy to expand the VAT net by incorporating additional sectors. These sectors include telecommunications, banks, other financial institutions, and companies operating in the construction and aviation industries. This expansion aims to broaden the scope of VAT collection, which has hitherto been limited primarily to Ministries, Departments, Agencies (MDAs), and Oil and Gas Companies.
In tandem with the sectoral expansion, the fiscal policy envisions a gradual increase in VAT revenue. The budgetary projections for this initiative are as follows: a target of N35 trillion in 2024, followed by N40 trillion in 2025, and culminating in N45 trillion in 2026. Achieving these targets necessitates various adjustments, such as revisiting exemptions and zero-rated items, as well as extending VAT coverage to companies with turnovers below the N25 million threshold.
To facilitate the effective implementation of these strategic goals, the Federal Government is considering the introduction of a new law that would empower the Federal Inland Revenue Service to appoint individuals as its agents. These designated agents would have the authority to withhold, collect, and remit VAT on behalf of the FIRS. This innovative approach is expected to enhance the efficiency and smoothness of tax payments, and ultimately, it aims to bolster the government’s efforts to meet its non-oil revenue targets.
The move to hire additional tax agents across different sectors is a strategic response to the evolving landscape of taxation and revenue generation in Nigeria. As the economy diversifies and new sectors gain prominence, it becomes crucial for the tax authorities to adapt and broaden their reach to capture potential sources of revenue. The Federal Government’s commitment to achieving its VAT revenue targets is evident in its forward-thinking approach.
One of the significant shifts in the VAT strategy is the inclusion of sectors such as telecommunications, banks, and other financial institutions. These sectors have witnessed substantial growth in recent years, and their inclusion in the tax net recognizes the need to keep pace with the evolving economic landscape. Additionally, companies operating in the construction and aviation industries are now part of the tax expansion plan. These sectors play a pivotal role in the nation’s economic development, and their inclusion in VAT collection reflects the government’s proactive approach to revenue generation.
The fiscal policy’s revenue projections, which outline a trajectory from N35 trillion in 2024 to N45 trillion in 2026, underline the government’s commitment to enhancing its fiscal strength. To realize these ambitious targets, the authorities must engage in a comprehensive review of the VAT system. This review includes adjustments to exemptions and zero-rated items, which are key aspects of the VAT structure.
Exemptions and zero-rated items are integral components of VAT policy. Exemptions typically refer to goods and services that are not subject to VAT, while zero-rated items are those on which VAT is charged at a rate of 0 percent. These measures are designed to alleviate the tax burden on specific goods and services, especially those considered essential. While these policies are essential to protect vulnerable populations and promote certain industries, it is crucial to periodically review and update them to ensure that they align with the country’s economic goals.
Inclusion of companies with turnovers below the N25 million threshold in the VAT net is another pivotal step. This inclusion acknowledges the importance of capturing a broader range of businesses, regardless of their size. It is a strategic move to promote inclusivity and prevent potential revenue leakage. Smaller businesses, though individually modest in their contributions, collectively constitute a significant portion of the economy. By bringing them under the VAT umbrella, the government can harness their collective contributions to bolster revenue generation.
The proposed law enabling the FIRS to appoint agents to withhold, collect, and remit VAT represents a critical development in the drive to enhance VAT collection. This innovative approach streamlines the tax collection process, making it more efficient and less burdensome for businesses. VAT agents, with their specialized knowledge and expertise, can play a pivotal role in ensuring that VAT is collected accurately and promptly.
The appointment of agents by the FIRS is expected to improve compliance and reduce instances of tax evasion. The agents will act as intermediaries between businesses and the tax authorities, facilitating a smoother and more effective tax collection process. Furthermore, this approach can help reduce the administrative burden on businesses, allowing them to focus on their core activities while leaving the complexities of tax collection to the experts.
This development aligns with global best practices in taxation, where tax authorities often work with qualified agents to ensure tax compliance and efficient revenue collection. It can be especially beneficial in complex sectors such as telecommunications, banking, and finance, where VAT calculations and compliance requirements can be intricate.
In conclusion, the Federal Government’s plan to hire additional tax agents in various sectors represents a forward-thinking approach to tax collection and revenue generation. By expanding the VAT net to include sectors like telecommunications, banking, construction, and aviation, the government is adapting to the evolving economic landscape and capturing new sources of revenue. The revenue projections for the coming years underscore the government’s commitment to strengthening its fiscal position.
The adjustments to exemptions, zero-rated items, and the inclusion of smaller businesses in the VAT system are steps aimed at ensuring a fair and inclusive tax regime. The proposed law enabling the FIRS to appoint tax agents is a pragmatic move to streamline tax collection, improve compliance, and reduce tax evasion.
As Nigeria’s economy continues to grow and diversify, the government’s efforts to optimize tax collection are crucial for sustaining its fiscal health and supporting its development agenda. The collaboration between the Federal Government and tax agents will likely lead to more efficient and effective VAT collection, ultimately benefiting both the government and businesses alike.
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