Omooba Olumuyiwa Sosanya, founding president of Association of National Accountants of Nigeria (ANAN) has seen it all. Regarded in some circles as a ‘General’ for his doggedness, he is cerebral with a patriotic fervour and desire to see things work. In this interview with IBRAHIM APEKHADE YUSUF, he picks holes in the existing tax reforms which he argues lacks the necessary bite. Excerpts:
Virtually every state government today is paying a lot of attention to tax these days but it doesn’t seem as if they’re making headway judging by the growing level of apathy against tax from the citizenry. As someone who has done extensive work on taxation, what do you think is the way to go?
Just like you rightly observed, everywhere in the world, taxation is the most hated system. Nobody wants to pay tax. And this is what brought about what we call tax havens. Even those who pay tax, especially the wealthy people, find a way of staking their money where they don’t have to pay tax. But most developed countries have found an antidote to such an attitude of tax avoidance. But unfortunately in this part of the world, the laxity is so much that even the tax officers in Africa will teach you how to evade tax. That’s the most unfortunate aspect. So it is now the responsibility of the government to enact or create institutions whereby you may try as much as possible to evade it, it may not be impossible to but it’ll be difficult to do it. I think that was the reason why the French came about the value added tax (VAT). But VAT by its definition is a consumption tax and there is no way you can evade VAT if you’re consuming. And that is why it’s chargeable on goods.
In Nigeria, we have the same system which we came about in 1983. But unfortunately, I think we made a wrong start by restricting the administration of the VAT to the Federal Inland Revenue Service (FIRS). If from the outset, the administration of VAT was decentralised, meaning that each of the states will administer it but there could be a pool at the federal level where all these monies would pass through and then distributed on a certain ratio. But unfortunately the existing law allows only the FIRS and that’s the reason why the revenue generated from the VAT, has been abysmally low and really ridiculous to the extent that, recently when the federation accounts published the VAT generated for that period, up till now, the total revenue being generated from VAT is not even up to N70 billion and Lagos state can generate that alone. But unfortunately, the FIRS that administers the VAT, I think they are generating funds from the formal sector and corporate bodies. The informal sector which accounts about 85 percent of our economy is out of VAT. If we must move forward and put revenue generation from oil as secondary if not the third sector, this is the right time for us if we are talking about diversification to allow each of the states to administer the VAT. And the starting point is that they would be able to register all businesses in their domain and they would administer and collect the VAT. And the VAT would be paid into a dedicated account. And my own suggestion is that if we really want to block the leakages in the VAT collection, all the registered persons that are chargeable to VAT will open a bank account along with their businesses and on a daily basis, the VAT collected will be paid into that account. Every day that money hits the central account, and it will be configured in such a way that the central will know what the states are generating and at the end of the month the money will be distributed based on the present ratio that each of the states is paid. And we did research on VAT and discovered that if the federal government allows the state to generate or VAT is decentralised, what is actually expected to be generated on a monthly basis is about N560 billion. If that is the position, the federal government and the states would improve from what they are collecting now from the federation account. Take for instance, the federal government; at last count they got N9.4billion from VAT. But if the states are collecting it and they now have N560 billion the federal government will be having about N72 billion, which is an increment of over 62 per cent.
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Currently VAT is charged on luxury goods and all of that. Is that not enough…?
When you talk of luxury goods, how many luxury goods do we have? Maybe vehicles, jewelries, and so on. The question is what is the quantum of that? In Britain, even if you eat at a restaurant you’re paying VAT. If you go and cut your hair, you pay VAT. On services you pay VAT there, the only way you don’t pay VAT is on pharmaceutical drugs. But all other services are chargeable to VAT. All manufactured goods are chargeable to VAT. These are the areas we want to expand on and this is why I brought in the informal sector. We are in Lagos for instance, go to Alaba International market for example and see the massive revenue being generated by the businesses there. Go to Balogun, Ereko, Oyingbo, Ikeja, maybe about two per cent of those traders are registered under the VAT. By law, they should be compulsorily registered. But the FIRS cannot do it; they haven’t got the manpower but the state can do it because it’s within their domain. And this again is going to create employment. Each of the states’ internal revenue service has to employ more hands for registration, for compliance and I imagine that this is expected to employ about 5,000,000 graduates and youths.
Lagos recently issued a notice to seal up companies that are defaulting in payments of taxes. Some people believe this is not the right approach. Do you share similar sentiments?
It’s not only Lagos that is trying to boost its revenue generation through taxes, even the federal government too. But they can’t achieve that by beating around the bush. As far as I’m concerned, the simple way of doing it, we have VAT which is a very good tax but it’s not being properly administered. Those who are chargeable have not been brought to the tax net. The only way you can bring them into the net is to register them for VAT, which the states will conveniently handle. In Lagos State I don’t think we have up to 500,000 registered businesses. And I’m sure we have over four to five million businesses in Lagos. Apart from companies, we have individual business names and others such as barbers, tailors, etc., they are chargeable to VAT because they are giving services. They’re supposed to register but the FIRS alone cannot do it, it’s an uphill task for the federal government but the states can handle it. The states can even encourage the local government councils to assist them in the registration. I have been to places where I bought goods worth over one million naira and they didn’t charge VAT because they are not registered. You can imagine how many five per cent we can collect on such sales. Even professionals like lawyers, accountants, architects, estate surveyors, don’t charge VAT. If you have some of them that do it, it may be about one per cent, and those are the big ones. But even the big ones too in some cases if you insist that why should they charge you VAT, they will waive it. But that’s not the case in Ghana. I was in Ghana, and where we went to an eatery, after our meal, I collected a receipt and that receipt was a product of Ghana Inland Revenue, not the company receipt. In that receipt the VAT was stated there and the national insurance was also stated there. It was such a small amount. But as they say, little drops of water make a mighty ocean. I can assure you that Ghana is generating more revenue than Nigeria and the businesses they have there are less than 10 percent of Nigerian businesses. So the starting point instead of wasting our time on VAIDS is that we should explore our VAT framework.
How much does the country stand to generate from VAT annually?
If we start generating revenue through the states, it will be over N8trillion.
I thought you mentioned N21trillion in a recent statement?
This is where the N21trillion comes from. It is for the federal government whereby the company income tax you can generate is N3.6trillion. For withholding tax, it’s N3.3trillion. Stamp duty is about N500billion. Pay as you Earn (PAYE) which is for the Armed Forces and other agencies which they don’t pay at all. Now the VAT that will accrue to the federal government will be N1.6trillion out of the N8trillion that is being generated nationally. The independently generated revenue by the parastatals is about N8trillion. So that would give you N21trillion. So the government can budget N21 trillion without borrowing money. And our calculation now is as far back as 2013. So if we are talking about now we are talking about N24/25 trillion and the revenue from VAT will now be about N10/11trillion. So we don’t have any reason to borrow money if we put our tax system in order and my emphasis is decentralisation. It’s part of our restructuring. We have to reform taxation and start from VAT.
