In a bold move to strengthen tax revenue sources and reduce multiple taxations in the Nigerian economy, the Federal Inland Revenue Service (FIRS) has introduced the VAT Direct Initiative. This groundbreaking scheme aims to streamline the collection of Value Added Taxes (VAT) from the informal sector, while fostering collaboration between tax authorities and market traders. The announcement, made by the FIRS in a statement on Monday, marks a significant step towards creating a more inclusive and efficient tax system in Nigeria.
The VAT Direct Initiative is a result of the FIRS’s partnership with the Market Traders Association of Nigeria (MATAN), the largest player in Nigeria’s informal market space with a membership exceeding 40 million. Leveraging a unified systems technology, this collaboration seeks to simplify VAT payment and remittance processes for traders, while also raising awareness about their tax obligations.
The FIRS, responsible for collecting VAT and other revenues accruable to the Federal Government, recognizes the importance of expanding the tax base and reducing informal sector tax leakages. The VAT Direct Initiative represents a groundbreaking approach, utilizing technology to enhance cooperation between tax authorities and the marketplace specifically for VAT collection and remittance.
Highlighting the significance of this collaboration, the FIRS emphasized its commitment to addressing multiple taxations in the marketplace. The agency plans to work closely with security agencies to curb the activities of touts and unauthorized tax collectors, ensuring a more transparent and efficient tax collection process. The ultimate goal is to increase VAT revenue for the three tiers of government, providing additional funds to finance infrastructure development and social amenities.
The Market Traders Association of Nigeria, founded in 1995, has developed a digital platform that assigns a unique identification card to each member. This platform serves as a digital record of traders and tracks their turnover, facilitating accurate VAT collection and remittance to the FIRS. MATAN’s digital platform simplifies the entire process, enabling traders to fulfill their tax obligations seamlessly.
With Nigeria’s VAT collections reaching a remarkable N709.59 billion in the first quarter of 2023, representing a 1.75% increase on a quarter-on-quarter basis, the manufacturing sector emerged as the leading contributor, accounting for 29.65% of total VAT collection. Following closely, the information and communication sectors contributed 19.29%, while mining and quarrying sectors made up 12.24% during the same period.
The introduction of the VAT Direct Initiative marks a significant milestone in Nigeria’s quest for an efficient and transparent tax system. By leveraging technology and fostering collaboration between tax authorities and market traders, the government aims to revolutionize tax collection in the informal sector. This initiative holds the potential to boost revenue generation, create a level playing field, and support sustainable economic growth and development.
Moreover, the VAT Direct Initiative aligns with global best practices in taxation and reflects Nigeria’s commitment to meeting its financial obligations and improving public service delivery. By formalizing tax collection processes in the informal sector, the government aims to promote economic inclusivity, empower traders, and enhance the overall business environment.
However, the VAT Direct Initiative in Nigeria raises concerns about the potential for overtaxing individuals and businesses, particularly in the informal sector. While tax collection is crucial for generating revenue and funding essential services, there is a delicate balance between taxation and economic growth. Excessive taxation can place a heavy burden on businesses, hindering their ability to invest, expand, and create employment opportunities.
It is important for the government to carefully consider the tax rates and ensure that they are reasonable and fair, taking into account the financial capabilities of taxpayers. Additionally, there should be a clear framework in place to prevent double taxation and to avoid placing an undue burden on already struggling businesses. Striking a balance between tax revenue generation and the sustainability of businesses is vital to promote a thriving and vibrant economy.
As the VAT Direct Initiative gains momentum, the FIRS and MATAN will continue to work hand in hand to refine and optimize the system. Regular consultations and feedback mechanisms will ensure that the implementation remains responsive to the needs of market traders, while also addressing any challenges that may arise.
