Muhammad Nami, former chairman of the Federal Inland Revenue Service (FIRS), has asked the national assembly to pass the tax reform bills into law, saying the proposed legislations would help suppress manipulations in value-added tax (VAT) returns.
A VAT return is a form that businesses must complete and
submit to a tax authority at regular intervals. The form covers information on
sales and purchases during the relevant period and shows the amount of VAT
charged and paid.
In an article, titled, ‘VAT Attribution and Derivation: A
Personal Appeal to all Parties’, Nami described the reforms as a solution to
current issues in VAT administration.
“As it stands today, in the existing system, VAT returns by
companies are not filed on the basis of the place of consumption, but reported
based on the head office locations of these companies,” the ex-FIRS boss said.
“This means that a whopping 20% of VAT returns are
distributed back to states where these head offices are located—whether
consumption took place there or not; it explains why Lagos, FCT and Rivers
always take the largest chunk of VAT under the current regime.”
Nami said the proposed amendments to the Nigeria tax
administration bill offer a different position that emphasises fairness and
more equitable distribution of VAT returns.
He said the bills propose that VAT will now be reported
based on the place of consumption, ensuring that most of the amounts currently
reported for “Lagos, FCT and Rivers states will now be reported by where the
consumption takes place”.
‘FIRS MUST FIX
FISCALISATION ISSUE’
On the amendments, Nami said the FIRS must address
fiscalisation for improved transparency and accountability before implementing
the reforms in phases.
Fiscalisation, according to the tax expert, is the process
of using technology (like cash registers or POS systems) to ensure businesses
comply with tax laws by automatically recording and reporting their sales to
tax authorities.
“I would suggest to all stakeholders, particularly the
National Assembly to go ahead and consider the bill, pass it to law, and have
Mr. President sign same, but provided the proposed amendments to the VAT law
will be implemented in phases bearing in mind the following,” he said.
“FIRS is currently undergoing its own reforms; the FIRS
Establishment Act has been re-presented to the NASS and is receiving their
attention simultaneously.
“For FIRS to be able to function as envisaged by the
proposed changes or amendments to the FIRS Act, then it must first fix the roof
over its head to ensure that if any storm arises tomorrow, revenue
administration officials and our money entrusted in their hands would be safe.
“FIRS must also fix the issue of fiscalisation within the next
three to five years from now. The need for fiscalisation is one of the key
amendments proposed in the Nigeria Tax Administration Bill before the NASS.
“It is an expensive project and will not only require
political will at the centre, but also at the sub-national level.
“To achieve it, the FG, FIRS and FAAC must be ready to
jointly fund this project. It is important because it will bring about
transparency and accountability as well as address the issue of subjectivity
which is mainly the fear of the members of NEC, particularly the NGF.”
Nami stressed that fiscalisation cannot succeed without
accurate data, adding that the national revenue data centre must be built to
standard.
This, he said, would improve transparency and accountability
and also limit the influence of vested interests, particularly tax accountants,
in the VAT process.
“The FIRS HQ project should be completed, and equipped as a
world-class edifice, while ensuring that the entire floor historically conceived
as the ‘National Revenue Data Centre’ becomes a reality,” he said.
“If the amendment is passed into law, and its implementation
is not delayed say by 3 to 5 years, the fear of the stakeholders would be
justified because tax accountants are likely to be subjective (or used to being
subjective) in the course of filing VAT returns (i.e., VAT attribution) in
favour of the states of their choice or those of the choices of some of the
political class,” he stated.
Nami stressed that fiscalisation would enhance revenue
generation and enable transaction tracking, especially cashless ones, across
states.
It would also facilitate the implementation of an immediate
tax refund system, he said.
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