Tax reliefs granted on VAT alone cost N4.3tr
By Jeph Ajobaju, Chief Copy Editor
About N5.16 trillion was lost by the federal treasury in 2020 because of tax reliefs granted on Value Added Tax (VAT), Company Income Tax (CIT), and Petroleum Profit Tax (PPT).
This figure is gleaned from the 2022-2024 Medium-Term Expenditure Framework and Fiscal Policy Strategy (MTEF/FSP) report, which shows that N4.3 trillion VAT was lost due to reliefs granted by law and compliance gap.
If all commodities in the VAT system were fully taxable, the report said, Nigeria would generate about N6 trillion from the existing tax structure.
The Nigerian Bureau of Statistics (NBS) recently said VAT yielded about N1.8 trillion in 2020, showing in a tax gap of about N4.3 trillion.
About N900 billion of the shortfall arose from exemptions granted by law and N3.4 trillion from tax compliance gap or tax avoidance.
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“In most countries, there compliance gap is caused by several factors, including underground economic activity in the informal sector, aggressive tax planning and problems in tax administration.
“However, in Nigeria, some firms, notably in the financial sector, are granted relief from VAT. Because this relief is not set out in the VAT Act it is not captured as a tax expenditure in the current estimates,” the report said
As a result of this, it added, the current estimated loss due to policy gap may be too low and the compliance gap too high.
According to the report, Nigeria lost N457 billion to CIT waivers from large tax offices and medium tax offices in 2020, compared to N1.1 trillion in 2019, a decrease of N634 billion.
“Manufacturing accounted for 65 per cent of tax expenditure (N297bn), LTO financials contributed to 15.8 per cent of TEs (N72bn) while N440m was from exemption of profits under Section 23 of CIT Act.”
Nigeria compares poorly to regional peers and the Organisation for Economic Co-operation and Development (OECD) benchmark in CIT collection efficiency.
On PPT, the report said N307 billion was lost due to waivers granted by the federal government.
It emphasised that losses from PPT waivers might have been higher, as only a partial computation was carried out due to limited data.
Federal Inland Revenue Service (FIRS) Chairman Muhammad Nami recently put the number of taxpayers in the country at 41 million, per The PUNCH.
He lamented that even though Nigeria has a higher number of tax payers than South Africa’s four million tax payers, Nigeria generates far lower Personal Income Tax (PIT) than South Africa.
Said he: “Our total taxpayers today [number] in the region of about 41 million people and the total personal income tax paid last year was less than N1 trillion by 40 million people.
“If you also compare that with South Africa where they have a total population of about 60 million people, with just four million taxpayers, the total personal income tax paid in South Africa last year is about N13 trillion. You can now see that these things are not adding up.
“The number of billionaires in Lagos alone [is] more than the number of billionaires in the whole of South Africa … yet what was generated as personal income tax by the Lagos State Government [was] … less than N400 billion.”
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