Nigeria's VAT increased in 2020 despite COVID-19 challenges

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The Value Added Tax (VAT) in Nigeria experienced significant growth in 2020 despite the challenges posed by the COVID-19 outbreak, according to ECOWAS tax experts.

However, the experts recommended that the Federal Government review the tax policy to align it with ECOWAS best practices.

These suggestions were made during interviews with journalists at the closing ceremony of a three-day workshop on harmonizing Nigeria’s VAT Act with ECOWAS directives.

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The workshop, organized by the ECOWAS Commission as part of the implementation of the Support Programme for Tax Transition in West Africa, also evaluated the performance of VAT in Nigeria from 2011 to 2020.

The experts, including Andrew Onyeanakwe, Technical Assistant to the ECOWAS Commission for the support programme for tax transition in West Africa, and Ndajiwo, Executive Director of the African Centre for Tax and Governance, highlighted various factors influencing the performance of VAT in Nigeria.

Onyenaekwe noted that despite the economic stagnation caused by COVID-19, Nigeria paradoxically experienced increased revenue. He pointed out challenges such as a poor social contract between the government and citizens, tax expenditure, low VAT rate, and inefficiency and complexity of the tax system.

During the pandemic, telecommunications companies generated significant revenue as people stayed at home and increased their data usage. This resulted in higher VAT remittances, coinciding with a rate increase from 5% to 7.5%.

Onyenaekwe explained that the workshop aimed to present stakeholders with a study on the harmonization of the Nigerian VAT Act with ECOWAS directives. The experts identified discrepancies between Nigeria’s VAT Act and ECOWAS directives, such as the issue of rates, where Nigeria’s rate is 7.5% while ECOWAS directives specify a minimum of 10%.

They also highlighted that Nigeria’s VAT Act does not allow a claim of input tax on capital goods, services, and overheads. The experts recommended harmonizing the VAT Acts with ECOWAS directives, referring to ECOWAS’s VAT guide as a resource to improve revenue through compliance and ensure broad tax coverage.

The workshop also revealed that despite an increase in Nigeria’s VAT Act from 2011 to 2021, the efficiency of revenue collection had been decreasing.

This suggests the need to address government policies, including exemptions, and improve compliance to enhance VAT efficiency.

Gbenga Falana, Director of Customs Union and Taxation in ECOWAS emphasized that VAT is a consumption tax, and changes in spending patterns during the COVID-19 period contributed to increased VAT collection.

He stressed the importance of technological advancements and the need for regular tax policy reviews to adapt to changing business realities and dynamics.

In conclusion, the experts highlighted the potential for Nigeria to improve VAT performance by addressing policy gaps, enhancing efficiency, and leveraging technology. They emphasized the importance of reviewing the tax policy to align with current business dynamics.