Improving VAT Compliance in Nigeria: Challenges and Solutions

The Value Added Tax (VAT) system in Nigeria has come under scrutiny by the European Union and the Economic Community of West African States (ECOWAS) delegation, who have deemed it below the ideal standard. The Head of Cooperation of the EU and ECOWAS in Nigeria, Massimo De Luca, highlighted the low compliance with VAT in the country, attributing it to corruption and poor implementation.

During the 4th session of the Steering Committee of the Support Programme for Fiscal Transition in West Africa held in Abuja, De Luca expressed concerns about the current taxation system in Nigeria, stating that it hinders companies from fulfilling their tax obligations. He emphasized that the lack of cooperation between tax authorities and businesses in Nigeria contributes to the poor VAT experience in the country.

Chairman of the Federal Inland Revenue Service (FIRS), Zacch Adedeji, acknowledged the challenges and pledged to make the taxation system more customer-centric. He announced plans to introduce a one-stop shop for all taxes in the country to facilitate easier tax payments for individuals and businesses.

VAT is a consumption tax levied on goods and services, with the final consumer bearing the tax burden. However, De Luca pointed out that the current VAT system in Nigeria does not allow companies to effectively charge and recover VAT, especially for Small and Medium Enterprises (SMEs). This lack of certainty in recovering VAT from purchases hampers proper revenue generation.

Tax expert Andrew Onyenakwe echoed concerns about tax compliance in Nigeria, attributing the low compliance to corruption within the system. He emphasized the need for voluntary compliance and transparency to improve tax collection in the country.

Overall, the call for improved cooperation between tax authorities and businesses, along with enhanced transparency and accountability, is crucial to addressing the challenges within Nigeria’s VAT system and boosting revenue generation.