‘It’ll suppress VAT returns manipulation’ — ex-FIRS boss asks n’assembly to pass tax reform bills

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.