‘They’re paying levies to LGs’ — CPPE cautions FG on VAT initiative for traders

The Centre for the Promotion of Private Enterprise (CPPE) has advised the Federal Inland Revenue Service (FIRS) against value-added tax (VAT) in the informal sector.

In a statement on Sunday, Mada Yusuf, chief executive officer (CEO) of CPPE, asked the government to avoid imposing additional taxes. 

The FIRS had recently announced its partnership with the Market Traders Association of Nigeria (MATAN) for the easy collection of VAT — especially those in the informal sector.

FIRS said the partnership would enable it to tackle multiple taxations in the marketplace through a partnership with security agencies “to curb the activities of touts, miscreants and self-imposed tax collectors involved in illegal tax collection in Nigeria’s market spaces”.

Reacting to the development, Yusuf said the informal sector is already paying all manner of levies to local governments.

He said the economics of collection does not support the move, adding that the cost of collection would be more than the amount that could be collected.

“Over 98 percent of the informal sector traders are microenterprises who do not fall within the threshold of entities that are liable for VAT payment,” he said.

“The informal sector associations are highly fragmented. It would be impractical to develop a partnership framework with the market associations for the collection as contemplated by the FIRS.”

The economist said most informal sector operators have not recovered from the “shocks of the fuel subsidy removal and the associated inflationary impact”.

“Most informal sector operators have no records which could be used for purposes of assessment. There is therefore a high risk of arbitrary assessment,” the CPPE CEO said.

“The literacy level of the operators in the sector is very low which would create communication issues. The political cost to the government will be very high.

“Most informal sectors are already paying all manner of levies to local governments, and several non-state actors.  The government need not burden them with additional taxes.”

Yusuf advised the FIRS to think of more creative ways of taxing the informal sector players in ways that will be more cost-effective, less disruptive, and with minimal political cost.

He also proposed the adoption of the Pareto principle of focusing on few players and individuals that could give the highest revenue yield.

“This is a model appropriate for an economy with high level of inequality like ours,” he added.

Taiwo Oyedele, Africa tax leader at PricewaterhouseCoopers (PWC), had said implementation of the new value-added tax direct initiative (VDI) would need proper awareness and safeguards to avoid abuse.