The Center for the Advancement of Private Enterprise (CAPE), has advised the Federal Inland Revenue Service (FIRS) to postpone the decision to compile VAT from the informal sector, stating that it is not cost-efficient.
Recently, the federal government, through the FIRS, announced the VAT Direct Initiative, a program aimed at facilitating the government’s collection of Value Added Taxes from the informal sector.
This program will involve a partnership between the FIRS and the Market Traders Association of Nigeria to compile and remit VAT from its members, specifically those in the informal sector using a unified systems technology.
The director/CEO of CAPE, Dr. Muda Yusuf, in a statement to LEADERSHIP yesterday, advised against the move, arguing that the economics of compilation does not support the decision.
He observed that the cost of compilation would exceed the amount that could be compiled.
According to Yusuf, more than 98% of the informal sector traders are microenterprises who do not meet the criteria for VAT payment.
“The associations in the informal sector are highly fragmented. It would be impractical to establish a partnership framework with the market associations for the compilation as envisioned by the FIRS.
“Most operators in the informal sector have not yet recovered from the impacts of the removal of fuel subsidies and the associated increase in inflation. Most operators in the informal sector do not keep records that could be used for assessment. Therefore, there is a high risk of arbitrary assessment,” he stated.
He further added that the literacy level of the sector’s operators is very low, which would result in communication issues, and the government would bear a high political cost.
He explained, “Most informal sectors are already paying various fees to local governments and numerous non-state actors. The government should not burden them with additional taxes.
“The FIRS should consider more innovative ways to tax the participants in the informal sector that would be more cost-efficient, less disruptive, and with minimal political cost. Moreover, the FIRS should adopt the pareto principle of focusing on the few participants and individuals who could generate the highest revenue. This model is suitable for an economy with a high level of inequality like ours.”