EU Raises Concerns Over Nigeria’s VAT System
By Patience Ikpeme
The European Union (EU) has sounded the alarm over the inefficiencies plaguing Nigeria’s Value Added Tax (VAT) system.
This revelation was made by Massimo De Luca, Head of Cooperation and Delegation of the EU to Nigeria and ECOWAS, during the 4th Session of the Steering Committee of the Support Programme for Fiscal Transition in West Africa (PAFT) held in Abuja on Monday.
De Luca pointed out two major flaws in the VAT system. Firstly, he stated that there is a lack of transparency and certainty, making it difficult for businesses, especially Small and Medium Enterprises (SMEs), to know if they will be able to recover the VAT they have paid on purchases. Secondly, he criticized the standard VAT rate of 7.5 percent as being too low, which hinders revenue generation. To address this issue, De Luca suggested implementing a differentiated VAT structure with higher rates on luxury items and specific services.
This criticism comes at a time when the EU is funding a five-year programme aimed at enhancing tax collection in West Africa. De Luca emphasized the importance of having a strong tax system to attract investments, stating that unpredictable regulations and lack of transparency can deter potential investors.
De Luca also acknowledged the frustrations faced by companies due to sudden policy changes, such as the recent introduction of a $15,000 expatriate levy. He advocated for a predictable system where businesses can contribute fairly through a well-structured tax regime, aligning with the goals of the Organisation for Economic Co-operation and Development (OECD) to ensure proper taxation while safeguarding businesses from undue burdens.
In addition, he emphasized the need to combat tax evasion, including transfer pricing schemes that enable companies to shift profits overseas to avoid taxation. De Luca warned that the EU penalizes companies that exploit weak tax systems in other countries.
Andrew Onyenakwe, another speaker at the event, echoed the call for reform by advocating for a streamlined tax collection system, ideally with a single revenue agency. This, he believes, would enhance efficiency and reduce confusion in the tax system.
Representatives from the West African Economic and Monetary Union (WAEMU) and the Economic Community of West African States (ECOWAS) reaffirmed their commitment to fiscal harmonization. Their program focuses on aligning national tax policies and promoting regional integration in trade, finance, and taxation, with achievements such as revised tax legislation, new regional tax management tools, and training programmes.
