PWC warns against exploitation, as FIRS sets to implement tax initiative on traders

PricewaterhouseCoopers’s (PWC) Africa tax leader, Taiwo Oyedele, has warned that the Value-added tax Direct Initiative (VDI) of the Federal Government could lead to the exploitation of traders and their customers.

Oyedele, in a series of tweets on Tuesday, said the government needs to monitor the tax collection process, which would be carried out by the Federal Inland Revenue Service (FIRS), to prevent tax collectors from exploiting the traders.

He stated that there is a need to properly educate the traders, who are members of the Market Traders Association of Nigeria (MATAN).

FIRS had revealed on Monday that the tax agency partnered with traders under MATAN, who are about 40 million, to directly tax them and curb multiple taxations.

Oyedele praised the initiative but pointed out that it could lead to tax collectors abusing the initiative to take advantage of the traders, while also advising against traders hiking the prices of their goods despite some of them being exempted from the tax bracket.

“Government needs to address these issues for the initiative to truly work”, Oyedele said, adding, “The social contract between the government and the people requires that every taxable person pays their taxes while the government must apply the revenue collected for the benefit of the people.”

He disclosed that the FIRS would not be able to tax the majority of the traders under MATAN, as 90 per cent of the businesses are micro and small enterprises.

“The VAT should not apply to over 90 percent of the traders and for those who need to charge the VAT, the impact should be about 1 percent to 2 percent of the sales value if not less.

“In fact, the traders should pay less “tax” overall if the government can stop the illegal taxes the traders currently pay as a sweetener for the VAT pact.

“Ultimately, the biggest win for the government from this arrangement may not be the VAT to be collected by the FIRS but the tax awareness, data about the traders and their trades which can be used for economic planning and possible interventions to support the informal sector businesses.

READ ALSO:FIRS to start taxing informal sector, track 40 million market traders’ revenues

“This should include simplified record keeping to help them to access finance and scale their business,” Oyedele disclosed.

The tax expert explained further that the VAT act says that businesses making an annual turnover of N25 million or less are exempted from charging VAT on their sales, so the traders shouldn’t use the VAT initiative with FIRS as a reason to raise prices.

“Based on the VAT act, businesses making an annual turnover of N25 million or less are exempted from charging VAT on their sales regardless of the goods or services involved.

“This is expected to cover the majority of the traders going by available data indicating that over 90 percent of these businesses are micro and small enterprises.

“Most basic items are exempted from VAT regardless of turnover threshold including basic food items, medical products, baby products, and educational materials. I expect this to cover many of the traders not exempted by the turnover threshold.

“There is also an exemption by design where the manufacturer, usually a large firm, prescribes the retail price and has accounted for the VAT upfront taking the burden off the traders. Examples include mobile airtime, many beverages etc.

“For those who are not covered by any of the above exemptions, they will be liable to charge and remit VAT at 7.5 percent on their sales.

“However, they are eligible to claim input VAT on their purchases such that the 7.5 percent VAT is effectively charged only to their margins. For instance, if a trader buys an item for N1,000 and sells it for N1,200. The incremental VAT cost to charge to the customers is N15 i.e. 7.5 percent of N200 margin.

“The combined effect of the above means that the public should not be exploited either by the traders who may use this VAT arrangement as an excuse to hike their prices,” Oyedele explained.

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