VAT Collection From Informal Sector Not Cost-effective, Expert Warns FIRS

The Centre for the Promotion of Private Enterprise (CPPE), has advised the Federal Inland Revenue Service (FIRS) to shelve the decision to collect VAT from the informal sector. saying it is not cost effective.

Recently, the federal government, through the FIRS, announced the VAT Direct Initiative, a scheme aimed towards enabling the government to collect Value Added Taxes from the informal sector.

This initiative will see the partnership between the FIRS and the Market Traders Association of Nigeria to collect and remit VAT from its members, particularly those in the informal sector using a unified systems technology.

The director/CEO of CPPE, Dr Muda Yusuf, in a statement to LEADERSHIP yesterday, advised against the move, saying, the economics of collection does not support the move.

He noted the cost of collection would be much more than the amount that could be collected.

According to Yusuf, over 98 per cent of the informal sector traders are microenterprises who do not fall within the threshold of entities that are liable for VAT payment.

“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.

“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,” he pointed out.

He added that the literacy level of the operators in the sector is very low which would create communication issues and the political cost to the government will be very high.

He explained that “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.

“The FIRS should 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. More importantly, the FIRS should adopt the pareto principle of focusing on the 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.”