Businesses in Nigeria and Lagos are dealing up with the risk of double taxation. The clash between the central and federal governments for collecting value-added tax in Nigeria creates a challenging environment for the Businesses.
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Laws of Lagos
On Sep 10, Babajide Sanwo-Olu, the governor of Lagos, came up with the law that allows Nigeria’s most prosperous state to collect VAT there. Instead of the federal government.
Lagos covers up a large portion of the state. Also, it is responsible for a third of Nigeria’s gross domestic product. Many major Nigerian companies and banks reside there, even also multinational companies. Officials there have complained many times that they pay a lot more taxes than they receive.
Lagos has argued on the similar law which was passed in Rivers State, the centre of the country’s oil industry but still on hold. It appealed that the stay didn’t obey its law.
The federal government in Rivers are requesting that companies pay VAT taxes as usual. Whereas the governor of Rivers, Nyesom Wike, is threatening them to shut down the companies.
Fear in Lagos
Overall this entire controversy is not suitable for businesses as it creates a lot of confusion in mind. Everyone in Lagos is worrying about their business and double taxation. They are in fear that they might be charged with harassment from state tax and federal authorities.
An executive of a foreign multinational pays around $3.6m in VAT. People in Lagos aren’t sure about who to pay taxes. So they are just keeping up their money.
Federal Inland Revenue Service (Firs) admins around 7.5 per cent VAT. And the central government takes 15 per cent of money with them. The remaining part goes to the federal capital Abuja, municipalities and 36 states of the country. According to PwC, Lagos get around 15 per cent of the amount, whereas the others get what they pay in.
The money from the VAT is equivalent to 30% of the country’s tax haul.
According to the National Bureau of Statistics data, the levy contributes around N1.53tn ($3.7bn) of N4.95tn in tax.
Redistributions help in maintaining political stability as well as fiscal sustainability.
The brawl over the taxes is a long debate of federalism in Nigeria. According to advocates, the greater the autonomy for the states, the more will be the aid. It will help reduce corruption and insecurities present in states and assist a lot in developing local economies.
According to the Lagos state commissioner of information, Gbenga Omotosa, the new law will have equity and “fiscal federalism” for the civilians. It will permit Nigeria’s economic engine to invest more in the infrastructure of the state. Such as ports, roads, rails etc., which is beneficial for all.
All the businesses are setting their legs down in Lagos. 70% of the traffic, either by air or by sea route into Nigeria is preferring Lagos. So whatever improvements happen in Lagos in terms of infrastructure will affect the entire state a lot. If they improve roads, then the delivery of the goods will be faster.
According to a Lagos-based consultancy, SBM Intel, it provides more fiscal power to states by initiating the Lagos move. And it is a way crucial step.
The tax system in Nigeria is very precarious, and doing business in such a system is quite complicated. So continuing with such a system will worse things a lot.
The administration of President Muhammadu Buhari has prioritized the diversification of the economy away from oil. And this provides around half of the government revenues and nearly all the foreign exchange earnings.