By Merit Ibe
The Centre for the Promotion of Private Enterprises (CPPE) has advised against the decision of the Federal Inland Revenue Service (FIRS) to undertake Value Added Tax (VAT) collection in the informal sector, saying the economics of collection does not support the move.
Director of the Centre, who made the remark following the announcement by FIRS to collect VAT from traders, noted that over 98 percent of the informal sector traders are micro enterprises, that do not fall within the threshold of entities that are liable for VAT.
Yusuf said the cost of tax collection within the informal sector would be much higher than the amount generated. The CPPE boss, who applauded the recent Executive Orders which covered suspension of the Excise duty escalation and Green Tax on some categories of vehicles, among others, urged FIRS to think of more creative ways of taxing the informal sector that will be cost-effective, less disruptive and have minimal political cost and 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.”
Yusuf viewed that the informal sector associations are highly fragmented and so 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 said the literacy level of the operators in the sector was very low which would create communication issues.
“The political cost to the government will be very high. 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.