Welcome to another episode of #TaxWiseNG. Today, we’ll focus attention on VAT and petroleum products. A note of caution please, I’m only talking about VAT on petroleum products, not where to buy fuel. For those who looking for where to buy fuel, I haven’t got PMS distribution license. Not yet!
This topic featured in Deloitte’s weekly inside tax publication in Guardian of Monday, 23 November 2015. You may read up this and previous articles here – http://www2.deloitte.com/ng/en/pages/tax/articles/insid-tax.html
I encourage you to also download @Deloitte ’s tax@hand app. tax@hand is available on all smart phones – Android, Blackberry and iOS. Just search for tax@hand. It is one source of global tax news. News from around the qword, sorted into different countries and jurisdictions.
You’ll love it. All tax alerts, newsletters as well as weekly newspaper publications are not available, on the go.
Back to today’s topic – VAT on Petroleum products. Despite an installed capacity of 445,000 b/d, Nigeria is struggling to achieve adequate and stable supply of refined products. The nation’s refineries have not at any time aggregately operated at full capacity. The refineries have been in a state of disrepair due to neglect and irregular turnaround maintenance regimen. Reliance has been placed on importation to make up the short-falls in daily supply of refined petroleum products domestically.
Eleven (11) years ago, the Federal Government opted for full deregulation in the downstream sector. This agenda was touted to be motivated by three main objectives. First was the need to re-appraise government involvement and participation in the downstream sector. This was reflected in Government’s desire to reduce and e/or eliminate subsidies to the sector for cost reflective prices to emerge. Second was the need to engage private capital in the ownership and operation of assets in the sector. Third was the need to achieve security of supply through free interplay of the forces of demand and supply.
It was then expected that market forces would have free rein in determining the retail prices of petroleum products. These are principally kerosene (DPK), automotive gas oil (AGO/diesel), and premium motor spirit (PMS/petrol). By this, the regime of government fixing retail prices would have given way. Eleven years on the reality is not different.
The activities in the downstream sector are such that FG should be able to assess and collect both direct and indirect taxes. At the center of the collectible indirect tax is value added tax (VAT). The VAT Act provides the legal basis for the imposition of VAT on supply of all goods and services in Nigeria.
VAT is a multistage consumption tax, which is charged and payable on the supply of all goods and services. VAT applies on all goods and services except those listed in the First Schedule (exempted items) to the Act. Goods exempted include, but are not limited to, basic food items, baby products, all exports, books and educational materials.
Since its introduction in 1993, VAT has become an important source of revenue to the Federation. The proceeds are distributed amongst the federating units. VAT accounts for about 20% of the total tax revenue generated in the country.
There’s a recurring VAT question that has confronted companies engaged in the marketing and distribution of petroleum products. Is VAT chargeable or not on petroleum products like PMS, AGO, DPK and aviation fuel petrol, kerosene and diesel? Industry practice appears to be not to charge VAT. However, FIRS has not accepted this practice.
The main legal basis is that refined petroleum products are not on list of items expressly exempted from VAT in Nigeria. Marketers appear to have relied on a letter of 2005 from PPPRA not to charge VAT given the products are regulated. Naturally, VAT will increase the amount payable by the final consumer and this may contradict the objective of the subsidy.
There is an overriding expectation that government intends to make petroleum products affordable through subsidy. Would VAT on petroleum products amount to taking back what was given? There is need for marketers and distributors of these petroleum products to be able to manage their exposure. Exposure in terms of penalties, interests and other risks arising from a potential allegation of non-compliance with VAT Act.
In this regard, the following questions beg for response: Does the relevant PPPRA letter of 2005 have any status under the VAT Act?
• Is there not a need for FIRS and PPPRA to provide clarity on this matter to guide affected taxpayers?
• Is the constructive VAT exemption applicable only to subsidized petroleum products or does this extend to AGO in its post-regulation era?
• Is the constructive VAT exemption on PMS and DPK to those sold at filling stations or does this extend to contract for supply of same?
No doubt, taxation remains a sustainable source of Government revenue due to “the stability and certainty of the tax system”. The expectation of the National Tax Policy is to resolve the following issues amongst others:
• Who collects what?
• How is it collected?
• Who controls what is collected?
• How is what is the collected revenue shared?
• Who is responsible for spending what is collected?
• Who is ultimately responsible and accountable to taxpayers for the revenue collected and its expenditure?
These are critical issues that must be addressed to bring clarity and certainty to the tax system. For a good tax system, taxes and related compliance requirements must be simple, certain and clear.
It’s a wrap for today. Thanks for sharing your time with me.
Note:
This article was posted in verses via my Twitter handle, @YomiOlugbenro, on Wednesday, 9 December 2015. Every Wednesday at 17:00 WAT (CUT+1), I run a one-hour “tweetax” session with hashtag where topical tax issues are discussed. The tweets are subsequently posted as an article and posted on my website www.yomiolugbenro.com, facebook.com/YomiOlugbenro and LinkedIn.com/YomiOlugbenro.
Recent Comments