FIRS: Improving efficiency of VAT process

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In a bid to increase the efficiency of the value Added Tax (VAT) process, the Federal Inland Revenue Service (FIRS) introduced new updates to the process on its TaxPro Max platform. With these changes that took effect in April, the Service aims to increase collections and bring more transparency to tax collection and compliance nationwide; BENJAMIN UMUTEME writes.

The Federal Inland Revenue Service (FIRS) had sometime last month announced new updates to the Value Added Tax (VAT) filling procedures on its TaxPro Max system.

The new updates are prompted by the need to increase the efficiency of the input VAT claim, sales adjustment entries and output VAT filing procedures. The changes take effect from the April 2023 filing period. It is also aimed at ensuring that it seamlessly matches Output VAT collection to the Input VAT claimed by businesses as well as promote transparency in VAT compliance.

A statement signed by FIRS chairman, Muhammad Nami said, “Following the introduction of a new process of claiming INPUT Tax which took effect from 1st April 2023, and the consequent concerns raised by taxpayers, the Federal Inland Revenue Service (FIRS) has notified taxpayers that it has graciously extended the VAT filing due date for April 2023 from the midnight of 21st April 2023 to the midnight of 30th of April 2023.

“The Input VAT claim columns (Domestic Purchases & import Purchases) and that of Deducted at Source will be open until midnight of 30th April 2023 to allow taxpayers to make all necessary input claims for the month of April, while penalties and interest for failure to file by the extended due date will now apply to all returns filed after midnight of 30th April 2023.”

The Service explained that while the changes are in their pilot phase, it is committed to the full implementation and adoption by taxpayers.

TaxPro Max platform

With the old means of tax collection not only tedious and cumbersome, it also led to substantial revenue loss for the government. Therefore, on his assumption of office, Nami harped on the need to reform tax revenue thus encouraging more Nigerians to be tax compliant. And after intense brainstorming, the Service came up with the TaxPro Max, a home grown tax administration that enables taxpayers to file their returns and pay their taxes without having to be physically present at any FIRS office nationwide.   

In introducing the TaxPro Max in June 2021, the FIRS meant it to be a one-stop-shop for taxpayer registration, tax returns filing, tax payment, and tax clearance certificate requesting, among other functionalities.

Thus, TaxPro-Max is the Service in-house developed tax administrative system, that is truly integrated, addresses FIRS business peculiarities, in accordance with the extant tax laws and IMF Tax Administration Diagnostic Assessment Tool (TADAT) standards. It covers the cardinal processes of registration, filing, payment and reporting.

Part of its benefits includes the Provision of clean and reliable records for accurate data analysis and decision making; Increases taxpayer compliance leading to generation of more revenue;  Eases tracking and monitoring of tax activities of taxpayers, Eases filing,  payments, application  and issuance of TCC remotely to taxpayers; Provision of taxpayers record in a holistic manner through their dashboard.

Also, it ensures centralization and aggregation of taxpayer filing and payment record history; Provision of a support system for taxpayer accounting/book keeping; Provision of third party data via integration with 3rd party system e.g CAC, which is vital for business intelligence; Provides efficient communication channel between the taxpayers and FIRS; Reduction in taxpayer cost; Provision of reliable information to taxpayers; and it provides a repository for document management.

This has led to the provision of real-time information to taxpayers; increased payment of taxes; provision of reports for data analysis to internal and external stakeholders; ease of upload of taxpayer financial documents; convenience in filing and payment to taxpayers; increase in collection and reduction in cost of collection; and generation of standard reports.

Improving functionality, efficiency of VAT system

In a bid to improve the functionality, efficiency, characteristics and sophistication of the TaxPro Max system, the Service recently updated the system as it relates to VAT Filing procedures on the TaxPro Max.

The FIRS envisions that the new updates to Filing of VAT by taxpayers are expected to accommodate the dynamics of the Nigerian tax system. According to the Service, the new changes will increase the country’s taxpayers’ base; improve accountability of the country’s VAT systems while at the same time increasing revenue for the Federation.

However, there has been some resistance by some taxpayers and their consultants because they can no longer ask for INPUT VAT if there is no OUTPUT VAT – more or less saying you cannot go to market, ask for goods, collect them and ask for change, if you have not paid the seller.

Within the short time that these changes came into effect, the FIRS has been able to block a huge revenue leakage, in the process saving the country about N4 trillion in fraudulent input VAT claims by various business entities. 

Key changes

Some of the key to the VAT filing module are: 

Output VAT arising from taxable supplies

Taxpayers are now required to upload a sales schedule showing their Output VAT arising from taxable supplies. The template can be downloaded from TaxPro max. The sales schedule requires the names of the customers, their Tax Identification Numbers (TINs), the supplied item(s), item description, item cost and VAT status of the transaction. The VAT status should be qualified by codes i.e. number (0) represents Vatable sales, number (1) represents Zero-rated sales and number (2) represents VAT exempt sales. The template also requires that sales and Output VAT should be captured for collecting agents mandated to deduct VAT at source pursuant to the provisions of the VAT Act i.e. Deposit Money Banks, MTN, Airtel, Oil and Gas companies and Government Ministries, Departments and Agencies (MDA). Taxpayers are limited to a maximum of 1000 sales transactions per upload when preparing the VAT return.

Input VAT claim

Apart from VAT on imports that can be claimed manually, taxpayers can only claim Input VAT when the VAT paid to the collecting agent of the government (i.e. a tax registered vendor or an appointed collecting agent) has been remitted to the FIRS’ account using the taxpayer’s TIN. It is only after the vendor or appointed agent has remitted to the FIRS that the taxpayer’s account on TaxPro Max will be credited with the Input VAT.

Taxpayers are required to separately click on the “claim” tab for each available input VAT on TaxPro Max to make a successful input VAT claim. Where the input VAT for the month is more than the Output VAT, taxpayers are compelled to make an adjustment for purchases not used in making Vatable supplies, as they will be unable to complete the VAT filing process without such adjustment. Input VAT paid on imports will continue to be captured manually by taxpayers on TaxPro Max. We expect this to be automated in the near future.

Sales adjustments

Taxpayers will be able to adjust for any returned or cancelled sales by making corrections in subsequent sales schedules by specifying the item ID that the credit note relates to. Each sale in the uploaded sales schedule under point 1 will be issued an item ID.

VAT withheld at Source

Taxpayers that have “VAT deduction at source” obligations on their vendor invoices are required to use the appropriate digital forms for this purpose as the VAT would be credited to their vendors’ accounts on TaxPro Max. The VAT amount credited to the vendors’ accounts will be used to offset the Output VAT arising from the same transaction captured in the vendors’ VAT returns.

New VAT updates explained

The new VAT filing modules introduced by the TaxPro Max is a control mechanism to guide against all the frivolous input VAT that is filed by taxpayers. It is a mechanism introduced to validate all the input VAT to be paid by the taxpayers. It aims to entrench transparency and accountability in VAT administration.

Formerly, taxpayersused to file through the VAT filing returns form, but this claim could not be validated instantly except if they verify later. This used to be prone to manipulations.

These new updates will guide against any inputs that cannot be validated thereby increasing the output VAT. It also enables taxpayers to know whether VAT paid on goods and services consumed have been remitted to the government by VAT agents which will enable them to identify compliant and non-compliant taxpayers.

The updated module is targeted at bringing transparency and accountability which are the cardinal pillars of the self-assessment regime which is built on mutual trust and cooperation between taxpayers and the tax authority.

The short term objective is to ensure prompt and accurate remittance of VAT on a monthly basis which will boost government revenue and also ensure prompt settlement of VAT refund to taxpayers. In the long run it will help expand the tax net, mitigate avoidance, evasion and outright fraught.

One thing is certain and that is where taxpayers have to refund, it is claimable as their input VAT will be recognized as soon as it is validated by the system application of the TaxPro-Max. Moreover, businesses will now have online real time details of all their VAT remittances, input VAT and withheld VAT and know their VAT status at any point in time without visiting the tax office.

And like the FIRS boss did say at a webinar recently, “Our intention is also not to make life difficult for you as our stakeholders, but to block glaring leakages in the tax system using technology—which our critical stakeholders, including many of you have advised us to do.”