Is the government losing money with the 25 million naira VAT collection threshold?
Section 15 of the VATA exempts companies with less than 25 million naira in turnover from registering, transacting, filing, and remitting VAT.
An annual turnover of 24 million Naira translates to a monthly inflow of 2 million Naira.
Two companies with 24 million Naira in turnover each that are in a business relationship of rendering goods and services to each other are not to suffer VAT, even when the goods and services are not on the exemption list.
However, an income earner with an annual salary of 360,000 Naira is subject to suffer VAT on the same item that the entity with 24 million Naira in annual turnover is exempt from. What is the rationale for this incentive?
We feel that the government should re-address this exemption window, as it has the potential for high tax expenditure on the part of the government and makes wage earners surfer the actual cost of this incentive.