What is Consumption Tax

A consumption tax is essentially a tax on the purchase of a good or service. It may take different forms such as sales taxes, tariffs, excise or other taxes on consumed goods and services. It has the distinct feature of not penalizing savings unlike income taxes. Consumption tax is charged in different forms in several…

ANY country that wants to achieve  development must take a second look at how much revenue it generates from taxes, especially consumption taxes. Such taxes are charged on the purchase of goods or services, with rates varying from one country to the other.

Statistics showed that in Canada, consumption tax rates range from zero to 10 per cent along with the federally applied goods and services tax of five per cent just like Nigeria’s Value Added Tax (VAT).

Japan charges a consumption tax of eight per cent, Singapore seven per cent while in Australia it is a national goods and services tax rate of 10 per cent.

In Nigeria, a Lagos-based tax expert and entrepreneur, Ndubuisi Adaba, said Kano State passed a law last year that imposed a consumption charge of five per cent on goods and services purchased in any hotel, restaurant, fast food outlet, bakery, takeaway, suya spot, shopping mall, store, event centre and other similar businesses within the state. Ogun State also promulgated a consumption tax law in 2017.

According to him, Lagos State equally has a consumption tax. “The Lagos State Hotel Occupancy and Restaurant Consumption Tax Law, which was signed into law on June 22, 2009, imposes a tax on goods and services consumed in hotels, restaurants and event centres within the territory of Lagos State. It is charged as five per cent of the value of the goods or services consumed,” he said.

 

According to this law, the term hotel is defined as including motels, guest houses and apartments for short time letting, while a restaurant is defined to include any food sale outlet, bar tavern, inn or café, whether or not located within a hotel. Event centres include halls, auditoriums, fields, and places designated for public use for a fee. They will charge it along with but separately from the VAT.

The tax expert disclosed that as regular consumption of goods and services (from shopping malls, supermarkets, stores markets boutiques, sundry traders and service providers) are not included, the Lagos State Consumption Tax is thus asymmetrical on its effects on citizens. This means that the not-so-wealthy that use hotels, restaurants and events centres sparingly pay a lot less than the rich who frequent these facilities. Furthermore, the tax is also on what is consumed.

 

Although the Lagos State consumption tax is in force, enforcement has so far not been very efficient. The tax is actually charged to the consumers of goods and services, meaning that the operators of hotels, restaurants and events centres act merely as collecting agents for the government and do not bear the cost of this tax.

 

 

Inefficient enforcement has resulted in situations where several operators have not been brought into this tax net or are not collecting the tax. And where some operators are collecting the tax, they fail to remit same to the government. Therefore, only a small proportion of operators are actually making remittances to the state’s coffers, thereby denying Lagos state the wherewithal to actualise its growth plans.

Lagos, with over 20 million inhabitants is, particularly, short-changed in this regard. At this time of dire need of funds to bridge the huge infrastructure deficit in Lagos, the state can least afford such leakages. This is coupled with a rising population and reduced funding from the federation account.

 

To check this, and ensure an efficient consumption tax regime, Lagos must pursue its administration differently from the way it has been done thus far. A new approach would be to engage in massive and repeated sensitisation of operators as well as all citizens on the imperative of taxation in general and consumption tax specifically. The relevant agencies of the government must also ensure identification, enumeration and registration of all operators in a continuous process.

 

The government must also explore innovative ways that will make the due tax easier for operators to collect, separate and remit to the government. This will entail the installation of new technology at the operators’ pay points as being proposed. The installed software will in turn enable government monitor and track remittances more efficiently.

 

It is incumbent on the government to ensure timely remittances by operators. Conversely, it is easier on operators when they make timely remittances of collected taxes. A situation where unremitted taxes cumulate to hundreds of millions and government agents resort to the sealing of operators’ premises is counter-productive or inefficient at best.

 

Since the government will be employing moral suasion along with strict enforcement, it is critical for it to demonstrate enhanced efficiency and transparency in spending. For instance, by outlining projects under consideration or execution and dedicating proceeds from taxation to execute such projects will help in stemming the belief that government is not accountable to anyone. In a nutshell, the government must show increased transparency in matters relating to spending.

 

“It is in recognition of its huge potential to enhance the state’s revenue base that I welcome the recent passage of the Hotel Occupancy and Restaurant Consumption (Fiscalisation) bill by the Lagos State House of Assembly. The inclusion of such provisions as registration of electronic fiscal devices, installation of software and hardware, as well as the power to enter and inspect points of sale in the hotels and restaurant, among other requirements, would definitely reduce evasion of taxes by these business concerns,” Adaba said.

 

‘’It is instructive to note that the infrastructural development and improvement initiatives of Lagos also aim at exploiting and advancing her tourism potential. Governor Akinwunmi Ambode proclaimed at the One Lagos Fiesta last December, that his administration is committed to making Lagos “a must-visit and Africa’s best tourism destination”.

 

 

Tourism opens up a place further to foreign investments while local businesses and service providers are able to attract offshore funds through the influx of tourists.