The idea that charging Value Added Tax (VAT) is tantamount to extortion reveals a fundamental misunderstanding of what VAT is and the economic principles behind it.
The criticism aimed at farmers in Simanaka—who find themselves in a VAT framework—suggests a lack of comprehension regarding the benefits and implications of adding value to agricultural products. This misunderstanding is not merely an issue for farmers; it also highlights a broader societal gap in financial literacy and an appreciation for how government revenue systems function.
The portrayal of VAT as a form of exploitation fails to acknowledge its true purpose: to encourage economic development and innovation. Farmers who add value to their products can charge VAT, which, rather than being a burden, allows them to participate in a more formalized and lucrative economy. Furthermore, this narrative neglects to mention that VAT is not simply a fee that farmers collect for themselves but a tax that is directed toward government coffers. The failure to recognize that collected VAT is distributed among federal, state, and local governments leads to a misrepresentation of the broader economic ecosystem. This misrepresentation has the potential to deter farmers from pursuing value-added practices that can enhance their livelihoods and contribute positively to their communities.
It is crucial to educate the public about VAT, its mechanics, and its potential benefits to individual farmers and the wider community. Value Added Tax is designed to be a fair method of taxation that embodies the principle of taxation at consumption, wherein consumers ultimately bear the tax burden. Here’s a breakdown of how VAT functions within Nigeria, and why it is not merely an extortionist practice, but rather a framework that can stimulate economic growth.
Value Added Tax (VAT) is a consumption tax levied on the value added to goods and services at each stage of production or distribution. Every time a product is sold, the seller is required to charge VAT to the buyer, and a percentage of this charge is eventually forwarded to the government. Crucially, if a farmer in Simanaka processes their agricultural produce—perhaps by turning tomatoes into a sauce or milling grains into flour—they are not only improving their product but also increasing its market value. By doing so, they can rightfully charge VAT, which is a testament to their business acumen rather than a sign of exploitation.
The collected VAT does not remain in the hands of the farmer. Instead, it is remitted to the Federal Inland Revenue Service (FIRS), who manages this tax on behalf of the government. In Nigeria, the VAT revenues are not merely stockpiled; they are actively distributed among various levels of government, ensuring that essential services and infrastructure can be funded. Here’s how VAT revenue is allocated:
– **Federal Government**: 15%
– **State Governments**: 50%
– **Local Governments**: 35%
This distribution helps support local development, healthcare, education, and a myriad of public services that benefit citizens, including farmers. When farmers realize that their value-added products not only earn them more but also contribute to communal welfare, they may be more inclined to embrace the VAT framework as a beneficial system.
Adding value to agricultural products is more than just a strategy for collecting VAT; it is a fundamental principle in modern economic theory. By processing raw agricultural goods, farmers can significantly increase their profit margins while simultaneously stimulating local economies. For example, a bag of raw rice might sell for a specific amount, but when that rice is packaged and marketed as a premium product, its market value can rise substantially. The resulting financial gain is a win-win scenario: farmers gain higher revenue, the government collects more VAT, and the community benefits from better resources.
The misconceptions surrounding VAT, particularly its role in agriculture, need to be addressed with clarity and education. Farmers and the broader community should understand that adding value to their products is not merely a means to collect taxes; it is an essential catalyst for economic growth and prosperity. By recognizing the collective benefits of VAT—both in terms of funding public services and incentivizing farmers to innovate—we can move past accusations of extortion and embrace a more collaborative approach to economic development. Understanding these dynamics will empower farmers in Simanaka and beyond, allowing them to thrive in an increasingly complex economic landscape.
Otunba Abdulfalil Abayomi Odunowo
National Chairman AATSG
Mobile: +2349053535322
AATSG Media.
www.AATSG.org.ng
https://whatsapp.com/channel/0029VadcNX21NCrRShw4S33A
