So, the federal government has announced a new scheme called the VAT DIRECT INITIATIVE, aimed at collecting Value Added Taxes (VAT) from the informal sector.

Informal sector includes the part of any economy that is neither taxed nor monitored by any form of government. Although the informal sector makes up a significant portion of the economies in developing countries, it is sometimes stigmatized as troublesome and unmanageable.

This initiative is expected to reduce multiple taxations and streamline the taxation process in the informal economy.

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Here’s everything you need to know👇🏽👇🏽

1️⃣ The Federal Inland Revenue Service (FIRS) is responsible for collecting VAT and other revenues for the government. They will be partnering with the Market Traders Association of Nigeria (MATAN) to collect and remit VAT from their members, particularly those in the informal sector.

2️⃣ MATAN, founded in 1995, is the largest player in Nigeria’s informal market space, with over 40 million members. They claim to have a digital platform that provides each member with a digital ID card and tracks their turnover for VAT calculation and collection.

3️⃣ The VAT Direct Initiative is a collaboration between FIRS and MATAN, aiming to promote VAT awareness and simplify payment and remittance processes for market traders and the informal sector through a purpose-built digital platform.

4️⃣ This initiative is the first of its kind in Nigeria to utilize technology for collaboration between FIRS and the marketplace. It will help address multiple taxations in the marketplace by working with security agencies to combat the activities of touts and self-imposed tax collectors.

5️⃣ MATAN members will receive an ID card containing their Tax Identification Number and personal details upon enumeration. This will enable efficient tracking of VAT accrued from their business activities and facilitate its collection and remittance to FIRS.

6️⃣ The implementation of the VAT Direct Initiative is expected to boost VAT revenue generation for all tiers of government. This increased revenue can then be used to fund infrastructure development and improve social amenities across the country.

In Q1 2023, Nigeria’s VAT collection reached N709.59 billion, with the manufacturing sector accounting for the largest share at 29.65%. The information and communication sector followed with 19.29%, while mining and quarrying contributed 12.24% to VAT collection during the same period.

The VAT Direct Initiative demonstrates the government’s commitment to effective tax collection and reducing the burden on the informal sector. It is a step towards improving revenue generation, enhancing accountability, and promoting economic development in Nigeria.