By Simon Obasi
The road transport industry is huge. It is one of the most important industries in Nigeria. At the same time, it is one of the least coordinated industries that we have. This is due to excessive fragmentation and little to no regulation of industry players. Within this industry are structured and unstructured players. However, it appears that the unstructured players outnumber the structured ones. There are also big names covering most major cities of the country. It is almost impossible for a traveler not to find any of the major commercial road transport companies in the major cities. Truth be told, they have assisted the masses to get to their destinations at a fraction of airline tickets.
No doubt, you may have noticed that either at the front or side of each park of a major operator, there are over ten unstructured or unregistered operators who are loading for the same destination at significantly lower fare. Major operators complain of how much they lose to entities who they presume are not socially responsible and who pay almost nothing to the government in form of taxes. Interestingly, the existence of these other operators is a check on the excesses of the major operators as it is presumed that passengers are price-sensitive. And the reason the unstructured operators charge lower fare is not far-fetched; they carry a lot lower overhead cost, some are owner-driven while others are there for survival.
However, in my experience traversing different cities of the country from South to North, East to West, I am yet to see a single travel receipt from any of the commercial road-transport companies with VAT. My experience as an external auditor and financial adviser to one of the major players in the industry indicates that the existence of unstructured operators in this industry is a serious matter deserving attention. But this article is not to discuss the challenges of structured road transport companies but to address a critical issue of vatability or otherwise of the industry. Please note that this is solely a discussion around revenue from passengers (fares) and does not extend to haulage, carriage or courier services undertaken the industry players.
Yes, as noted earlier, I am yet to see a single travel receipt from any of the commercial road transport companies with VAT included in the fare. At the same time, I am yet to see a single unambiguous and/or unequivocal statement in the VAT Act granting exemption status to income from commercial road transport operation. In fact, in a recent reconciliation meeting with FIRS officials for one of my clients in this industry, the FIRS official stated that there is a challenge in determining the vatability or otherwise of this industry as the industry was not included in the list of vatable services as originally contemplated; at the same time, the act does not expressly include the industry as VAT-exempt or zero-rated service. More interesting about it is that most industry players do not remit VAT. While I discussed the vatability or otherwise of my client with this official, I challenged him to name even one player who pays VAT on passenger fares. The practice has been that for those who run haulage and courier services side-by-side with the regular passenger travels, they typically make returns on those other services (haulage and courier) and non for passenger fares. Unfortunately, my FIRS friend named the only publicly listed entity in this industry as compliant. Armed with 2015 and 2016 financial statements of this company, my team and I clearly demonstrated to the taxman that the company under question neither charges nor remits VAT on fares (the auditors of the company had made a statement pointing to this fact in the financial statements). And he got a whisper from his colleague when he asked that the file of that company be checked. Yea, my team concluded that he was informed that the said company is also in default (we might be wrong though). He also stated that he would surely be the last person to ask the public to pay VAT on fares if the practice has not been so.
As you may have observed, the taxman is using much illuminated torches in search of opportunities to shore up fiscal gap/deficit. And to be clear, they are going deep in this search.
While the scenario that I painted above shows the current situation, I want to make three points clear.
- First, there is need for clarity on some of our laws. In our discussion with the FIRS official, we noted that he had had discussions with his senior colleagues in Abuja, including a director. He stated that the director was not clear of the vatability or otherwise of the industry at first, but later informed him that after escalating to experts in his office, they concluded that passenger fare is vatable on the strength of the non-exemption status in the Act. As such, where the custodians of the law are oblivious of the law, who will then know what the law states/requires? Thus, if the tax authority finds any gap in the laws, it is their responsibility to address it either via an executive bill for amendment of via relevant circulars.
- Secondly, the commercial road transport industry needs some level of organization. As much as the fragmentation remains, structured entities in the industry will feel greater pains resulting from compliance with government policies than unstructured players. This in turn results in loss of revenue as they have to consistently price higher to keep afloat and meet government requirements. Additionally, collection of any form of taxes that is not evenly distributed among all industry participants will be considered as witch-hunting and might cripple those who comply in the long run.
- And finally, there is need for a viable and strong pressure group for this industry. The pressure group will see that legislations and circulars that appear not to be beneficial to its members are ditched. So they have to do a lot of lobbying. It is clear that unity is indeed strength. I suggest that in response to the quest by FIRS to trigger vat collection by this industry players, the pressure group approaches the minister of transportation, have a discussion with him on key areas of concern and request for clear and complete waiver of VAT for industry players. After that, the minister can have a discussion with the finance minister for approval to waive VAT on road passenger fare. This will serve them well.
The truth remains that this industry is as important as the agri-space. It is a critical industry that is assisting the government and the masses. But if for any reason the government plans to collect VAT, the government must find a way to ensure that VAT is collected from all industry players. Anything short of that will take a lot of operators out of business as passengers will switch to unstructured players where more losses will be sustained by the government. This will be a lose-lose for all parties (except for the unstructured operators who will smile home each day).
Simon Obasi is a chartered accountant and an Associate Director at Uche Chigbo & Co. (Chartered Accountants).