Who should we pay our tax to?

Nigerian businesses want to know who to pay VAT to, Wave: Francophone Africa's first unicorn startup, Bolt’s women-only category is more expensive

Hello there, 

Talking about extreme times call for extreme measures, in Zimbabwe, all government employees have to take a jab of the vaccine or quit. 

"We are not forcing you to be vaccinated but if you are a government employee, for the protection of others and the people that you are serving, get vaccinated." — Ziyambi Ziyambi,  Justice Minister

So far the country has only been able to fully vaccinate 1.7 million people, about 12% of its population. 


Who should we pay our tax to?

To whom should Value-added Tax (VAT) be paid? The Federal government or state government?

That’s what Nigerian businesses want to know.

FYI: VAT is a tax applied to a product whenever any value is added, including in its production and final stage. This affects every item you can think of except essential items such as food, medicine, educational materials and other essential items.

Okay, how did we get here?

On August 9, 2021, The federal high court in Port Harcourt ruled that the Rivers State Government  — and not the Federal Inland Revenue Service (FIRS) is entitled to collect VAT in the state.

With the judgement, the state governor signed a bill authorising the state to collect VAT within its state.  And other states are already following suit. Lagos, Akwa Ibom and a couple more states have taken steps to do the same, with the Lagos VAT bill passing a first and second hearing at lightning speed to become law this week.

The cause of this dispute? Inequality, the state government believe they should be getting more revenue from VAT.

On the 8th September, Rivers state governor said via Facebook, “Rivers State generated about ₦15 billion (~$300m) as VAT in June 2021 but received only ₦4.7 billion (~$94m), Lagos State generated over ₦46 billion (~$920m) as VAT in June, but got just over ₦9 billion (~$180m), whereas Kano State generated ₦2.8 billion (~$56m) and also got ₦2.8 billion as allocation. Have you seen the injustice in this country ?”

How it is being shared: Under the current sharing formula 15% of VAT revenue goes to the Federal government, 50% goes to the state and the final 35% to local governments.

Looks simple right? Wait, that’s not all.

The federal government also uses another formula when sharing non-oil revenue (which VAT falls under)  amongst states.

Here each state keeps 20% of the VAT derived from their states, 30% of the VAT is allocated based on population per state, and 50% is then shared equally.

If you’re wondering why it’s so complex, don’t worry, we’re all in the same boat here.

Considering the fact that Kano is said to be the most populous state in Nigeria, it’s no wonder it gets a lot more relative to its peers. 

Also, according to a BusinessDay report, Nigeria’s 12 Sharia states got 30.3% of taxes on alcohol despite a 3% alcohol consumption. Alcoholic drinks are frequently confiscated and destroyed in these states. But, it doesn’t stop them from sharing in the revenue that accrues from the same alcoholic beverages sold elsewhere in Nigeria.

What’s the FIRS saying about this?

Things can get messy when different states are in charge of collecting VAT as it depends on input, output mechanisms. 

“For example, let's assume a business person bought an item in Osun state and paid VAT. He takes the goods to sell in Sokoto state, remember he has paid VAT when purchasing the product in Osun state, and when selling in Sokoto state, he will charge VAT on the goods sold to his customers. By the operations of the input/output mechanism, the business person will deduct the input VAT paid in Osun from the output VAT charged in Sokoto and remit the difference to the relevant tax authority.” Muhammed Nami, Executive Chairman FIRS

In the case where it’s a single entity handling VAT, it’s easy for this to happen but where its different states are involved, there might be confusion.

Zoom out: While VAT accounts for a small portion of state government revenue, the fact that between 2015 and 2020, VAT has increased 73% to over ₦1.5 trillion gives a hint as to why more attention is being paid. 

Once again, Who should be collecting VAT? For now, it’s up to the supreme court judges to decide.

Dig Deeper: Federal vs State: Who should collect VAT from Nigerians? [Paywall]


Wave: Francophone Africa's first unicorn startup

Created as a spinoff of Sendwave, over the past four years, Wave has slowly developed into becoming one of the largest fintech within Francophone Africa. The tech firm recently managed to raise a $200 million Series A investment round led by Stripe, Sequoia Heritage and Ribbit Capital. It's the largest for an African unicorn in a Series A round at a valuation of a whopping $1.7 billion dollars.

How did Wave get here?

In 2015, the central bank of West African States (BCEAO), the common central bank of eight French-speaking countries in the region enacted bye-laws that allowed non-banks to operate in its member states. 

Senegal being one of its member states became one of the main markets Wave focused on in 2017.

Taking out the competition

In Senegal, French telecom, Orange has about the largest market share within the country of about 50% with an estimated 8 million users, followed by FREE with 4.4 million users and Expresso Telecom Group with about 3 million subscribers and 22% market share.

Wave entered the market with a 70% cheaper service, offering free deposits and withdrawals via its mobile application while applying a fixed transaction fee of just 1% for money transfers between individuals.

As you can imagine, customers opted for Wave’s offering in droves.

Orange vs Wave

The price change forced Orange to reduce its prices on June 1st 2020. There was also another dispute after that, that stopped users from using the Wave application to purchase Orange airtime. This issue is still yet to be solved by the country’s apex financial regulator.

Looking ahead

Currently, Wave’s users make up about 4 - 5 million of Senegal’s current population, and it has amassed about 5 million downloads on the Google play store. 

The $200m raises will be used to expand beyond Senegal and Ivory Coast, markets Wave currently operates in. It’ll be great to see how Wave will compete with already established players in the mobile money space like Opay, MPesa and MTN.

Africa is at the forefront of the mobile money market in the world but it's still growing, generating financial services to more unbanked individuals.

Dig Deeper: How Wave became Francophone Africa's first unicorn startup with "radically affordable" money transfers


Bolt’s women-only category

Earlier this week, Ride-hailing service Bolt quietly launched a “Women Only” category in Kenya, allowing users to be able to choose to be driven by women drivers to make female riders who use the service feel safer.

But…

It’s more expensive than most other categories, $1 more than the regular category.

Placing a premium on this service has raised some backlash from users, who wonder if the extra price is fair.

While Bolt has been quiet over the reason for the price difference, a possible reason could be that Bolt wants to attract more female drivers who are fewer than male drivers on the platform. A higher price might be an incentive for female drivers but it might be having the opposite effect on female riders.

Zoom out: As children, it was drilled into our heads to never get into a car with a stranger. Now, it’s something we do with little hesitation. When it comes to the person behind the wheel, a recent survey found that women riders want women drivers because they are far less likely to engage in risky driving behaviour. 

How much more is worth paying to incentivise more female drivers? I guess time will tell.


Worth reading 📚

Quote 💭

It is not that I’m so smart. But I stay with the questions much longer.

— Albert Einstein