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FIRS/Presidency Exchange: Understanding the Issues

BY JUSTUS SOWEIBO

Last Sunday, social and online news platforms erupted in feverish debates over a letter written by Mr. Abba Kyari, President Muhammadu Buhari’s Chief of Staff, to Mr. Tunde Fowler, Chairman of the Federal Inland Revenue Service (FIRS).FIRS

The letter, dated 8 August, was obviously leaked in hope that it would make either the FIRS or the Presidency look bad. It demanded explanations from Fowler, by 19 August, on the variances between the country’s budgeted tax collection and actual tax collections from 2015 to 2018.

Fowler was also asked to explain why actual tax collections during the aforementioned period were lower than what was collected from 2012 to 2014.

The next day, the matter, expectedly, was on the front pages of almost all the major newspapers, as debates continued to flare on social media platforms and other discussion platforms.

As with issues such as this, politics was never far away and largely determined the positions taken.  That the letter was signed by Kyari, to some, confirmed the widespread belief that the Chief of Staff usurps the presidential powers at will.

To others, especially those uncomfortable with the way the FIRS under Fowler has been breathing down the neck of tax debtors, it was mood-lifting, as it suggested that the FIRS boss was under investigation. The feeling was: “Let’s see how he gets out of this,” one made stronger by rogue narratives on some online news media that tax revenue dipped because of theft.

By Monday afternoon, just before Fowler’s response to Kyari’s letter via a two-page letter, found its way into the media, the Presidency dismissed the speculation that the FIRS boss was under investigation. In a statement issued signed by Garba Shehu, Senior Special Assistant to the President on Media and Publicity, the Presidency said Kyari’s letter was a routine administrative inquiry into tax collections in the past two years.

The executive arm of government further gave a vote of confidence to the FIRS, saying: “It is noteworthy and highly commendable that under this administration, the number of taxable adults has increased from 10 million to 20 million with concerted efforts still ongoing to bring a lot more into the tax net.”

I am persuaded that seeking an explanation, as the Presidency did, is and should remain the norm in the public sector if the government wants to understand the economy it runs. Was the explanation demanded from Fowler associated with wrongdoing? I believe that the answer is in the negative. It is not a strange thing for budgeted or projected amounts to be different from actual collections.

Fowler’s explanation was that the variance in budgeted and actual tax collections was occasioned by grossly reduced inflow of oil revenues due to the fall in crude oil prices and a dip in local production.

Oil, the country’s major revenue earner, traded on the international market at $113.72, $110.98 and $110.40 per barrel in 2012, 2013 and 2014 respectively. Little wonder the country was able to generate N14, 527.85 trillion from 2012 to 2014. A staggering N8, 321.64 trillion of this, representing 57.28 per cent, was realised from oil within the said period.

Similarly, oil production was at a considerably higher level during the same period used as a benchmark. Production stood at 2.31mbpd in 2012, 2.18mbpd in 2013 and 2.20mbpd in 2014 respectively. Despite revelling the royalties accrued during that period, the country was warned by several indigenous and international finance experts about the hazards of mono-economy, especially as the dynamics of the global oil market had started taking a turn for the worse.

BudgIT, an accountability/transparency-focused civil society organisation, in 2014, raised an alarm in a publication entitled: Falling oil prices: An opportunity for reforms.

“These are interesting times because the mono-product that Nigeria’s finances hang on is being threatened. It is under intense attack from a global oversupply of oil, the drastic improvement in shale gas technology, the continuous efforts of US to achieve oil; independence and recent geo-political tensions with major oil producers…However, oil, true to its volatile state, as a commodity is running its course and Nigeria, living off it, has to adjust,” BudgIT warned at the time.

The country’s revenue for 2016 to 2018 was N12, 656.30 trillion, with N5, 145.87 trillion, representing 40.65 per cent of oil revenue accrued during the period. The oil revenue during the period under review declined to 16.63 percent compared to years 2012-2014. Furthermore, from a respectable $110.40 in 2014, oil prices sharply plummeted to an average of $52.65 per barrel in 2015, $43.80 per barrel in 2016 and $54.08 per barrel in 2017.

Also, oil production plunged to 2.12mbpd, 1.81mbpd and 1.88mbpd in 2015, 2016 and 2017 respectively. Nigeria had simply ignored the warning to diversify its economy. The country failed to generate revenue at the level it once did because of the slump in oil prices, which was abetted by other factors. Also, oil companies operating in the country could not match their prior tax returns from 2016 due to the slump in business. The dip in revenue had such an adverse impact, which the country’s previous economic managers never envisaged or ignored.

Oil prices fall as trade war concerns mount(Opens in a new browser tab)

To match what was previously generated, in such circumstances, would require the capacity to turn water into wine. In my view, Fowler did what his predecessors had neglected to do: Focus on previously ignored revenue sources. Will get to that in a bit.

Nigeria slipped into recession in 2016, its worst in 29 years. The economy contracted for two consecutive quarters, with the International Monetary Fund (IMF) slashing the country’s Gross Domestic Product (GDP) for that year to -1.8 percent.

Government figures indicated that while the GDP grew by 4.3 per cent, 5.4 percent and 6.3 per cent in 2012, 2013 and 2014 respectively, it shrunk to 2.7 per cent, -1.6 per cent and 1.9 percent in 2015, 2016 and 2017 respectively. The figures explain the direness of the economic situation the current administration inherited in 2015. Fowler, who was appointed the same year, alluded to this circumstance in his response to Kyari’s letter.

In line with the current federal government’s directive to diversify the economy, Fowler explained, the FIRS has focused on widening the tax base in the non-oil sector. Evidence of the success of this approach is the growth in non-oil revenues. Non-oil revenues accounted for N6, 206.22 trillion or 42.72 per cent of the total revenue derived from 2012 to 2014, while the same sector generated N7, 510.42 trillion or 59.3 per cent from 2016 to 2018. The country’s non-oil revenue, therefore, grew by N1, 304.20 trillion or 21 percent from 2016 to 2018. Also, since 2016, non-oil tax revenues have outstripped oil tax revenue.

Despite the economic crunch, the FIRS actually achieved a higher total budget collection during the period under question than from 2012 to 2014. The budget collection estimate for the period used as the benchmark was N12, 190.52 trillion, while actual tax collection from 2016 to 2018 was N16, 771.78 trillion, representing 37.58 per cent increase.

In addition, the federal tax agency achieved a 40 per cent increase from 2015 to 2017 Value Added Tax (VAT) collection than from 2012 to 2014. In 2018, the FIRS crossed the N1 trillion mark in VAT collection, an achievement founded on various initiatives such as adoption of technology and continuous taxpayer education.

Under Fowler’s leadership, the FIRS collected a total revenue of N5.32 trillion, the highest in the agency’s history. The figure was an increase of N1.292 trillion over the N4.02 trillion collected in 2017 and N3.3 trillion in 2016. This, it has to be remembered, happened in an economy deemed as contracting.

  • Soweibo, a public affairs analyst, lives in Port Harcourt

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