By Olujimi Oshadipe
By whatever yardstick it is measured, the current management of Federal Inland Revenue Service (FIRS) has, with its performance in the last four years, actually outperformed its predecessors. This is despite the recession that lasted from 2016 to 2017 occasioned by the steep crash in oil price. They performed better in terms of non-oil revenue. This was achieved through innovative thinking introduced by Babatunde Fowler-led management. tax
For instance, there is a new department in FIRS called FEETTS (Federal Engagement Enlightenment Tax Teams). They go round the villages, speak different languages to register taxpayers so that they can have a tax identity. They have adverts in all major languages. FEETT has been undertaking a nationwide VAT and Withholding Tax monitoring and taxpayer registration exercise to sensitize the people on the need to discharge their civic responsibility.
The Federal Inland Revenue Service (FIRS) has so far recovered about N12.7 billion tax revenues from billionaire tax evaders through its accounts substitution policy. About 6772 accounts with balances of between N1 and N5 billion were identified without their owners having taxpayer identification numbers (TINs) and did not file any tax returns. The FIRS did leverage the customer data from the 23 deposit money banks to pursue defaulters and recover the debt. Under the arrangement, the FIRS appointed banks as tax collection agents to realise the account substitution policy. The FIRS wrote to all commercial banks in May 2018 requesting for a list of companies, partnerships, and enterprises with a banking turnover of N1billion and above. This was aimed at ascertaining those companies that are compliant with the tax laws and those that are not compliant.
So far, the non-compliant organisations have paid about N12.66billion to government.
Other successful activities of FIRS in the last four years include simplification of the tax processes, especially for small taxpayers; strengthening collaboration with other agencies such as the Corporate Affairs Commission (CAC), states’ boards of internal revenue; Ministry of Industry, Trade and Investment and the Nigeria Customs Service (NCS).
Besides, FIRS is already broadening its VAT collection scope with the adoption of States Accountants Generals (SAG) collection platform, VAT Auto-Collect, integration of the GIFMIS platform with Ministries, Departments and Agencies (MDAs) and through e-Service payment options.
To deepen tax revenue collection and expand the nation’s tax net as well as increase the revenue base, the FIRS also initiated income tax on property owners in Abuja and Lagos. The initiative, which was initially targeted at property owners in Abuja and Lagos, has so far yielded N4.3 billion and is being extended to other locations like Oyo and Kaduna states. It is important to note that this is not a property tax, but rather the use of the provisions of the law to bring into the tax net companies that own properties but failed to file necessary returns and pay appropriate taxes due.
On tax audit exercise of the Service, the FIRS is covering both the National Tax Audit (NTA) and the Pioneer Audit (PA). The NTA exercise contributed the sum of N212.79 billion to tax collection in 2018. With improvements in the audit process, the exercise is expected to produce increased audit yield in 2019.
The FIRS has said it will begin to impose VAT on online transactions, both domestic and international, from January 2020. Many countries have identified Nigeria as a big market and many of them are doing online businesses. FIRS believes that there is a need to tap the potentials to generate more revenue for the country. The date of commencement of the VAT on online transactions would be subject to the government’s approval, but banks will be asked to charge VAT on online transactions, both domestic and international.
VAT remains the cash cow in most African countries, with an average VAT-to-total tax revenue rate of 31 per cent. This is higher than the Organisation for Economic Cooperation and Development’s average of 20 per cent. This statistics, therefore, is a validation of the need for us to streamline the administration of this tax with the full knowledge of its potential contributions to national budgets.
Nigeria was able to raise its revenue from Value Added Tax (VAT) by about 21.5 per cent through the use of technology systems in the last year alone. The use of technology in the last year also increased the country’s tax revenue base by 800,000 corporate accounts, while growing non-oil tax revenues from 42.8 per cent to 64.3 per cent of total revenue.
The FIRS Chairman, who is also the First Vice Chairman of the United Nations International Committee of Experts, and Chairman, African Tax Administration Forum (ATAF) has said “Developing nations should focus more on taxation, as they have no control over the prices of goods produced by developed economies from the natural resources they export. We have already started the enforcement of over 50,000 accounts that have banking turnover of N100 billion and above that have not filed their returns. We will get more people into the tax net and deploy more technology. We have what we call Auto VAT Collect, and that basically assists taxpayers at the point of transaction, and the VAT portion is sent straight into the federation account. So, we know that there is more room for growth in the VAT sector.”
Despite the recession, FIRS has captured over 700,000 fresh companies doing various businesses in various sectors of the Nigerian economy. This will further help the federal government realise tax revenues to fund the budget. Returns from VAT increased by about 25 per cent over last year’s figures. Corporate income tax earnings have equally improved significantly over the same period, although there is the negative impact of declining global oil prices on petroleum profit tax from the joint venture operators. Part of the agency’s strategy to meet its new target is unleashing inspectors from the newly created tax monitoring unit in the service to update taxpayers’ databases, capture new businesses and individuals under the tax net, by tracking and checking their tax payment records. This brought about the capture of over 700,000 companies that never paid taxes before from their businesses over the years, while about 10 million individuals across the country were also added.
Similarly, FIRS in collaboration with the Joint Tax Board and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) forged a partnership to improve the level of voluntary tax compliance by operators in the Micro, Small and Medium Enterprises sector. To support the growth of the sector, interests and penalties for unremitted taxes were waived for tax defaulters. A proposed special tax regime was being developed and a commitment to patronise 40 per cent of locally produced goods.
Fowler’s sterling credentials no doubt earned him reelection as Council Chairman of the African Tax Administration Forum (ATAF) for a fresh term of two years and had his candidature supported by all 26 countries that participated in the elections. Under Fowler, ATAF has made tremendous strides. Last year in Abuja, ATAF launched the landmark ATAF Transfer Pricing Toolkit, which is assisting African countries to prevent huge financial losses through new Transfer Pricing Rules. Many African Tax Authorities are leveraging on the Toolkit to contain financial leakages from their economy. Also, ATAF under Fowler has given Africa a global voice in global tax matters. He is also the First Vice Chairman of UN International Committee of Tax Experts.
As Nigerians start to see the dividends of prudent management of resources by the Buhari administration, more and more are now complying voluntarily with tax payment. Of course, altogether, the significant rise in tax revenue in the past four years is as a result of certain measures brought up by the new leadership at the FIRS. First, internally, it basically implemented changes within the staff, ensuring the right people were in the right positions. Second, FIRS increased its level of education for both tax administrators and taxpayers. It also deployed technology that made filing taxes more convenient and transparent for taxpayers. Therefore, taxpayers are more willing to pay. On top of that was the creation of effective monitoring to regulate compliance. Taxpayers realize that they will not be left alone; even if FIRS is not knocking on their doors in six months, FIRS will be knocking in 12 months. The tax administrations at both state and federal levels have changed, and Nigerians are starting to see the benefits.
* Olujimi Oshadipe is a development economist and is based in Lagos.