Why current tax strategies will improve revenue collections in Nigeria – CITN

Oil revenue has been and still is the mainstay of the Nigerian economy and is likely to remain so for a long time to come, as it currently provides the bulk of government revenue and most of the foreign exchange earnings.

Hence, the Federal Inland Revenue Service (FIRS) has severally adopted innovative strategies and initiatives in the collection of VAT, which the Chartered Institute of Taxation of Nigeria (CITN) is confident that it will improve revenue collections and meet the expectations of the Government. MOTOLANI OSENI writes…

The Nigerian economy had for many years been dependent upon revenues derived from Oil and Gas, therefore, the infamous economic meltdown led to the decline in the revenue generated from petroleum resource from early 2000 till date.

Tax Administration

The Federal Inland Revenue Service (“FIRS”) by virtue of Section 8 (1) of the Federal Inland Revenue Service (Establishment) Act, 2007 (“FIRSEA”) provides that the FIRS shall be responsible for assessment, collection, rendering of account and enforcement of payment of taxes as may be due to the Federal Government or any of its agencies; and they shall also, collect, recover and pay to the designated account, any tax charged under any provision of the FIRSEA.

Consequently, the FIRS has the sole responsibility of administering Federal taxes like the Value Added Tax, Personal Income Tax as restricted under the Act, Companies Income Tax, Stamp Duties, Capital Gains Tax, Petroleum Profits Tax, and National Information Technology Development Agency Levy.

While the FIRS only has control over non-oil revenue from taxes collected, Oil revenue collection figures are subject to more external forces such as the price of oil in the international market, which itself is subject to a myriad of factors beyond the control of local fiscal policy and jurisdiction.

The Nigerian National Petroleum Corporation (NNPC) has the sole responsibility for upstream and downstream developments, and is also charged with regulating and supervising the oil industry on behalf of the Nigerian Government.

Between 2012 – 2014 oil revenue accounted for 57.28 per cent while non-oil revenue accounted for 42.72 per cent, whilst for the period between 2016 to 2018, oil revenue accounted for 40.65 per cent while non-oil revenue accounted for 59.33 per cent of collected revenues.

It is pertinent to note that the fall in the price of crude oil and reduction in crude oil production was traceable to vandalization of pipelines and the effect of the recession on the economy in the second quarter of 2016, which slowed down general economic activities in the country. However, tax revenue grew as the economy recovered in the second quarter of 2017.

Tax revenue through digital ID

A recent report by Mc Kinsey Global Institute has revealed that not less than $13 billion can be raked as additional revenue, but only if Nigeria could use the digital ID to expand the tax base.

The report, also, showed that the use of digital ID will be helpful in including informal income and reduce fraud and errors in tax filing.

Governments and businesses, according to the report, are implementing digital identification programmes with mixed results and adoption levels.

The report further stated that good use of digital ID programmes can help people participate more fully in their economy and society, which will lead to a bounteous economic value and inclusive growth.

The new Mc Kinsey Global Institute report explains further that, with the adoption of digital ID and the right principles, Nigeria can be helped to unlock 3 per cent economic value equivalent of Gross Domestic Product(GDP) in advanced economies and 6 per cent in emerging economies.

The report, which X-rayed seven economies – Nigeria, Ethiopia, Brazil, China, The United Kingdom and the United States, analysed almost 100 ways digital ID can be used, helping countries on its radar to understand the economic benefits of proper deployment of the digital ID.

Meanwhile, the FIRS has said that it will commence the imposition of the VAT on online transactions, both domestic and international, starting from January 2020.

FIRS Executive Chairman, Babatunde Fowler made this disclosure recently at the African Tax Administration Forum (ATAF) technical workshop in Abuja.

Fowler acknowledged that many countries regard Nigeria as a good market are into online businesses, saying there is the need to key into the potentials to generate more revenue.

He, however, said that the date of commencement of the VAT on online transactions would only be effective if the federal government approved.

“We have thrown it out to Nigerians. Effective from January 2020, we will ask banks to charge VAT on online transactions, both domestic and international”, Fowler said.

“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 Organization 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.

“It is, however, also bearing in mind the rights of our taxpayers”, he explained.

Citing Senegal as an example, the FIRS boss said Nigerian can make more from VAT collection as the West African country generates 51 per cent of its revenue from VAT while Nigeria generates 17 per cent.

He said the tax the agency had notified banks in May 2018 requesting for a list of companies with a banking turnover of N1 billion and above to know the companies complying with tax laws.

Low tax revenue

In his response to the query issued him by the presidency over low revenue generation in the last four years, the FIRS boss, Tunde Fowler, agreed that actual tax collection since the beginning of President Muhammadu Buhari’s administration is lower than the 2012-2014 period under former President Goodluck Jonathan,

in general terms, he told the presidency FIRS under him has performed better regarding specific non-oil tax types, such as VAT and CIT.

He associated the general lower collection since 2015 to oil market crisis which has seen a fall in commodity price compared to the period under Mr Jonathan, and recession “which slowed down economic activities.”

The query to Mr Fowler signed by Abba Kyari, President Buhari’s chief of staff. And in the letter, Mr Kyari asked Mr Fowler to explain why government revenue under Mr Fowler has always been less than projected revenue and why the revenue has dropped compared to what obtained between 2012 and 2014, under ex-President Goodluck Jonathan.

But the Registrar/Chief Executive, CITN, Adefisayo Awogbade, in a document obtained by The Daily Times stated that the CITN notes that FIRS has severally adopted unique innovative strategies and initiatives in the collection of VAT during the period (2015 – 2017) that led to approximately 40 per cent increase over 2012 – 2014 collection figures.

“As part of the CITN tax review mechanism, our Institute exudes confidence that the current strategies and initiatives will improve revenue collections and meet the expectations of the Government.”

“The various initiatives included ICT innovations, taxpayer education, the taxpayer enlightenment and evaluation, etc. CITN, as the only tax professional the regulatory body in Nigeria has keenly observed that since August 2015, the FIRS target for two major non-oil taxes was increased by 52 per cent for VAT and 45 per cent for CIT”, CITN stated.

The institute noted that this period has not only witnessed an increase in absolute collection figures, but has more than ever increased Tax Payers base and has brought Tax compliance consciousness to the Nigerian populace amongst others.

There has never been a time in the modern history of Nigeria that Taxation has become a serious issue for conversation.

It is hoped that with the adoption of more tax compliance strategies, the tax base will experience further widening to include more people, sectors and businesses into the tax net for enhanced revenue generation.

Conclusion

At present, crude oil exports account for about 90 per cent of foreign exchange earnings and 80 per cent of government revenue; thus making the country’s economy heavily reliant In the petroleum sector.

This dominant role, coupled with inadequate management of oil revenue during periods of the windfall has pushed other productive sectors like agriculture, the traditional mainstay of the economy, from the early fifties and sixties to the background; thus exposing the country to volatility in the crude oil market.

For a mono-product economy like Nigeria, it is not unprecedented, therefore, that a sudden and a sustained decline in the price of the product will impact the country’s revenue negatively.

However, the only tax professional body in the country, CITN has said that the FIRS has done credibly well and needs to be commended for these great giant steps by government and all well-meaning Nigerians.

“The job of Tax collectors is a tough one as taxpayers do loathe them. We are convinced that we have made some progress but yet to reach our objectives as regards taxation in Nigeria.

We urge the FIRS to join hands with CITN in its avowed quest to make taxation the foremost the driver of our revenue generation in Nigeria”, the Institute charged.