Anxiety as Revenue Shortfall Raises Spectre of Harsh Tax Policy

As the shortfall in revenue to the federal government occasioned by the twin problem of the unsustainable policy of fuel subsidy and rampant oil theft pushes the federal government to the brink, and with the emergence of the Federal Inland Revenue Service as the latest cash cow, there are fears that  the federal government in its desperation, may raise more taxes to cover the gaps on the eve of  the 2023 general election, with the attendant burden on businesses and individuals, reports Festus Akanbi

For obvious reasons, the management of the Federal Inland Revenue Service (FIRS) is basking in the euphoria of the rising profile of the organisation as the major revenue-generating agency in the country today.

FIRS, New Cash Cow

The feat is coming with huge benefits to the revenue agency. First, the higher the revenue generated by the FIRS in a given year, the more its share of the revenue which comes in form of the 0.4 per cent commission statutorily allowed as an incentive for better performance. This is shared among the staff and management periodically as bonuses and for the payment of the 13th-month salary.

But as staff and management of FIRS are busy celebrating their newfound status in their 15 Sokode Crescent, Wuse Zone 5, Abuja headquarters, Nigerians are coming to terms with the reality of the critical state of the economy and their proneness to a more stringent tax regime.

According to a THISDAY report, the Federation Account Allocation Committee (FAAC) now relies heavily on the revenue from the Federal Inland Revenue Service (FIRS) for its monthly allocation to the three tiers of government.

The 2021 financial records of the FIRS’ contributions to FAAC showed that in the year under review, the federal revenue collecting agency’s contribution was a total of 59.45 per cent because out of the total of N8.912 trillion to the three tiers of government last year, N5.298 trillion was contributed by the federal revenue collecting agency. The trend has continued in the first five months of 2022 as the NNPC’s contribution is still weighed down by the fuel subsidy burden.

Crude Oil Sale and Harvest of Losses

According to the report, Nigeria lost a whopping $650.7 million worth of crude oil resulting from the declaration of force majeure, equipment failures, and host communities’ disturbances between the April and May production cycle.

The amount of oil lost during the period extracted from the Nigerian National Petroleum Company Limited (NNPC) presentation to the Federation Account Allocation Committee (FAAC) excluded the massive volume stolen in the Niger Delta region.

The document detailing the national oil firm’s activities for May showed that over 5.707 million barrels of oil were lost to the breakdown of production equipment, protests from the community workforce arising to shutdowns as well as a fire outbreak at one of the terminals.

Still struggling with meeting its oil production quota, the Organisation of Petroleum Exporting Countries (OPEC) recently revealed that Nigeria reported a paltry 1.024 million barrels per day production in May, a multi-year low. With the latest figure released by the OPEC, it meant that Nigeria’s underperformance was as high as 700,000 barrels per day for the month, although the cartel’s total allocation to Nigeria exceeded 1.75 million bpd for the month.

The 1.024 million bpd production (through primary communication) was about 195,000 bpd less production when compared with April’s total of 1.219 million bpd, OPEC said.

Fuel Subsidy as Draining Pipe

In May, the NNPC was unable to carry out its statutory obligations to the federation, recording a N704 billion deficit for the year thus far. In its monthly presentation to FAAC for May, the corporation disclosed that it deducted another N327.07 billion as a shortfall in the month under review. With a projected N1.473 trillion payments to the federation for the entire year and a monthly remittance of N122.767 billion, the implication was that the federal, state and local governments may continue to have cash shortages for a while since the payments constitute a major revenue source. In January, February and March 2022, petrol subsidy gulped N210.38 billion, N219.78 billion, and N245.77 billion, respectively while in April, the country spent N271 billion. These deductions were expected to continue throughout the year.

The World Bank had estimated that fuel subsidy payments in the country may rise to N5 trillion this year. According to reports, the amount spent as subsidy by the federal government on every litre of petrol, popularly called petrol, consumed in Nigeria is currently above N600.

Also, the latest petrol  evacuation data obtained from the Nigerian National Petroleum Company Limited showed that the year-to-date daily consumption of petrol in Nigeria was 66.8 million litres.

NNPC has been the sole importer of petrol into Nigeria for several years. The oil firm has continued to shoulder the burden of subsidy over these years, a development that has prevented the corporation from making monthly remittances to FAAC.

The National President, Natural Oil and Gas Suppliers Association, Bennett Korie, was quoted as saying that the current cost of petrol could make one run away if told.

“You can’t buy petrol at a high price and sell this low. Crude oil is about $130/barrel, the cost of fuel, if you hear it, you will run away; but you are selling at N165/litre. So definitely you don’t expect money to remain for government to run other activities when it spends heavily on subsidy,” he stated.

Despite Overwhelming Opposition, FG Begins Implementation of Sugar Tax

Observers said the pathetic revenue position of the federal government may have been responsible for its decision to exhume the taxation on Sugar-sweetened Beverages (SSBs) which was suspended in January 2009. Despite the opposition of the bodies like the Nigerian Labour Congress (NLC), Lagos Chamber of Commerce and Industry(LCCI), and the Manufacturers Association of Nigeria (MAN), the federal government on June 1, 2022, began the implementation of the controversial excise duty of N10/litre on all non-alcoholic carbonated and sweetened beverages.

According to Chief Superintendent of Customs, Department of Excise, Free Trade Zone and Industrial Incentives, Dennis Ituma, the Customs has started the implementation of taxing all companies producing sugar-sweetened beverages (SSBs) by sensitising the companies on the need for taxation.

 “The N10 per litre of sugar-sweetened beverages (SSBs) has been implemented on June 1, by July 21, all excise duties must have been collected and paid into the federation account,” he said.

“It should interest you that taxation on SSBs was a policy of the federal government in 1984 but was stopped in January 2009.

“Previously both SSBs, alcoholic drinks, and tobacco were all taxed until 2009 when SSBs were removed from taxable beverages,” he said.

The Minister of Finance, Budget and National Planning had announced the new tax imposed on sugar-sweetened beverages in January 2022. Ahmed had said that the new sugar tax was introduced to raise excise duties and revenues for health-related and other critical expenditures in line with the 2022 budget priorities. 

The fear in the business circle is the tendency of the three tiers of government to introduce more taxes to bridge the gap being created by the dwindling revenue due to the crisis in the oil sector. However, tax experts insisted that Nigerians can derive more revenue without introducing more taxes.

Speaking with our correspondent on the fear that government may roll out more taxes, the Fiscal Policy Partner and Africa Tax Leader at PricewaterhouseCoopers, Mr. Taiwo Oyedele said rather than increasing the tax burden on the citizens, the government can generate more revenue from taxation by improving administrative efficiency and using data for tax intelligence to tackle tax evasion.

According to him, “The FIRS and indeed the various states’ internal revenue services can generate much higher revenue without imposing heavier tax burden on businesses and individuals. One way of doing this is to improve administrative efficiency and use data for tax intelligence to tackle widespread evasion and aggressive tax avoidance. Also, many of the informal taxes being paid to non-state actors can be harmonised and converted to formal taxes and utilised for the benefit of the people.”

Oyedele, who is also the Research Director for the Fiscal Policy Roundtable of the Nigerian Economic Summit Group, expressed worry over the indiscriminate imposition of taxes, saying, “I am however concerned about the constant imposition of new taxes by the federal government notably the new Police Trust Fund levy, NASENI levy, and more recently the NYSC tax. The proliferation of these earmark taxes portends a great danger to the country’s business competitiveness and quest for growth. A different approach would be for the government to focus on harmonising the number of taxes and revenue agencies such that people pay fewer taxes, and spend less on compliance while the government collects more due to efficiency gains, a larger tax base and a wider tax net.”

There is no doubt that government is desperate to bridge the gap created by the pervasive shortfall in revenue distributable to all tiers, the reality is any attempt to increase the tax burden of the people will be counterproductive. The citizens cannot be punished by the government for lacking the balls to end the policy of fuel subsidy which has been a drain pipe to the nation’s resources.