Looking Beyond FIRS’ N10.1tn Tax Haul
FINANCE
For a nation with serious revenue challenges like Nigeria, the N10.1 trillion tax collection by the Federal Inland Revenue Service for 2022 is not a mean feat. However, from the experience of the FIRS, it is crystal clear that Nigeria has what it takes to raise the bar of revenue collection if it’s ready to put its house in order, writes Festus Akanbi
It is no longer news that the Federal Inland Revenue Service (FIRS) has remained the goose that lays the golden eggs in Nigeria amidst the colossal failure of the oil proceeds to meet the country’s growing expenditure over the years.
It is also a fact that the FIRS has been consistent with a legacy of good performance, a feat which its chairman and chief executive Mr. Muhammed Nami proudly attributed to a combination of sheer determination on the part of the staff to support the economy and the collective desire to meet the yearly revenue targets.
So, it was with a deep sense of fulfilment that Nami, recently announced the N10.1 trillion tax revenue generated by the agency in 2022.
Culture of Performance
In 2021, the revenue service had collected a total of N6.405 trillion in both oil (N2.008 trillion) and non-oil (N4.396 trillion) revenues as against a target of N6.401 trillion.
For its 2020’s operation, the FIRS collected N4,952,243,711,728.37. The service explained that the landmark achievement represents approximately 98% of the national tax target of N5. 076 trillion set for the FIRS by the federal government.19 Jan 2021.
As it is, the 2022 revenue represents the highest tax collection ever recorded in the history of the service and any other revenue agency in the country but it falls short of the N10.44 trillion target for the year under review.
Missing the Projection
Although the latest figure is unprecedented in the history of tax collection in Nigeria, the FIRS chairman lamented that his organisation’s effort was hampered by a chain of debilitating factors which includes a series of unresolved court cases, the regime of tax waivers and government influence, among others.
Nami said the service would have surpassed its projection for 2022, but for the various tax incentives granted under the respective laws, which amounted to N1.81 trillion. He added that this was not part of the total tax receipt for the year under review.
Nami also said political interest and distractions, including litigations against the service, hindered its tax collection drive last year.
He said, “We would have done better, but for several issues, some of which are political and very sensitive to discuss in the public domain.”
It is absurd that the same federal government which has been lamenting a general revenue shortfall could be fingered in the revenue crisis.
Listing obstacles to revenue mobilisation in the period under review, Nami disclosed that the most important one is distractions from certain interests within the federal government itself and the sub-nationals or people who want to do what FIRS is doing – in other words, those that want to perform the statutory functions of FIRS of assessing, collecting, and accounting for taxes in Nigeria.”
The FIRS chairman added, “These are not just mere issues but people instituting legal actions against FIRS to further distract us. People instituting, even federal agencies instituting legal actions against laws that have been passed by the National Assembly and signed into law by Mr. President.
“So, these challenges impacted negatively, because you see on so many occasions people writing in to find out that ‘tax A, we are confused, we don’t know who to pay to now that there’s a court ruling to restrict you from collecting such taxes’. So, this really impacted negatively on what we did last year.”
Legal Tussle over VAT Collection
Since 2021, the FIRS has been locked in a contest with the Rivers State government over which entity has the right to collect VAT.
The federal government, through the FIRS, has been in charge of VAT, which it then shares with the federal, state and local governments. That was until a federal high court in Port Harcourt in August 2021 ruled that it was the right of the Rivers government to receive VAT in the state. The state argued that it was against the constitution for it to generate VAT that is later shared with other states.
The highly populated Rivers, Lagos and four other states are responsible for about 80 per cent of VAT collected in Nigeria.
While the Court of Appeal has asked parties to maintain the status quo on the matter so as not to affect the subject matter of the suit, states like Lagos and Rivers have enacted laws backing up their collection of VAT within their states. This will affect the uncertainty of business as businesses would not know which agency has prevailing authority over the collection of VAT and non-remittance will amount to a breach of the law.
Tax experts said the legal tango will also create enough opportunities for potential tax evaders to thrive since the resort to court action is a recipe for confusion over who to collect the taxes.
Controversy over Waivers’ Policy
The unprecedented increase in tax waivers granted by the federal government in recent times has been hotly debated by concerned stakeholders who have argued that it is a drainpipe on the economy.
During the preparation for the 2023 budget, the Senate Committee on Finance reportedly rejected a N6 trillion tax and import duties waiver proposed by the federal government in 2023 budget, stating that wastages and leakages must be blocked.
Subsequently, the Minister of Finance, Zainab Ahmed, was directed to cut down the tax waivers by half to N3 trillion, to offset the N12.43 trillion deficit of the N19.76 trillion proposed as expenditure for the 2023 budget.
The lawmaker’s grouse is that many of the beneficiaries of the waivers are not ploughing accrued gains made into expected projects as far as infrastructural developments are concerned.
Economists said for a nation with a serious revenue challenge, there is a need to review the waiver policy in a way that will guarantee the flow of more revenue to the nation’s covers.
Harmonising Tax Laws
One of the issues raised by Nami included the need for the three tiers of government to discuss the possibility of harmonising the country’s tax system. He said the global best practice was to have a single tax authority with a single technology to drive tax administration.
Nami argued that a multiple tax system would only help people to dodge tax payments, stressing that harmonisation would help boost tax receipts in the interest of the economy.
Analysts noted that Nigeria, which should be the leading light in terms of tax administration in Africa, given its position as the most populous with the largest economy in the continent, has continued to lose billions of naira in tax revenue to illegal tax collectors.
According to the Organisation for Economic Co-operation and Development (OECD), in its Revenue Statistics in Africa 2021, the average ratio of Tax-to-GDP of 30 selected African countries in 2019 was 16.6 per cent while Nigeria recorded a mere 6.0 per cent.
There is no doubt that Nigeria is bleeding from the activities of illegal revenue collectors, especially non-state actors.
A good example of the operation of illegal revenue collectors is found in Lagos State where motor park touts, popularly called agberos fleece the state of billions of naira in transport taxes collected from drivers of commercial buses, tricycles and motorcycles.
For example, it is estimated that there are about 75,000 commercial buses (danfos) in Lagos, according to the Lagos Metropolitan Area Transport Authority (LAMATA).
There are at least 100 revenue-collecting agencies at both federal and state levels competing with the officially designated tax authorities like the Federal Inland Revenue Service and state internal revenue services, leading to multiple taxations and compounding the ease of doing business in Nigeria.
Perhaps, one major incentive to taxpayers is the evidence that the revenue collected is well spent. Therefore Nami urged the three tiers of government to apply the funds generated by the service to critical sectors of the economy to “give value back to taxpayers as far as their monies are concerned”.
He stated, “We appeal to them to continue to invest the little we are generating judiciously so that they can encourage taxpayers to continue to comply and pay more so that together we can fix Nigeria.”
Analysts said most Nigerians decline to pay tax because the ostentatious lifestyles of many political leaders do not march the reality in terms of dividends to the people.
A Lagos-based tax expert, Mr. Kingsley Ugbonna said the government is finding it difficult to convince Nigerians that the economy is down.
“How do you reconcile a situation whereby people are asked to pay tax while government officials travel outside the country for social engagements? Costs of living are moving up daily. Nigerians are finding it difficult to get essential items like fuel, electricity and good roads whereas some political leaders are spending money on frivolities with impunity,” he said.
