Sanitising Tax Environment for Revenue Optimisation

In this piece, James Emejo, assesses the new customer-centric policy direction of the FIRS towards improving voluntary tax compliance among others.

At its 2024 Strategic Management Retreat held recently with the theme, “Reimagining Tax Administration for Equity and Economic Growth,” the Federal Inland Revenue Service (FIRS), signaled a new direction regarding tax administration in the country, by unveiling a new operational structure that is largely customer-centric.

Unlike in the past when emphasises had been on meeting revenue targets as well as investigation and prosecution of defaulters at the detriment of business sustainability, the new leadership of FIRS, led by the Executive Chairman, Dr. Zacch Adedeji, has made it abundantly clear that it is more interested in facilitating an enabling environment for these businesses and investments to thrive, believing that this would able businesses to pay their taxes willingly.

The service is also putting in place measures to simplify tax payment and collection by creating a one-stop shop to conduct all tax activities among others.

There’s no gainsaying that several businesses had gone aground mainly because of excessive taxation, coupled with a hostile operating environment, occasioned by both external and domestic headwinds.

Yet, all that tax authorities were interested in was payment of taxes by struggling organisations.

This scenario has caused a major disincentive for taxpayers, most of whom have resulted in dodging or circumventing their obligations.

In fact, the last decade has seen the enforcement department of tax offices embark on investigations and prosecution of big and small taxpayers.

What was however baffling is that the authorities never bothered to put into consideration the inimical regulations and policies of government that had hampered businesses.

However, Adedeji said it was high time the service changed its mindset and rather facilitated a perfect environment for businesses to thrive and so they would be able to pay their taxes.

Adedeji said, “Our focus is to drive voluntary compliance and we will upgrade the organisational structure that we have and what we’ve done in general was to move from functional types of taxes units to customer-centric.

“And what do I mean? Today, you have VAT and stamp duty offices…The way we are structured today does not actually allow us to develop expertise in what we want to do. So, we are moving away from that type of functional or type of taxes unit to customer-centric, having large, small and medium taxes and service also categorised as a support group.”

He said, “What will that do for us? Because our key role as collection agency is to take care of our customers – the taxpayers -we are setting up structures in such a way that we would be able to serve them well.

“So, we have a large tax office, we have small tax office and a medium tax office. What that will do is that we would have a one-stop shop for tax payers. Instead of having VAT or Withholding tax or stamp duty offices – when you go to the tax office, this categorisation is going to be done by the threshold of your turnover.

“So, when you go to one tax office, you have all your concerns addressed – VAT, stamp duty and the rest – all types of taxes will be done at that one stop shop, and that is the focus. And we want to use that to drive voluntary compliance because the focus cannot be on litigation and investigation – those will be only 10 per cent of our strategy.

“The real strategy is to drive voluntary compliance and the way to do it is that there would always be consequences for non-compliance.”

Huge revenue burden

The FIRS has a collection target of about N19.41 trillion for the year after it surpassed its 2023 target by N816 billion, having collected about N12.37 trillion.

With the magnitude of such revenue mandate this year, many had expected that the service would deploy more aggressive measures to enhance its collection performance.

 But, Adedeji said Adedeji expressed confidence that the task was not impossible, especially given the reforms and new structure being put in place under his leadership to boost voluntary compliance by taxpayers.

He said the new approach was to provide the enabling environment for businesses to survive to enable collection of taxes.

He told THISDAY, “Our duty is to provide an effective tax collection system; we are not a revenue generating agency; we are a revenue collection agency.

“And if you go with the plan the president has to rejuvenate the economy – because what determines whatever we have comes mainly from macroeconomic indices, remember, we are going to tax prosperity not poverty, we are going to focus on the fruit and not the seed.

“Our duty is to make sure we have that viable economic environment to lead to economic prosperity and for us here, it’s just to put the structure in place to aid effective collection.”

The FIRS boss said, “Our focus is to increase tax without increasing tax rate. So, our focus is actually to improve our effectiveness in collection to drive voluntary compliance.

“Also, expand the base and have a good environment that makes the companies prosper. When the base is big, the same percentage will give you more taxes and that is our target.”

Customer-friendly environment

He said the unveiling of the new FIRS organizational/operational structure, remained a critical milestone in the service’s commitment to revolutionize tax administration in the country, adding that the cornerstone of the paradigm shift was the establishment of a customer-centric organisational structure designed to streamline processes and enhance efficiency in our tax operations.

Adedeji added, “We are not merely adapting to change; we are leading it. The forthcoming structure, set to kick off from February 2024, embodies our dedication to modernize and digitize the tax administration landscape in Nigeria.”

He stated that in its pursuit for a more efficient and contemporary tax administration methodology, the service is embracing an integrated tax approach, leveraging technology at every step which positions the service at the forefront of innovation, ensuring that it meets the evolving needs of our taxpayers in a rapidly changing world.

According to him, “The structure advocates for a comprehensive approach to taxpayer services, consolidating our core functions and support under one umbrella. By tailoring our services to specific taxpayer segments, we aim to simplify the taxpayer experience. No more complexities, no more overlaps—just a seamless and user-friendly interaction for every taxpayer.

“In a groundbreaking move, we are shifting away from traditional tax categorisation. Instead of maintaining different departments for distinct tax categories, the new structure formulates taxpayer segments based on thresholds. This tailored approach ensures that taxpayers are guided and serviced according to their specific needs, eliminating confusion and redundancy in tax administration.

“Behind this transformative initiative are carefully considered considerations detailed in our operations plan. We highlight the rationale behind our integrated approach, the benefits of comprehensive taxpayer services, and the logic behind tailored taxpayer categories, which will be presented to management in the subsequent sessions of this workshop.

“These considerations set the stage for a more responsive, efficient, and user-friendly tax administration system. Let me assure you that due process will be followed in this reformation. Extensive re-orientation and change initiatives will be implemented to ensure that no one is left behind.

“We recognize the need for meticulous planning, effective communication, and unwavering commitment to navigate this transformative journey successfully. “FIRS is already a formidable force, and with these new efficiencies, we can indeed meet and exceed our targets. This is not just a restructuring; it is a catalyst for a monumental leap forward, a collective investment in our shared future, and an unyielding commitment to excellence in tax administration.”

He explained that the proposed structure is not just a set of reforms but a commitment to redefine FIRS’s role in shaping a modern, efficient, and customer-focused tax administration system, stressing that through innovative organisational restructuring and process optimisation, FIRS remained committed to fostering a taxpayer-friendly environment that aligns with global best practices and positions Nigeria as a leader in contemporary tax administration.

“As we unveil this new chapter in the history of FIRS, I urge all of you to embrace change, to be pioneers in this transformative journey, and to envision the future we are collectively building. Together, we will redefine excellence in tax administration, setting new standards and inspiring others to follow,” he said.

Tax revenue as alternative

Speaking at the retreat, the Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, reiterated the need to focus on domestic revenue mobilisation to fund government’s budget, charging the service to do more help the government, amid confirmation by the Accountant-General of the Federation (AGF), Dr. Oluwatoyin Madein, that the FIRS now accounted for about 70 per cent of the nation’s total revenues, adding that a lot of tax revenues are still left uncollected while there’s need to expand the current tax base.

Edun said while tax revenue remained crucial, the issues around increase in government revenue deserved attention, adding that federal government owned enterprises must do more to augment the current fiscal position of government going forward.

The minister particularly commended the FIRS chairman and his team for exploring options to boost collection, he noted that the country’s tax revenue as a percentage of GDP remained low at about 10 per cent compared to other African countries and developed world in general.

He said though the service met and surpassed its target for last year, additional efforts are still needed to measure up to the challenge this year, and urged the service to build public trust, and accountability to the people regarding tax collection.

He said, “Bear in mind that in order to maintain and build confidence and public trust, what the taxpayers want to see is that their money is faithfully collected as it should be and properly spent and accounted for with minimal excess wastes and leakage. They deserve it and I believe you’ll give it to them.”

The minister stressed that the emphasis of the current administration was to grow the economy adding that given what is going on around the world, even a high and elevated and sustained increase in interest rates, borrowing is not the way to go.

“The emphasis is on IGR, domestic resource mobilisation, and equity as opposed to debt.”

Strategies for target actualisation

 Meanwhile, in realising its target for the year, the service has developed proactive engagement strategies to establish regular communication and provide customized and efficient services that address the unique needs of large taxpayers and key sector contributors.

It further seeks to improve understanding of key sectors and their value chains as well as improve quality of desk reviews of all taxes and audit particularly of firms/sectors identified as high risk.

Among other things, it plans to constantly refine digital platforms to ease filing, payment, reporting and communication, and establish a robust grievance redress mechanism/CRMS among others.