FIRS’s New Technological Drive for Tax Collection, Leakage Block

Musa Abdulmumuni writes about the current moves of the Federal Inland Revenue Service towards blocking revenue leakages as well as deploying new technology for its operations.

An efficient tax drive system inarguably, would always serve as the most run-of-the-mill and important government intervention to redistribute income among the population of any society such as Nigeria, with over 200 million people.

Aside from oil, which remains the major revenue source for Nigeria, tax revenue continues to impact the nation’s economy, building government’s fiscal capacity at both national and the sub-national levels to provide the public goods and services that citizens need for growth.

Despite being a veritable alternative system for raising government revenue for development purposes however, not many people are disposed to willful payment of taxes due to a lack of public confidence, official corruption, embezzlement, infrastructure deficit, high levels of evasion, and rising public debt among other issues. Several citizens are still oblivious to the fact that taxation is the key contribution they make towards national development. According to the chairman of the Revenue Mobilization Allocation And Fiscal Commission (RMAFC), Mohammed Shehu, less than 40 million Nigerians are presently captured in the tax net and paying taxes.

Like in many African countries therefore, available reports indicate that Nigeria has one of the lowest tax collection rates in the world at approximately 10.8 percent of gross domestic product (GDP), well below the African average.

President Bola Tinubu appears to be worried about this trend. His decision in July 2023, to set up a presidential committee on fiscal policy and tax reform, is indicative of the government’s readiness to enhance revenue collection efficiency, ensure transparent reporting, and promote the effective utilization of tax and other revenues to boost citizens’ tax morale, foster a healthy tax culture, and drive voluntary compliance.

The current executive chairman of the Federal Inland Revenue Service (FIRS), Dr. ZacchAdedeji who served on this presidential committee, then, as a Special Adviser on Revenue to the President, believes strongly that the administration of President Tinubu is on a mission to reform Nigeria’s tax system and tackle some of the challenges hampering tax collection in the country.

These challenges include multiple taxes and revenue collection agencies, a high prevalence of tax evasion, a complex tax system, and poor accountability in the use of tax revenue. There is the aspect of revenue leakages. Obviously, lack of data in the oil sector for instance has made it difficult in the past to determine the exact number of vessels of crude that is brought into the country and the amount of tax that should be adequately paid.

“Our aim is to transform the tax system to support sustainable development and achieve a minimum of 18% tax-to-GDP ratio within the next three years without stifling investment or economic growth,” Adedeji told reporters at the presidential villa in July, 2023.

The choice of Dr. Adedeji, a consummate tax expert, by President Tinubu to pilot the affairs of the nation’s top revenue agency, may be one of putting a round peg in a round hole. While serving as Presidential aide, Adedeji undoubtedly also played critical roles in the formulation of the economic direction of the new administration.

One of the earliest promises of the FIRS chairman, was therefore, to build a tax administration that enjoys the trust and confidence of all stakeholders. Along this line, the FIRS boss acknowledges that having a data-driven system that makes revenue targets predictable is a precondition for the realization of the fiscal projections of the government for economic development.

This is imperative for the revenue agency, if it must achieve the mandate of collecting a record N19 trillion in the 2024 fiscal year as set by President Tinubu and legislated for in the budget.

To achieve this huge task, the FIRS boss in February this year, during a management strategic retreat in Abuja, declared that working with his team, the agency would be embarking on a structural transformation, to make the country’s tax collection system more tax-payer-centric, seamless, and to encourage voluntary tax payment by both members of the public, as well as, corporate organizations.

A systematic implementation of this reform, would obviously place the agency in a vantage position to raise the unprecedented N19 trillion revenue target, within 12 calendar months.

“The cornerstone of this paradigm shift is the establishment of a customer-centric organizational structure designed to streamline processes and enhance efficiency in our tax operations. 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.

“In our pursuit for a more efficient and contemporary tax administration methodology, we are embracing an integrated tax approach, leveraging technology at every step. This approach positions FIRS at the forefront of innovation, ensuring that we meet the evolving needs of our taxpayers in a rapidly changing world,” Adedeji told his staff members at the retreat.

The FIRS chief executive is also worried that aside the agency’s innovative strategies including the deployment of technology, the challenge of multiple collection of taxes by several government agencies stares in the face. A well-structured fiscal policy is really essential to provide many of the necessary infrastructure such as healthcare, education, and social services for the country.

While appearing before the House of Representatives Committee on Finance,  Adedeji explained that the present structure where the collection of tax revenue is done by over 60 government agencies is a major cause of leakage in funds.

Although, the Federal Government is considering a legislation to ensure that every Nigerian gets the one single identification number (NIN), the harmonization of revenue channels using technology to view all government revenue-collecting agencies in real-time, is seen as a welcome development that could enhance increased revenue collection.

These are the words of the FIRS executive chairman in this regard, “the law is very clear as to how to collect revenue. In Section 162 of the Nigerian Constitution, it is clearly stated that there shall be an account called the Federation Account and all government revenue must be put into that account.

“When we talk about harmonization, we are just saying integration of all collecting agencies, that on one platform, we can know what is happening in NIMASA, NPA, NCC, Customs, Federal Inland Revenue (Service)…We will make use of technology to know everything going on in real-time.”

It is heartwarming getting to see the FIRS go the way of technology. Technology deployment as promised by the executive chairman can effectively assist the revenue agency to ramp up tax collection.

Indeed, technology can play a significant role in improving tax collection processes and increasing revenue in several ways. One of which is digitalization of tax administration. Transitioning from paper-based to digital systems can streamline tax collection processes, making them more efficient and less prone to errors. Online platforms can be developed for taxpayers to file their returns, make payments, and access relevant tax information easily.

Another is data analytics: Advanced data analytics tools can help identify patterns, trends, and potential tax evasion cases by analyzing vast amounts of data. This enables tax authorities to target their efforts more effectively, resulting in increased revenue collection.

Automation is another: Automating certain tasks, such as data entry and document processing, can significantly reduce the workload of tax officials, allowing them to focus on more complex tasks that require human expertise. Automation can also help minimize errors and improve overall efficiency.

Artificial Intelligence (AI) and Machine Learning (ML): AI and ML technologies can be employed to analyze and interpret tax-related data, predict potential tax evasion cases, and even suggest audit strategies. These technologies can also be used to develop chatbots and virtual assistants that provide instant support to taxpayers, making the process more user-friendly.

Integration with other systems: Seamless integration with other government databases and systems can help in verifying taxpayer information, detecting discrepancies, and preventing fraudulent activities. This can result in better compliance and improved tax collection.

Digital payment options: Offering digital payment options can encourage taxpayers to make timely tax payments, leading to increased revenue collection. This can be facilitated by integrating tax systems with online banking, mobile wallets, and other digital payment platforms.

E-invoicing and real-time reporting: Implementing electronic invoicing systems and real-time reporting mechanisms can help tax authorities monitor transactions more closely, reducing the likelihood of tax evasion and improving compliance.

If these technological solutions are utilized by the FIRS, they could help modernize its systems and create a more efficient, transparent, and taxpayer-friendly environment, ultimately leading to increased tax revenue and better fiscal management.

What is most exciting is that the FIRS under Adedeji has since realised the enormous benefits and the efficacy of effective deployment of technology to drive taxation. Nigerians therefore, do expert impressive outcomes in revenue collection especially giving the huge target for the 2024 fiscal year, as many await to monitor events in the nation’s tax industry.

-Abdulmumuni writes from Abuja