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Revenue Gap: Positioning FIRS for fiscal reform tasks amid GDP slowdown

For several decades of Nigeria’s nationhood journey and policy measures by successive governments to achieve broad-based socio-economic development, the country is classified today as a ‘developing’ nation that has failed to grow in real terms to guarantee socio-economic well-being for the citizenry, despite its huge human and natural resource endowments.

Aside from bad leadership, which the country has experienced for many years, one of the causes of Nigeria’s underdevelopment and which can be tangentially linked to leadership ineptitude is the mismanagement of its resources, particularly the generated revenues over the decades.

Available statistics on the nation’s public finance system for many years reflected that for the past 20 years or over, Nigeria, like a fiscal dullard, has never achieved a balanced budget for any fiscal year and has been going about begging for loans to bridge the increasingly yawning gap of her budget deficits. Today, the nation’s public debt profile is estimated at about N80 trillion, including the Ways and Means borrowing from the Central Bank of Nigeria (CBN).

A major issue that has been associated with the poor revenue generation profiles of the country is the leakages across the tax administration value chain at federal and sub-national levels as collections are not properly accounted for by revenue agencies even as the remitted collected taxes are also being mismanaged with little to show for taxpayers’ benefits in terms of social and economic services.

It is against this backdrop that many analysts are optimistic that the new tax and fiscal reform initiatives of the current administration may change the sordid narrative of the past and expressing their readiness to work with the Taiwo Oyedele-led Presidential Committee on Fiscal Policy and Tax Reforms, which in the past weeks has been championing the cause of a more efficient fiscal regime in the public finance system to boost tax revenue collections for national development.

Speaking shortly after the inauguration of the committee in early August, Oyedele, who is chairman of the committee, clearly pointed out that the Nigeria Customs Service (NCS) and 62 other federal ministries, departments and agencies (MDAs) had no business directly collecting revenue and that the only agency legally assigned the responsibility is the Federal Inland Revenue Service (FIRS).

Oyedele, a former fiscal policy partner and Africa tax leader at PriceWaterhouseCoopers (PwC), lamented that Nigeria’s revenue collection from taxes remained one of the lowest globally but the cost of collection was excessively high.

He clarified: “Ironically, our cost of collection is one of the highest. And the reason for that is that we’ve got all manners of agencies. The Federal Government alone, we have 63 MDAs that were given revenue targets last year, no; actually in the 2023 budget.

“And two things that would come up from that: on one hand, these agencies are being distracted from doing their primary function which is to facilitate the economy. Number two, they were not set up to collect revenue, so, they won’t be able to collect revenue efficiently.

“So, move those revenue collection functions to the FIRS. It has two advantages: the cost of collection and efficiency will improve, these guys will focus on their work, and the economy will benefit as a result”, the tax expert added.

Apparently conscious of the enormity of the task ahead of the committee, the Vice President, Kashim Shettima, last Monday when the committee members visited his office on Monday, August 28, urged the members to develop a robust roadmap that will transform the nation’s economy.

He said: “The task before you is enormous, I believe you have the best brains to come up with a robust roadmap that will reposition our economy.”

As expected, the latest fiscal reform policy thrusts of the President Bola Tinubu-led administration has continued to elicit reactions from public finance and development experts with many commentators agreeing that the plans are desirable for improved efficiency in tax collection, especially given the leakages that had characterized the administration of taxes under the old regime as well as the imperative to minimize borrowings by the government to fund the yearly budgets.

For instance, tax experts believe that the latest fiscal reforms of the new administration are in line with the recommendations of the Prof. Dotun Philips Study Group’s recommendations on the need to strengthen the FIRS to enhance its tax administration capacity and by implication, boost the nation’s tax revenue for development.

The Prof. Dotun Philips’ Study Group was inaugurated then in 2002 based on the need for improvements in tax laws and their administrative systems and the committee came out with key recommendations on how to improve tax administration nationwide.

For instance, some of the reforms introduced then based on the study group’s recommendations included the passing of the FIRS Management Act 2007 giving full autonomy to the Service as well as the 2012 National Tax Policy (NTP), which was reviewed in 2016 invigorating new approaches to taxation including the current Voluntary Income and Asset Declaration Scheme (VAIDS).

Some key other reforms to improve the efficiency of the nation’s tax administration had also been introduced by the past governments.

But then, one question that many analysts are raising now in respect of the new tax reforms of the Tinubu administration is: Is the FIRS strongly positioned to comprehensively monitor and cover all the revenue sources given the expansive size of the polity based on its current manpower and other resources?

Speaking on how the FIRS could really enhance its tax administration if the proposed reform initiatives are backed by the Executive Order or amendment of the revenue agency’s enabling Act, a civil advocate, Mr. Celestine Odo, advised the government to support the agency with adequate technological tools required for effective coordination of its activities nationwide.

In addition, the public affairs analyst and Manager, Governance, ActionAid Nigeria, advocated the need for the expansion of the tax and new rules or amendment of the existing legislation to enable the revenue agency tax cross-border online transactions, among other measures.

He said: “There should be the introduction of appropriate technology to ensure that all payments of Value Added Tax, especially at the retail end, are automatically swept into the coffers of government while reconciliations will come either monthly or quarterly.

“The tax base should be broadened without increasing the tax rate, but by blocking leakages, and bringing in high net worth individuals into the tax net.

“There should be new rules or amend existing legislation to effectively tax intangible online transactions that generate billions of naira across borders”, Odo added.

According to him, in line with global best practices, tax administration at the federal and state levels should be strengthened through innovations and automation of the system to optimize revenue collections and plug leakages and other abuses in the collection and remittance value chain.

Commenting on the current tax reform initiatives of the government which now aim at making the FIRS the sole agency to administer all federal taxes, a foremost tax practitioner and consultant, Dr. Mac Dike, described the latest move by the government as a desirable step towards improving tax administration at the federal level.

Dike, who is a past President of the Chartered Institute of Taxation of Nigeria (CITN) recalled how the federal tax agency had transformed over the years starting with regional offices to become a national agency with strong presence in all the 36 states and the FCT and expressed optimism that if given the political and other necessary supports, it will efficiently administer the federal taxes with the attendant positive implications for generated revenue for the government.

According to him, the ongoing tax reform initiatives align with the Prof. Dotun Philips committee’s recommendations and the implementation will go a long way in addressing some of the current challenges associated with tax collection and remittance by several agencies by streamlining the processes.

The tax expert, who was formerly a Director at FIRS and now a tax consultant/researcher, further clarified: “The reforms are in line with what obtains in many countries like Tanzania, UK, South Africa, Kenya, Canada, and others where a single tax authority is administering tax and the various countries are optimizing their tax revenue potential and actual collections to the fullest.

“From my experiences over the years, I strongly feel that FIRS has all that is required to fulfill the responsibilities that will be given it based on the current tax reform agenda of the government. With its offices across the states, quality of its manpower and technological capacity, I have no doubt that the revenue agency will deliver.

“All I think should be done is for the government to provide it with all necessary support to enable it meet its revenue generation expectations or even surpass them as it had done over the past years in terms of revenue targets and actual collections”, Dike added.

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“The tax base should be broadened without increasing the tax rate, but by blocking leakages, and bringing in high net worth individuals into the tax net.”

Tola Akinmutimi

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