Steven Igbokwe
Pressure on the Federal Inland Revenue Service (FIRS) to meet up the ever rising revenue target in order that the Federal Government might be able to find its budget has pushed the management into coming up with a number of innovative measure. To this end, it can be said without fear of contradiction that the tax body has in the past four years recorded laudable achievements.
Despite a challenging economy, FIRS under the leadership of the Executive Chairman, Babatunde Fowler, remained focused, ensuring increased revenue from non-oil sector, thus raising hope for the nation for a life beyond oil.
In the last four years, for instance, FIRS generated in excess of N5 trillion revenue outside oil, which has never happened before. Other accomplishments include expansion of tax base from 10 million to 20 million taxpayers with the potential for an increase of up to 45 million before year end 2020. Internally Generated Revenue collection at the sub-national level grew exponentially by 46.11 percent from N800.02 billion in 2016 to N1.16 trillion in 2018.
FIRS tax collections grew by 53.9 percent from N3.3 trillion in 2016 to N5.32 trillion being the highest collection ever in the history of FIRS.
The new TIN Registration System would improve on the efficiency and output of the entire tax administration process. It is also meant to provide enhanced convenience to the taxpayers as well as the tax administrators while guaranteeing that each taxpayer’s details are readily available to them at their fingertips at all times and anywhere.
Perhaps the most unprecedented is FIRS’ searchlights on the real estate sector.
The FIRS looked at all corporate names that owned property portfolios in Abuja, but were not within the tax net. It was found that well over 2,000 properties owners were not in the tax net. So, when the FIRS saw those numbers of properties owned by corporate organisations, it resolved not to allow them to be left to an individual’s subjective assessment. It got the value of the property. If the property is worth N100 million, that means that amount, either through an account or cash, had gone into that property.
So, FIRS took the turnover at N100 million.
For tax purposes, the tax rate is 30 percent. It also says 20 percent can be assumed as profit. FIRS was not charging property tax. On this particular case, FIRS has collected N5 billion so far. There are over 100 entities involved. About 34 claimed the properties were not theirs and were told them to put it in writing. Another 84 claimed the properties were not theirs but, when they saw government taking the property of those who put in writing, the others suddenly remembered they owned them!
Another innovation is the Voluntary Assets and Income Declaration Scheme (VAIDS). There was a federal tax amnesty in 2016, during which quite a number of organisations came forwards. VAIDS marked the first time that a tax amnesty was given to both corporations and individuals. At the federal level, FIRS received about N96bn ($310m). The programme was quite successful, as FIRS was able to grow the tax base from 14m to 19.5m, as well as gather information that it used to further broaden the tax base. In terms of increase in the tax base, VAIDS did play a very vital role as it helps create awareness on the importance of paying taxes. At the individual level, there was an increase of about eight million individuals.
Under the VAIDS scheme, there were about 5,000 applications at the federal level, which resulted to about N92 billion, out of that about N60 billion has been paid. FIRS has detected over 46,000 accounts that have banking turnover of over a N100 million and above annually for three years that are still not in the tax net. 1,500 of those accounts alone have already remitted N63 billion in terms of tax revenue.
Also, you have the Integrated Tax Administration System (ITAS) initiated to automate all core tax administrative processes including registration, filing, audit and payments. Other taxpaying channels like Remitta, Pay direct and e-tax pay enable taxpayers to pay from the comfort of their homes.
Equally remarkable is the setting up of the Federal Enlightenment Tax Return Teams (FEETT) to engage, enlighten and register new taxpayers nationwide.
To make it easier for taxpayers to file their tax returns conveniently, the FIRS announced that tax payers could file their tax returns at the tax office nearest to them. This idea increased compliance and eased the burden of traveling from afar to pay tax.
The informal sector accounts for about 70 percent of business and trade in Nigeria. To tap into this, FIRS now has a data base for the small scale businesses. They actually account for 37.5 million individuals. Working with several stakeholders like the Central Bank of Nigeria through NIBSS (Nigeria Inter-Bank Settlement System), FIRS also has the Bank Verification Number (BVN) information of about 35 million individuals and also connected online with Customs and the Corporate Affairs Commission (CAC). This process will increase those on FIRS tax data base from 20 million to 45 million and it is believed that by the end of 2020, FIRS should be able to boast of about sixty million individuals on its tax data base.
Another innovation is using substitution to go after taxpayers who default on their liabilities. After giving taxpayers three opportunities – first at a meeting with stakeholders in 2015, then with the 2016 amnesty, and thereafter with VAIDS in 2017 – FIRS found that there were still quite a few corporate clients that have not come forward to honestly declare their tax obligations. Under the law, FIRS has the right to appoint banks as collection agents to work on its behalf. FIRS appointed the banks and looked at the net worth of those individuals and businesses that have generated a minimum of N1bn ($3.2m) in annual turnover for three years and have no tax ID or remittances. It identified close to 6000 such entities and individuals, met with stakeholders to brief them on why it was using substitution, which is an option that has been on FIRS books for quite a while. While it is a last resort, FIRS hopes to expand this programme by including businesses, partnerships, enterprises and individuals with more than N100m ($323,000) in yearly turnover.
The other innovative of the FIRS under Babatunde Fowler is the creation and sustenance of the property valuation assessment programme. Of the assessments that FIRS carried out, 99% were cases where property owners held their assets under company names, and had not filed any returns and had not paid any taxes. It had used the value of the property to estimate its owner’s turnover. The law allows FIRS to use its best judgement to determine turnover and estimate profits at 20% of the rate of turnover, and that profit can then be taxed at the rate of 30%. This programme has been launched in the Federal Capital Territory (FCT), Lagos State, Oyo, Osun and Kaduna.
In the FCT where the exercise has already been completed, FIRS issued assessments for over 2000 such properties, and in Lagos, it was up to 5000 assessments. It will eventually roll out this programme across all 36 states, although there will be challenges in those states where there is no land registry or a formal record of companies owned under corporate names.
It was perhaps in recognition of these ground-breaking reforms that Fowler was named among the world’s 50 most influential tax personalities and institutions by the International Tax Review in its Global Tax 50 2017. The ranking, which is in its seventh year, provides a rundown of the most influential individuals, organisations, geo-political events and trends in the tax world.
FIRS under his superintendent has continued to implement initiatives that has driven compliance and generated higher revenue by continuous taxpayer enlightenment, implementation of the auto VAT collection in other sectors of the economy, simplification of the tax processes especially for small taxpayers, strengthening collaborations with other agencies such as Corporate Affairs Commission (CAC), states boards of Internal Revenue, Ministry of Trade and Investment and Nigeria Customs Service.
* Mr. Igbokwe is a property consultant based in Lagos.