Bukar Kachalla
A major national lesson for the government and citizens of Nigeria over the last five years is that oil revenue, on which the country is almost totally dependent to fund development, cannot be relied upon to take the country to its desired developmental destination. For decades, local and international economic observers had cautioned against near-total dependence on oil revenue. In 2012, for example, the International Monetary Fund (IMF) advised developing countries that taxation would play a key role in their bid to move their citizens out of poverty.
“Developing countries must be able to raise the revenues required to finance the services demanded by their citizens and the infrastructure (physical and social) that will enable them to move out of poverty. Taxation will play the key role in this revenue mobilization,” counselled the IMF.
Such warnings were, however, treated with indifference, abetted by favourable oil prices on the international market. The result was a culture of complacency, marked by reluctance to seek alternative revenue sources. This, of course, meant that the country was incapable of optimally generating revenue needed for infrastructural and human capital development needs from the vast range of activities in its economic space, a paradox, given the size of its economy.
By 2014, Nigeria started feeling the pinch when international oil prices began tumbling, leaving the Federal Government unable to meet its obligations and forcing it to borrow to pay salaries of civil servants. Government at other levels naturally suffered the same fate, as many were unable to pay salaries let alone embark on capital projects. The tumble would grow into a nosedive, with prices crashing from $105 per barrel to $53 per barrel in 2015.
This was the situation the current administration inherited in 2015, with the country slipping into recession the following year. Faced with the oil price crisis, the government of President Muhammadu Buhari knew it had to look elsewhere to find funding for the various programmes it promised Nigerians. The administration decided to focus on internally-generated revenue and sought a man to drive the process. The mantle fell on Babatunde Fowler, who was appointed chairman, Federal Inland Revenue Service (FIRS) in 2015. Fowler came in on the back of an impressive record of performance at the Lagos State Internal Revenue Service (LIRS), which he made the model of revenue mobilisation in the country.
It was hardly the best period to come into office, given parlous state of the economy, squalid voluntary tax compliance rates (partly encouraged by absence of tax conscience among eligible taxpayers as well as failure of tax administration to recognise the importance of communication) and poor revenue collection processes, which made leakages easy.
But through dogged implementation of a series of reforms, the FIRS, even under a contracting economy and one that took in the recession, has created a dynamic tax administration environment. Notably, these initiatives have resulted in the automation of all tax processes, which is headlined by the FIRS’ e-services that have made the processes faster, more convenient and more transparent. Alongside the automation, there has been a campaign to grow tax conscience through massive tax education/enlightenment and robust enforcement. This has seen the country’s taxpayer roll rise from 10 million in 2015 to a figure approaching 45 million in 2019. Efforts to improve tax education has seen the FIRS establish the Federal Engagement and Enlightenment Tax Teams (FEETT) directorate, which continues to interact with taxpayers to help them file and register and provide answers to any questions they may have in terms of payment of tax.
These efforts have yielded year-on-year improvements in collection figures, the highlight of which was the N5.32 trillion collected in 2018. This figure, an increase of N1.292 trillion over the N4.02 trillion collected in 2017, is the highest ever in the history of the FIRS. Total collection for 2016 amounted to N3.3 trillion.
The service’s focus also shifted to non-oil revenue, as evidenced by contributions from that source. In 2015, non-oil tax revenue accounted for 65 per cent; 2017, 62.25 per cent. In 2016, it was N2.149 trillion; in 2017, N2.5 trillion, and in 2018, N2.852 trillion. Oil tax revenue grew from N1.15 trillion in 2016 to N1.52 trillion in 2017 and N2.52 trillion in 2018, an indication of the effects of the diversification of the Nigerian economy by the Federal Government.
This growth has been underpinned by a reduction in the cost of collection. In 2016, collection cost was 2.6 per cent; 2.49 per cent in 2017 and 2.14 in 2018, an indication that it is heading downwards based on the efficiency and technology being deployed to tax collection. The information and communication technology initiatives that the FIRS has continued to build on are e-payment channels, which make it convenient and easy to pay taxes anytime and anywhere in the world and download tax payment receipts.
Similarly, its Value Added Tax (VAT) automation programme and information exchange with third-party databases and other government agencies have boosted VAT collection rates. In 2018, Auto-VAT collection showed a 31 per cent increase over the N25 billion collected in 2017 through the new scheme. In 2016, the FIRS collected N828 billion as VAT; N972 billion in 2017 and in 2018, N1.1 trillion.
In terms of the automated deductions at source and remittance of VAT and withholding tax from state governments, the FIRS collected N13 billion in 2018. Its e-receipt system ensures that once a payment is received, the taxpayer is notified through his/her e-mail or phone number and can download the receipt and print them out. A taxpayer can also apply online for tax clearance certificate and receive it online immediately. The use of the e-receipt facility grew from 9,574 to 59,350 taxpayers in 2018. Revenue from stamp duty, through the electronic stamp duty process, has equally grown, as its payment has become more convenient. In 2016, the FIRS collected N5.6 billion; in 2017, N10.9 billion; and in 2018, N15.66 billion.
In its efforts to enforce compliance with tax laws, the FIRS introduced a series of enforcement initiatives through which it has recovered huge tax debts. One of such entailed the scrutiny of the finances of businesses/partnerships with banking turnovers in excess of N1 billion. Through this the FIRS discovered that about 6,000 of such businesses had no tax identification, filed no tax returns and paid no taxes. Such businesses, in 2018, paid a total of N21.75 billion in tax liabilities and are paying the balance in instalments.
The initiative also saw the FIRS take a look at companies with a banking turnover between N100 million and N999 million. The service reviewed the financial affairs of this group, through commercial banks, and identified 40,611 that were registered for tax but made no tax payment, and 44,504 that were not registered and, therefore, were not making payments. So far, 45,361 have registered and have started making payments.
Through yet another initiative, the FIRS identified corporate organisations that own companies or properties, but were not found within the tax net in 2017. Through this, it generated N1.33 billion in 2017 and N2.88 billion in 2018 in just Lagos and the Federal Capital Territory. This is an exercise expected to cover the whole of the country to ensure more are brought into the tax net.
•Kachalla, a stockbroker, writes from Kano