By Amaechi Ogbonna
Despite being the largest economy in continental Africa, Nigeria still carries the unpleasant tag of being one of the countries with the lowest in tax to GDP ratio.
Tax to-GDP ratio which is the ratio of the tax revenue of a country to its gross domestic product (GDP) is indeed a measure of how well a government is managing its national economic resources at any given time for the good of its citizens.
Going by the World Bank standard, tax revenues above 15 percent of a country’s gross domestic product (GDP) are a key ingredient for economic growth and poverty reduction, hence the need for governments to ensure its consistent development.
Consequently, it’s implied that a nation with higher tax revenues will be able to spend more on improving infrastructure, health, and education which are critical components of long-term development prospects for the economy and its people.
It is against this backdrop that the Executive Chairman of the Inland Revenue Service (FIRS), Mr Mohammad Nami, has been advocating for an enhancement of the processes adopted in the computation of Nigeria’s tax-to-gross domestic product (GDP) ratio, currently estimated at about 6 percent in order to capture not only the Federal Government taxes, but also those paid in the states and local governments of the country.
At a recent symposium themed ‘Taxation and challenges of external shocks: Lessons and policy options for Nigeria,’ organised by the FIRS in collaboration with the Usmanu Danfodiyo University, Sokoto (UDUS), the FIRS boss emphasised the need for an aggregation of all revenues generated at national and sub-national levels so that the country can have more money to finance its obligations to the citizens.
According to him, a paltry 6 percent in annual tax to GDP will certainly not guarantee adequate resources required by government to provide for the basic needs of its people.
For the Nigerian state that needs to muster all the financial resources required to tackle its huge infrastructure gas, growing its tax revenue to GDP base could not have been more appropriate than now that the COVID-19 pandemic has rendered the operations of various organisations already in the nation’s tax net more prostrate and with varying degrees of critical assets impairments.
These impairments were largely occasioned by the multiple global and in some cases nationwide shutdowns, lockdowns coupled with declining consumer purchasing power following the various waves of the pandemic.
Speaking earlier at ‘Public Presentation and Breakdown of the Highlights of the 2022 Appropriation Bill,” Nami, lamented that Nigeria has only 41 million taxpayers among its 200 million population, and thus earns lower than its counterparts across Africa from Personal Income Tax (PIT).
“If you also compare that with South Africa which has a total population of about 60 million people, with just four million taxpayers, the total personal income tax paid in South Africa last year was about N13 trillion, you could see that these things are not adding up.
So, if we don’t pay these taxes, there is no way our government will be able to provide the social amenities and critical infrastructure required for the wellbeing of the country,” He said.
But still undeterred by these challenges, the Federal Inland Revenue Service (FIRS), has sustained the pursuit of initiatives that would help achieve its mandate of mobilising revenues from diverse sources to ensure they are available for the Federal Government to execute its obligations to Nigerian citizens. This it is doing through deliberate efforts to expand the tax net to accommodate more taxpayers.
For instance, the agency has remained unrelenting in its drive at improving processes and procedures including tax education, compliance enforcement, legislation and enlightenment among others, which have lately started impacting its bottom line.
Despite a subsisting legal tussle with some sub-national on VAT collection, there are strong indications to suggest that FIRS’ various enlightenment initiatives have begun creating better business process improvements that foster faster dispute resolution among its stakeholders.
Last year for instance, the nation’s number one revenue collection agency raked in a whopping sum of N6.4 trillion in revenue.
The year’s revenue collection exceeded the N5.3trillion it garnered 2019 described as the highest in its history amid the collateral consequences of a global pandemic.
However, when last June, the Minister of Finance, Budget and National Planning, Mrs. Zainab Shamsuna Ahmed, approved the Tax Appeal Tribunal (TAT) (Procedure) Rules, 2021 pursuant to her powers under Section 61 of the Federal Inland Revenue Service (Establishment) Act, 2007 (as amended),
the rules, to replace the defunct TAT (Procedure) Rules, 2010, its expected to enable the Tribunal deal justly, fairly and expeditiously with appeals that encourage and promote the settlement of disputes among parties.
Other sections of the rule require taxpayers to pay 50 per cent of any disputed amount into a designated account of the TAT as security for prosecuting an appeal, prior to commencement of appeals.
It also involves modification of some old definitions and interpretation of additional terms such as “appeal”, “notice of appeal”, “decision of the Tribunal” ,recognition of service of documents or processes carried out by email or such other electronic means as the Tribunal may permit; and recognition of virtual/ remote hearing of applications and delivery of rulings by the Tribunal.
It also included the introduction of a six-month timeframe from the date of commencement of trial for the TAT to conclude and provide a decision; and provisions for hearing of ex-parte and non-contentious applications in Chambers as well as summary appeal procedure for liquidated money demands.
Although the TAT (Procedure) Rules, 2010 is effectively replaced, it allows for “anything done” under the defunct 2010 Rules to remain valid, as long as such is consistent with the provisions of the new Rules, thus taking pre-eminence over existing matters and ensuring a smooth transition.
The law was approved in line with government’s efforts to help the country’s tax administration authorities and other stakeholders conduct their business in conformity with modern global tax system to guarantee a just and seamless tax dispute resolution mechanism.
Indeed, these Rules which effectively replaced the 2010 Rules are intended to guide the practice and procedure for Tax Appeal Tribunal, (TAT) proceedings.
Part of the measures was to enable the Tribunal to deal justly, fairly, and expeditiously with appeals that promote the settlement of disputes among parties.
Also highlighted in the document include include; recognition of service of documents or processes carried out by email or such other electronic means as the Tribunal permits; recognition of virtual/remote hearing of applications and delivery of the rulings of the Tribunal; introduction of a six-month timeframe from the date of commencement of trial for the TAT to conclude and provide a decision and Provisions for hearing of ex-parte and non-contentious applications in Chambers as well as summary appeal procedure for liquidated money demands.
Stakeholders reactions
However, since that enactment, various stakeholders have continued to comment on the implications of the new tax rule and provisions with the Partner and Head, Tax Regulatory and People, at KPMG, Wole Obayomi, arguing that the implementation of the new rules emphasises the Federal Government’s commitment to improving Nigeria’s tax landscape, which commenced with the enactment of Finance Acts, 2019 and 2020.
According to him, the amendments to the TAT (Procedure) Rules, which is the initial forum for formal tax adjudication in Nigeria, align with changes in global tax administration systems and ensure that the TAT’s procedures are up to date to give taxpayers increased confidence in the system.
The role of the Tax Commissioners are not those of “judges” in the constitutional sense and so, rather than becoming a part of the judiciary, the TAT should be preparatory to, and supplementary to the formal judicial system. Consequently, the changes may revive the challenges on the legality of the TAT and its encroachment on the constitutional preserve of the Federal High Court on revenue and taxation issues.
For their part, analysts at PwC noted that: “The new procedures took effect from 10 June 2021, but taxpayers generally became aware of it end of September 2021. The Rules are intended to make the TAT more efficient in the dispensation of justice.
“They are also a reflection of the current realities given the wide adoption of technology in the administration of justice. With the powers to order costs, the TAT now has powers to penalise erring parties for unprofessionalism and unnecessary delays.”
Also commenting on the unfolding scenario, the firm of Ernst & Young Nigeria, argued that the enactment of the Rules by the Federal Government was commendable as it seeks to amend some old definitions to give better clarity on certain terms and processes, and further introduce certain provisions, such as electronic applications, virtual hearings, delivery of rulings amongst others, to align with current realities.
However, it contended that certain provisions of the Rules, including the payment of 50percent of the disputed amount before the commencement of an appeal may discourage aggrieved persons who ordinarily would have wanted to initiate an appeal on a decision or an assessment, especially where such persons are not financially capable of paying that amount.
Consequently, it urged the Minister to review the Rules to ensure its objectives are achieved.