Nigeria’s tax system seems to be on its path to prosperous times especially with the various innovations that have been introduced in the last two years by the Muhammed Nami led management of the Federal Inland Revenue Service (FIRS); BENJAMIN UMUTEME writes.
As debates were ongoing across the length and breathe of Nigeria in 2019, on who will steer the ship of Nigeria’s tax system that was veering out of course, President Muhammadu Buhari knew that a Nigerian with a strong character was needed to for the job; a round peg in a round hole.
On 9th December, 2019, Muhammed Nami was appointed to succeed Babatunde Fowler, whose term was not renewed by the President.
Ezcept for the initiated, not many would have known that Nami has over 3 decades of practical working experience in Auditing, Tax Management and Advisory and Management Services to clients in the Banking, Manufacturing Services and Public Sectors as well as Non- Profit organizations.
So, it not an appointment made out of the blues by President Muhammadu Buhari.
When he assumed office, the FIRS boss knew that to the way to achieve results is to understand the challenges.
Tax administration challenges
The conduct of field tax audit and physical reconciliation of tax audit cases posed a serious challenge due to Covid-19.
Security challenges experienced in some parts of the country has slowed business activities thereby negatively impacting revenue collection.
Inadequate data from 3rd parties on non-compliant or unregistered taxpayers.
Improving Nigeria’s tax system
The current management at FIRS led by Nami, realising the strategic importance of a tax system to the nation’s economy immediately mapped out strategies on how to reposition the FIRS for greater service delivery. It thus adopted a range of initiatives aimed at the overall strengthening of the tax system. These strategies covered the three core areas of a tax system: tax laws, tax policy and tax administration.
Tax Laws
It is an obvious fact that there is no taxation without legislation. Every round of tax reform must therefore begin with a review of the legal framework. As of the date the new Executive Chairman assumed office, the 2019 Finance Bill was already in the works but had only been passed by the House of Representatives. Through concerted efforts by the new Management, the Senate passed the Bill on 11th December 2019 and presidential assent was given on 13th January 2020 and the Finance Act 2019 came into effect, setting the tone for several other reform initiatives by the Nami-led FIRS.
The Finance Act 2019 was a wholesale amendment to seven different tax legislations namely: the Companies Income Tax Act, Value Added Tax Act, Capital Gains Tax Act, Stamp Duties Act, Customs and Excise Tariff Act, Petroleum Profits Tax Act and Personal Income Tax Act.
Small and medium businesses were the biggest beneficiaries of the reforms introduced by the Companies Income Tax Act (amendment). Specifically, the amendment divides companies into three categories for taxation. These are small, medium and big companies. Companies with an annual turnover of less than 25 million naira (small companies) are exempted from payment of corporate tax. Companies with an annual turnover of between ₦25 million and ₦100 million (medium companies) are taxable at 20% of assessable profits. Companies with an annual turnover of ₦100 million and above (big companies) remain taxable at the rate of 30% of assessable profits. This reform intervention recognises that small and medium businesses are the main drivers of job creation and economic growth. The reform is therefore aimed at reducing operational cost, encouraging recapitalisation and business expansion by small and medium companies.
Another major reform is with the Value-Added Tax. In addition to clarifying certain ambiguous provisions of the VAT Act, the amendment increased the rate of VAT from 5% to 7.5%. The concomitant reduction in Corporate Tax rates on one hand and an increase in the rate of Value-Added Tax, on the other hand, is consistent with the National Tax Policy which aims at a gradual shift from direct to indirect taxes. The guiding principle behind this stipulation in the National Tax Policy is that indirect taxes potentially offer higher yield while remaining cheaper to administer than direct taxes.
Within the Year 2020 and as a follow-up measure to strengthening the legal framework, a Committee was constituted to further review all relevant tax laws. As a result of the Committee’s work, Draft Bills with amendments to the Federal Inland Revenue Service Establishment Act, the Value Added Tax Act and the Finance Act 2019 were prepared and submitted to the National Assembly (NASS) for further review.
In addition, within the same year, 13 information circulars were also developed and released which includes: Taxation of Non-residents in Nigeria; Taxation of seafarers onshore and offshore platform workers; Taxation of companies involved in shipping, air transport and cable undertakings, and Taxation of Real Estate Investment companies, among others.
Also, guidelines on the tax treatment of section 27(C) of Companies Income Tax Act (CITA) on the deductibility of Foreign Tax Framework for the implementation of the country-by-country reporting in Nigeria.
Tax administration
During the 2020 fiscal year, FIRS continued the implementation of various administrative measures to enhance revenue collection to achieve its target. From the onset, the new Executive Chairman identified four cardinal pillars to drive his reform interventions in the area of tax administration.
Collaborating with stakeholders:
The objective in this regard is to foster cooperation and collaboration between FIRS and key stakeholders in the Nigerian Tax System to provide a unified view of our plans to eliminate critical bottlenecks which hitherto impede efficient tax administration. Some of the stakeholders include:
Federal ministry of finance
The collaboration with the Federal Ministry of Finance on the recovery of tax debt from contractors or tax debtors that were uploaded on the FMF (GIFMIS platform) has yielded recoveries of over N500 million.
Corporate Affairs Commission
Through inter-agency collaboration, the Corporate Affairs Commission has provided integration to the Service on its information system for data reporting via the Application Programme Interface. This enables the FIRS to track and bring new corporate taxpayers into the tax net; generate taxpayer-identification number for new taxpayers at the point of incorporation, issue a certificate of incorporation and improve efficiency in the administration of stamp duties.
Security Agencies
The Service, through collaboration with the Economic and Financial Crimes Commission; the Department of State Security Services and the Nigeria Police Force established a joint task team known as the Special Crimes Division. The Division is responsible for intelligence gathering, joint investigation and enforcement activities relating to tax evasion and tax fraud. In addition to these collaborative engagements, the new FIRS Board through the Technical Committee of the Board set up a Committee and tasked it with the following terms of reference:
Review all existing memorandums of understanding between the Service and its stakeholders, Building a customer-centric institution:
Making FIRS “customer-centric” entails building an institution that is viable for ease of doing business by focusing on efficient service and providing a positive customer experience on all tax compliant processes. In line with this, the following measures were put in place for the period being reviewed:
Taxpayers facing challenges in sourcing for FOREX to offset their liabilities are given the option of paying in Naira at the prevailing Investors & Exporters (I & E) FOREX window rate on the day of payment.
Palliative measures to remove penalty and interest on the following category of debts.
Self-Assessment filing, Tax Audit, Tax Investigation and Desk review assessments, Approved instalment payment plans under VAIDS, Extension of VAT returns filing to the last working day of the month, and Extension of CIT returns filing by one month amongst others.
Filling returns
Filling of returns with the possibility of delayed delivery of audited accounts component till 2 months after revised filling date.
Enhancement of the capabilities of various e-platforms for tax returns filing, tax payments, receipting and application for Tax Clearance Certificates.
The period for filing personal Income tax annual returns (Military, Police, Foreign Service officials etc.) extended to 30th June 2020.
The e-filing process has been made much simpler, user friendly and robust for the taxpayer to take advantage of instead of visiting tax offices, taxpayers have been provided with a dedicated email address to submit documents online.
The late returns penalty (LRP) has been waived for taxpayers that pay early and file later. Supporting documents can also be emailed to the dedicated email address or submitted later to the tax office, for those who are not able to use the email facility.
Technological reforms
The TaxProMax was developed and deployed. And data gotten from the Service showed that the in-house tax administration solution, which covers the major processes of a tax administration system (Registration, Filing, Payment and Reporting) by the extant tax laws and IMF Tax Administration Diagnostic Assessment Tool (TADAT) standards, has been successful since it became operational on 1st June 2020.
Also, MoU between FIRS and NIBSS on funds sweeping and settlement of all FIRS taxes to Federation Account at CBN is operational.
‘My Bank Statement’ application has been developed for the transmission of customers’ transactions.
FIRS has developed a portal for Deposit Money Banks (DMBs) to provide information of corporate customers transactions above ₦10 million and individuals above ₦5 million.
With the above reforms already carried out by the Nami led management of the tax body, it was no wonder that on the 6th of October 2021, the FIRS under Muhammad Nami was awarded the International Standard Organization (ISO) 27001:2013 certification. This affirms that the Services’ network is secure, the data processes and data it possesses are secure as well as the taxpayer information it holds and receives within Nigeria and across the world.
Making FIRS’ operations efficient
The FIRSEA, in section 25, provided for the deployment of technology in the tax administration processes. Consequently, the President, Commander-in-Chief of the Armed Forces of Nigeria, directed all government MDAs and businesses to grant FIRS access to their data systems for a seamless connection.
Contrary to the very gloomy picture being painted by a few pessimists, the TaxProMax has performed excellently. Its performance surpassed expectations when compared with the performance of previous systems that cost FIRS billions of naira. Every officer of the Service must be proud that the TaxProMax was wholly developed in-house by FIRS personnel.
Two years down the line, and as the saying goes, the FIRS boss has allowed his actions to speak louder than his voice.
As at 30th November 2021, the Service had collected over 5.03 trillion Naira, being 85% of the national tax target. It projects to meet and even overshoot its target by 31st December 2021.
