In the face of dwindling revenue from oil, it is not surprising that the federal government is shifting attention to the non-oil sector to boost revenue. This is against the backdrop of the revised national budget of N10.8 trillion signed into law by President Muhammadu Buhari recently. How do we fund the budget when the debt servicing component is very high? How do we continue to pay workers and fund capital projects? Where will the money come from? Even the most efficient managers of resources in our midst will scratch their heads as they attempt to find answers to these questions.
It does not require any rocket science to figure out what the role of the Federal Inland Revenue Service (FIRS) will be in this regard: the agency will just have to find and follow the money in the most creative way possible. Unfortunately, most businesses are haemorrhaging due to the impact of COVID-19 pandemic with so many workers rendered jobless and families dispossessed. How do these companies and individuals remit their taxes when there is no income? Taxes are charged on income after doing all the pluses and minuses.
Coronavirus has inflicted on us one of the worst economic recessions ever known to mankind. You have to be a genius to be a successful tax collector under the current challenging economic circumstances. So, how is FIRS overcoming the challenge? What is the magic wand being waved at us? Since assuming office as the executive chairman of FIRS, Muhammad Nami and his team have been very strategic in their approach to tax collection.
However, before reviewing tax administration in the country and our obligations thereof, the point must be made that paying taxes to the coffers of government at all levels is not the problem in spite of those who evade or avoid tax payments. What am I getting at? I can say without any fear of contradiction that most people are unhappy paying taxes – and some do not wish to pay at all — for three main reasons: first, the rampant stealing and corruption in high places without consequences; second, the blackmail and constant harassment by tax officials who extort money from hapless taxpayers, and third, multiple taxation. These issues constitute an unholy trinity for individuals and business owners, and they represent a malignant cancer that refuses to go away; it keeps spreading. Even with these challenges, we still have honest tax payers and they should be encouraged. Many small businesses (SMEs) have packed up due to multiple taxation. In Lagos State for example, after paying land use charge, landlords are now also required to charge stamp duties whenever their tenants are renewing their rents or leases. Nami is not ignorant of these issues and I’m aware he is working with key stakeholders to address them.
Recently, we witnessed mind-boggling revelations of unconscionable scandals involving mismanagement of our commonwealth in some government agencies running into billions of naira. How on earth do we reasonably expect taxpayers to fulfill their obligations when the probability is high that the money would be stolen or diverted? Stealing taxpayers’ money did not start today and it is not going to end tomorrow but let us be honest with ourselves: the stealing, mismanagement of public funds, looting and re-looting have to stop!
All the 36 states in the country, according to BudgIT, a nonprofit organisation promoting transparency and accountability in public finance, earned a combined N3.8 trillion in 2019 in federal allocations (FAAC) and internally generated revenue (IGR). The question BudgIT asked pointedly – while calling for fiscal transparency and accountability – was: what did the states do with all the money? Let me break it down: N100 million in 10 places is equal N1 billion and N100 billion in 10 places is equal to N1 trillion.
While the professional treasury looters are on to their next plot and conquest because they do not have any sense of shame, Nami is worrying about how to expand the tax net creatively to increase our revenue earning capacity. To his credit, the FIRS chairman hit a goldmine in the name of stamp duties – he made the treasure hunt look so simple although the Nigerian Postal Service (NIPOST) is on his case. Long before he was appointed FIRS boss, Nami believed that stamp duties will be the key to Nigeria’s economic prosperity without oil, generating trillions of Naira especially now that the economy is experiencing significant revenue short falls.
Before we discovered oil in 1958, Nigeria had an export economy that was robust and thriving. The naira was very strong relative to other currencies but what has been happening is that we import anything importable. Thankfully, the Buhari administration gave specific directives to the Central Bank of Nigeria to stop the nonsense – some items were banned and can no longer be imported. The federal government is not ready to grant scarce foreign exchange for frivolous importation.
However, Nami is very confident that the halcyon days will return with money flowing in from stamp duties that can be charged on various instruments. For example, any electronic receipt or transfer; money deposits in any bank in any type of account for an amount from N10,000.00 upwards shall attract a singular or one-off duty of the sum of N50. Landlords and property agents are also now required to charge stamp duty on all tenancy and lease agreements. As you can see, this means more money for the federal government.
NIPOST, another agency of government, is engaged in a turf war with FIRS which we do not need at this time. NIPOST is saying it is well within their rights to collect stamp duties. Accordingly, the postal service has sent an amendment of the Finance Act 2019 to the National Assembly as it seeks to be empowered as the rightful collector of stamp duties in the country. Section 4.1 of the Act is the bone of contention. NIPOST wants that section to include “adhesive postage stamp” as part of the definition of “stamp” in the Act. Before the Finance Act 2019 came into being, NIPOST had been the custodian of stamps and had been empowered by the Stamp Duty Act 2004 to collect stamp duty. Within the first five months of this year, N66 billion had been collected in stamp duties by FIRS compared to N18 billion realised in 2019. Section 4.1 of the Stamp Duty Act currently vests FIRS with the sole authority to impose, charge and collect stamp duties.
Looking for the money led us to a second treasure – the first treasure being stamp duties — in the form of diaspora remittances that attracted positive remarks from President Buhari over the weekend. In a statement issued by presidential spokesman Femi Adesina, the President was happy to note that over the past three years, Nigerians in the diaspora have remitted $25 billion back home annually through official and non-formal channels. “This is about 6% of our annual GDP and upwards of 80% of our annual budget,” Adesina said.
The expectation is that Nigerians in the diaspora will continue their remittances to support the economic recovery effort due to the devastating effect of COVID-19 pandemic on our economy. The good thing about the diaspora remittances is that it is paid directly to family and friends; it is not available for looting – whereas 70% is used for consumption purposes and meeting family obligations, 30% of the remittances are invested in different sectors of the economy.
A report in Nigerian Tribune stated that the growth of remittances to Nigeria in 2018 represented a 14% growth from the preceding year and over 10 times of the Foreign Direct Investment Inflow (FDI). Over the last six years, according to the report, over 17 million expats have made international money transfers to Nigeria to the tune of $96.5 billion, representing a surge of over 126%. A significant chunk of remittances to Nigeria come from the United States, Switzerland, UAE, Cameroon, Russia, and China among others. The USA is the single most significant contributor accounting for about 30% of all remittances. A PwC report indicated that the growth of remittances to Nigeria is expected to increase to $29.8 billion and $34.8 billion in 2021 and by 2023 respectively.
Nami is only about seven months old on the saddle but he has demonstrated that he is a transformational leader. He is focused and determined to uproot the bad practices and bottlenecks in tax administration in the country. The first thing he did when he resumed was to introduce wide ranging reforms including using cutting edge technology to create an efficient tax management system. He also did an extensive evaluation of the human resource at FIRS with the inevitable outcome that some people had to go while at the same time strengthening the capacity of the entire workforce with new talents. There were cross postings nationwide to optimize the value of individual and group efforts. To achieve different and better results, Nami conducted a SWOT (strengths, weaknesses, opportunities and threats) analysis of FIRS and the outcome pointed the way forward for him and his team.
Nami’s goal is to create a more conducive tax environment that will minimise enforcement and sharp practices. This approach will also expand the tax net and at the same time, tax collection will be less “painful”. The tax net will be extended to persons and organisations that have been evading or defaulting in their tax obligations. In order to eliminate or reduce the incidence of reconciliation, the FIRS boss has introduced a system that allows deduction of stamp duty, withholding tax and company income tax from their vendors at the point of payment. This system has been cascaded to other sectors of the economy and you can also now process and collect your tax clearance certificate online – it is easier and faster.
In spite of the low oil prices in the international market and COVID-19 challenges, FIRS succeeded in collecting tax revenue to the tune of N2,472,464,517,464.66 (N2.472 trillion) from January to June, 2020, compared to N2,447,498,468,369.03 (N2.447 trillion) collected during the same period in 2019. By any standard, this is a highly commendable performance as FIRS continues to beam their searchlight on all taxable revenues.
For the avoidance of doubt, tax is any compulsory payment to government imposed by law without direct benefit or return of value or a service whether it is called a tax or not. There is a constitutional provision for the implementation of taxes on the citizens. Chapter 2 of the Constitution of the Federal Republic of Nigeria (1999) contains Fundamental Objectives and Directive Principles of State Policy which serves as guidance to all tax authorities.
The three tiers of government have constitutional responsibilities of imposing and collecting taxes as a source of revenue. The federal government taxes are administered by the Federal Inland Revenue Service (FIRS) and the state governments in the 36 states represented by the State Boards of Internal Revenue (SBIRs) – they impose and collect taxes in their respective states while the local governments (provincial councils) also administer levies and rates through a gazette by their respective state governments from time to time.
–Braimah is a PR and marketing strategist based in Lagos.