The Federal Inland Revenue Service (FIRS) seems to have found a way around Nigeria’s revenue shortfall, and it’s deploying (rightly) the new found tools to mitigate a hitherto poor revenue allocation situation to the three tiers of government, oil producing states and the North East Development Commission.
That, it has done effectively at least, since the last three years. More than ever, governments are now depending on the tax watchdog to meet revenue obligations.
As it stands, the service contributes over 59.45 percent of the revenue shared by the Federal Account Allocation Committee (FAAC) monthly, filling the revenue gap that was created by the current situation where the Nigerian National Petroleum Company Limited’s (NNPC) monthly revenue is being channeled to the payment of fuel subsidy, a practice Nigeria must stop to free up more revenue for infrastructure development.
Since December 2019 when Mohammad Nami took over as executive chairman of the FIRS, the service has introduced tax reform initiatives centered around administrative and operational restructuring; making the service customer-focused; creating a data-centric institution; and automation of administrative and operational processes which have all combined to improve revenue collection.
That is manifested in the 2022 tax collection result that was recently declared by the FIRS. The FIRS, in the year-end 2022 collected a total of N10.1 trillion in both oil (N4.09 trillion) and non-oil (N5.96 trillion) revenues as against a target of N10.44 trillion. That was the highest revenue from a government owned enterprise in history.
Company income tax contributed N2.83 trillion; Value Added Tax N2.51 trillion; electronic money transfer levy N125.67 billion and earmarked taxes N353.69 billion. Non-oil taxes contributed 59 percent of the total collection in the year, while oil tax collection stood at 41 percent of total collection.
Over N1.4 trillion was lost to federal government’s tax waivers for some agencies in the year under review. Nami said the revenue agency would have surpassed the 2022 target if the waivers were collected and added into the federation account.
In the performance update report that was released by the tax agency, the total revenue includes the sum of N146.27 billion which is the total value of certificates issued by the service to private investors and NNPC for road infrastructure under the road infrastructure development refurbishment investment tax credit scheme created by Executive Order No. 007 of 2019.
Reforms for result
For the FIRS chairman, the record N10.1 trillion was as a result of several innovations and measures that were taken to drive revenue collection and improved compliance. Nami said his tax reform initiatives centered around administrative and operational restructuring; making the service customer-focused; creating a data-centric institution; and automation of administrative and operational processes were responsible for the improved revenue collection are producing the desire result.
Among other reforms, the service automated most of its administrative and operational processes. A major leap was the full deployment of the TaxPro Max for end-to-end administration of taxes in June 2021. The module for the automated TCC went live on 1st January 2023 while taxpayers had already downloaded over 1,000 TCCs this year without having to visit FIRS office.
Impressively, the current administration of the service has indeed improved revenue collection. 2022 marked the third year of the current management of the Service. The third year is a good point to measure the effectiveness of any administration. For the FIRS, 2022 is a year of stock-taking in terms of progress of administrative changes, achievements recorded on operational reforms, extent of internal cohesion and solidarity among staff, customer experience as regards ease of tax compliance, and ultimately, revenue collected for the federation.
Upon assumption of office in December of 2019, Mr Nami mobilized the management of FIRS into devoting itself to identifying the statutory, environmental, operational and administrative challenges mitigating against voluntary compliance and efficient tax administration.
To start with, when he came into office, he and the team carried out a full-scale evaluation of the Service to identify the areas we needed to improve in order to transform the Service to a 21st century tax authority; we consequently adopted four-cardinal goals to anchor our reforms.
From that, the management came up with four points of focus, namely: administrative and operational restructuring, making the service customer-focused; creating a data-centric institution; and automation of administrative and operational processes.
FIRS also fully restructured the administration of the service for maximum efficiency and achieved internal cohesion such that all functional units are working in unison towards the achievement of set goals; and considerably detoxified the tax environment — ridding it of mutual mistrust, negative tax morale, tax evasion, etc. through effective taxpayer education, open engagement with stakeholders and improved services.
Nami said the service had also operationalised its data mining and analysis system thereby allowing for data-backed taxpayer profiling.
“This was possible through dogged implementation of strategic reforms over the past two years; a renewed commitment by officers of the Service, accompanied with a boosted morale; as well as the innovative deployment of technology for automation of both tax administration and operational processes,” Mr Nami told me in an interview.
Evidently, the FIRS has consistently improved revenue generation since the last three years. For details, on the backdrop of COVID-19 induced economic downturn in 2020, FIRS generated N4.95 trillion. It took some marginal steps forward when it recorded revenue growth of N6.40 trillion in 2021 before taking a leap to N10.10 trillion revenue collection in 2022, indicating that the reforms introduced at different times from 2020 are gradually yielding fruits. That is a growth rate the Nami-led administration has said it intends to entrench for the agency.
Many stakeholders agreed that the improved revenue generation was also possible through an open-door policy of collaboration with its stakeholders, from its colleagues at the executive branch of government, to the members of the judiciary, as well as the support received from tax advisory committee, professional bodies, unions, and most crucially the taxpayers.
One of the things on Nami’s brag list is the fact that today, a Tax Clearance Certificate that would have taken a taxpayer at least two weeks to process now takes the taxpayer less than one-minute to download via our TaxPro Max.
“We are also engaging with our stakeholders and improving our service delivery. Today we have a Contact Centre where taxpayers can phone-in and resolve their issues without visiting our offices physically,” Mr Nami said.
The FIRS boss appealed to the federal, state and local governments to rightly apply the revenues being generate by the revenue agency to critical sectors impact on the generality of the people.
“We appeal to the three tiers of government to continue to apply the little revenues we generate judiciously to encourage taxpayers to pay more,” he stated.
However bright the record is, the FIRS needs to do more for better results. In its recent release on Nigeria’s economic outlook, the International Monetary Fund (IMF) called for strengthening revenue mobilization, including through tax administration reforms.
Apart from that, the Fund believes that expanding the tax automation system and strengthening taxpayer segmentation, and improving tax compliance is also a priority.
In the medium term, directors of the IMF recommended modernizing customs administration, rationalising tax incentives, and raising tax rates to the levels of the Economic Community of West African States (ECOWAS).
But if you ask Nami, what is most needed now is tax harmonisation in Nigeria for more revenue generation and to curb tax invasion. “If you operate multiple tax system, you will make it possible for taxpayers to dodge paying taxes. With a single tax authority, you are able to harmonise operations, tax issues and make it easy for tax payers to pay taxes,” he stated.
It is only hoped that the new reforms of the service are improved upon to increase tax generation for the country.
