The minister of finance, Zainab Ahmed last week at the National Assembly, revealed that more responsibilities would be entrusted in the capacity of the Federal Inland Revenue Service ( FIRS) in the new 2021 finance bill being considered by the lawmakers.
The minister said there would be an amendment to the Police Trust Fund Act and the Nigerian Trust Fund Acts, the purpose is to empower the FIRS to collect the Nigerian trust fund levies on companies on behalf of the fund itself.
“Currently, because there is no such provision, the FIRS is unable to start collecting on behalf of the fund. Also, it is to streamline the tax and the levy collection from the Nigerian companies in line with Mr President’s administration’s ease of doing business policy,” she started.
Also, Section 68(2) of the bill states that FIRS is the primary agency in charge of administration assessment, collection, accounting and enforcement of taxes.
These additional responsibilities is an attestation that the current management team of the apex tax revenue agency has been proactive and forward-thinking in the administration of Nigeria’s new tax regime.
The Nami-led FIRS management resumed duty exactly two years ago and the agency has within this period managed to achieve a reasonable milestone of the country’s tax target, despite the economic downturn occasioned by the covid-19 pandemic.
This, however, is not unconnected to the robust legislative reforms on the part of the government as well as dedicated service by the management of FIRS. After the first year of Nami’s administration, the total revenue remitted to various FIRS accounts with CBN at the end of the year 2020 stood at N4.95trillion. This amount shows a slight shortfall compared to the revenue target for the year, which was N5.07 trillion. This is, however, understandable due to the general economic depression, volatile exchange rates, prevailing global economic crises occasioned by the COVID-19 pandemic and poor tax culture among the populace.
As of 30th November 2021, the Service had collected over 5.03 trillion Naira, being 85 per cent of the national tax target. It projects to meet and even overshoot its target by 31st December 2021. Therefore, with the ongoing amendment to the Finance Act, there is no doubt that tax revenue would in the coming years bridge the gap of budget deficit in reasonable terms.
In December 2019 when 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, while the Senate passed the Bill on 11th December 2019 and presidential assent was given on 13th January 2020. The Finance Act 2019 came into effect, setting the tone for several other reform initiatives by the Nami-led FIRS. The new Act 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.
The 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 N25 million naira are exempted from payment of corporate tax. Companies with an annual turnover of between N25 million and N100 million are taxable at 20 per cent of assessable profits. Companies with an annual turnover of N100 million and above (big companies) remain taxable at the rate of 30 per cent of assessable profits.
This reform intervention recognises that small and medium businesses are the main drivers of job creation and economic growth. The tax regime is therefore aimed at reducing operational costs, encouraging recapitalisation and business expansion by small and medium companies.
In addition to clarifying certain ambiguous provisions of the VAT Act, the amendment increased the rate of VAT from 5 per cent to 7.5 per cent. 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.
As a follow-up measure to strengthen the legal framework, a committee was constituted to further review all relevant tax laws. sequel to this a draft bill with amendments to the Federal Inland Revenue Service Establishment Act, the Value Added Tax Act and the Finance Act 2019 was prepared and submitted to the National Assembly (NASS) for further review.
While the fear of multiple taxations is still imminent and cannot be dismissed with a wave of the hand, the tax managers should reassure taxpayers of an effective and less cumbersome strategy of avoiding double charges. The FIRS management, probably thinking in this direction introduced effective policies to minimise the incidence of double taxation and to further facilitate international trade and investment between Nigeria and the rest of the world. The FIRS in collaboration with the Federal Ministry of Finance, Budget & National Planning engaged in bilateral/ multilateral agreements.
In 2020, FIRS concluded the negotiation of the Avoidance of Double Taxation Agreements (ADTA) with Turkey. Negotiations are also at different stages with the following countries: Hong Kong, Saudi Arabia, Cyprus, Iran, Germany, Switzerland, India, Botswana, Japan, Greece, New Jersey and Russia. These will be concluded as soon as the few outstanding issues have been resolved.
Similarly, Nigeria has an active ADTA agreement with 16 countries, which are South Korea, Spain, Sweden, Singapore, France, Mauritius, UAE, Qatar, Kenya, Morocco, Ghana, Cameroon, Turkey, Sudan, Gambia and Denmark.
Another major tax policy issue that the FIRS continues to focus on is transfer pricing. The FIRS management has, by way of follow up to the introduction of the Income Tax (Transfer Pricing) Regulations 2018, issued Demand Notes totalling 1.074 billion nairas on 222 companies for failing to file their transfer pricing returns in line with the requirements of the Regulations. 54 companies paid penalties imposed on them and these amounted to N47.433 million. Currently, the Service is involved in several audits that have the potential for substantial revenue yield resulting from adjustments and additional assessments.
The Service also maintained its relationship with ATAF, WATAF, CATA and the OECD and organised a WATAF workshop on Risk Management in Bamako, Mali in June 2020.
Meanwhile, 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. These objectives are: Rebuilding FIRS Institutional Framework; Robust Collaboration with Stakeholders; Building a Customer (Taxpayer)-Centric Institution; Building a Data-Centric Institution and Participation in international tax engagements.
The tax managers have been committed to building and strengthening the capacity of the Departments and Units of FIRS to deliver their mandates on a long term and sustainable basis. In line with this, the Board approved a new structure for the Service on 17th January 2020. The new Organogram is composed of six Groups and 32 Departments including the internal Affairs Department that reports directly to the Executive Chairman.
Furthermore, Taxpayer Segmentation has been re-introduced. The Audit and Investigation departments were also reviewed for effectiveness.
The Annual Corporate Plan Retreat was reintroduced and is held between 7th and 8th February 2020 with the theme “Repositioning FIRS for Efficient Service Delivery.” The 2020 Corporate Plan was approved by the Executive Chairman, FIRS and exposed to the staff at the headquarters.
The Intelligence, Strategic Data Mining & Analysis Department (ISDMA) was established to deploy technological tools to analyze tax data and distil for improved assessment of taxpayers.
The Tax Incentive Management Department (TIMD) was also established to manage, implement and report on tax incentives as provided by relevant extant laws and regulations. This department is specifically in charge of the tax affairs of companies/ enterprises enjoying tax exemptions and holidays. Companies enjoying pioneer incentives, NGOs, Cooperative Societies, companies in Export Processing Zones, Free Trade Zones, Oil and Gas Export Processing Zones, those engaged in Downstream Gas Utilization and all others enjoying tax holidays are being managed by this department to forestall revenue leakages, such that companies, enterprises do not use their statuses as a cover to earn taxable income and refuse to pay tax on that income. Muhammad Nami-led Management on the Cusp of History at FIRS.
Therefore, the additional responsibility that may be imposed on the FIRS by the 2021 Finance Bill will be well accommodated in the existing administrative framework and will help to streamline the country’s revenue base.