The federal government has its eyes on the agency saddled with collection of taxes in Nigeria. It is evident that the government realizes that taxation is the only source of sustainable revenue to finance government expenditure.
The recent appointment of Mr. Babatunde Fowler who was until his appointment the executive chairman of the Lagos state tax agency attests to this. One of the achievements of Mr. Fowler in Lagos was his ability to increase the state’s tax revenue. He was reputed to have increased the state’s tax revenue over 500% from a mere N3.6billion per month in 2006 to about N20.6billion per month in 2014.
While this is a laudable feat, it came with lots of anomaly. While increasing tax revenue is important, the taxation process must be seen to be simple, transparent, efficient and humane. Delivery must be qualitative such that encourages voluntary compliance.
There is no doubt that Mr. Fowler is eminently qualified for this job. It will however be foolhardy to think that increasing revenue is the agency’s only problem.
For an agency as old as the FIRS, enough has not been done to simplify and make the tax process efficient. It is instructive to state here that the Nigeria Inland Revenue department was carved out of the then Anglo-Phone Inland revenue department in 1943 and established as an autonomous body with W.A. B Carter appointed as its first commissioner.
Recent data show that a major part of the revenue collected has been from the non-oil sector. In the third quarter of 2011 the total revenue collected was N1.4 trillion out of which N888 billion representing 63% of total collected came from oil while the remaining 37% came from non-oil sector. The last couple of quarters have seen a sharp drop in the oil related revenue. In Q2 of 2015, total collection amounts to N746 billion out of which N610 billion representing 82% came from the non-oil sector while a paltry 18% came from oil.
With his appointment Mr. Fowler must begin to focus on increasing the revenue from the non-oil sector, simplifying the tax laws, eliminating multiple taxation, integrating the state and federal taxes as well as sensitizing the public on the different types of taxes, when they are due and how they should be paid.
I have outlined below the tasks that in my opinion Mr. Fowler must attend to as a matter of urgency in addition to other issues bedeviling the agency
Clarification on TIN & JTB TIN: The tax identification number (TIN) which came into effect in 2008 was seen as a bold step in the right direction for effective tax collection. It has no doubt led to an improvement in the tax administration in the country. Recently a Joint tax board TIN (JTB TIN) was introduced; this will eventually relaxed the TIN which was also introduced not too long ago. These policies somersault has adverse effects on the tax process. The intervention of the JTB to curb the issue of multiplicity of taxes has yielded little results. The introduction of the JTB TIN continues to cause frustration for businesses and individuals. . The FIRS should educate the public and clarify its position on this.
Better access to Information: The FIRS must ensure that the taxpayer’s right to know what they need to do to comply with taxation laws is not denied. The taxpayer is entitled to clarity and explanations of tax laws and procedures. Currently the FIRS website, one of its major platforms for information dissemination does not reflect this. In addition to publications, the website must be improved to become user friendly as well as become a platform where answers to most of the tax questions are provided.
Improved Qualitative Service: In a bid to become more taxpayer focused and enhance voluntary compliance the FIRS created the Taxpayer Services Policies Processes and Programs department (TSPPPD) in 2011. The creation of this department has seen little or no improvement in the provision of qualitative services to taxpayers. Efforts must be made by the FIRS to ensure that the taxpayer receives prompt, courteous and professional assistance in all their dealings with the tax office. Taxpayers should be able to escalate unanswered or unresolved enquiries to supervisors or management with ease. For this to be achieved, adequate training must be provided to frontline staff to make them aware of their responsibility to the taxpayers.
As part of providing a qualitative service, a functional, reliable and effective service complaint desk must be created. Taxpayers aggrieved by the conduct of the FIRS should be able to file a service related complain. The complaint must deal strictly with the service provided. The complaint process must be open to escalation upwards to the Taxpayer Ombudsman which the FIRS refer to as the office of the National taxpayer advocate.
Promote Taxpayer’s Rights: Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the FIRS. The FIRS should promote and publish the taxpayer’s rights to them. A taxpayer’s bill of rights should be enacted if not in place. The taxpayer must know about their right to be informed, right to pay not more than what they are eligible to pay, right to appeal FIRS decision, right to privacy and confidentiality and a right to a fair and just tax system. The taxpayer bill of right must include in it a role for the taxpayer advocate or Ombudsman who will act as an advocate for taxpayers. The FIRS currently maintains an office of national taxpayer advocate.
Efficient Appeal Process: Taxpayers are entitled to a fair and impartial administrative appeal of FIRS decisions. A well laid out and concise appeal process should be put in place to enable taxpayers who believe the FIRS has not assessed them fairly be able to dispute the assessment by filing an objection. Strict guidelines and timelines for filing an objection should be established. An appeal officer should be able to make a decision independent of audit. He or she should be able to confirm, vary or vacate an audit. The appeal process should be the taxpayers’ last resort with FIRS before appealing further to the court. In the event that an appeal is successful, a repayment of cost from FIRS maybe sought. An efficient and reliable appeal program will ensure that the taxpayer sees the agency as humane.
Establish Informant and Enforcement Programs: The FIRS should create an informant lead program. This program will, allow citizens to report individuals or businesses who may be evading taxes or other tax related offences. This program can shore up the generated revenue in a system where taxation system is still very porous. A special enforcement program should also be established. This program allows FIRS officers to specifically conduct audit and civil enforcement actions on individual known or suspected to be earning income from illegal activities.
Streamlining of taxes: The taxes payable by companies under the existing legislation is cumbersome, lengthy and confusing. There is an urgent need for these to be streamlined. For instance I do not see why a company will pay both the education tax and technology tax in addition to company’s income tax. The FIRS can make a case for the income tax to be increased slightly eliminating theses taxes while the relevant portion of the education and technology taxes are remitted to the appropriate authorities. That way the FIRS only act as a collector.
Eliminate Duplication of taxes: There’s need to erase the multiplicity of taxes from the local government to the federal level. The items listed to be collected by the local government are absurd and funny. The list also included religious place establishment permit. That will explain the proliferation and loose regulation of religious organization in our society.
Multiplicity of taxes makes investment climate harsh as investors are not sure the extent of what they are required to pay. It makes planning and investment decision difficult.
The FIRS should also begin to move towards a process whereby it collects all taxes on behalf of the state government. It makes more business sense when one agency does this. The practice in most advanced economies is that the national agency collects on behalf of the states and remits accordingly. This will be a big step in the elimination of multiple taxes paid by companies.
Regulation of Charitable organizations: I am not a fan of taxing charitable organizations but I am in support of its total regulation. Charitable organizations (Churches, Mosques , NGOs ) are exempted from taxes hence their affairs should be open to the public.
The FIRS should as a matter of urgency set the guidelines for the registration of charitable organizations. As a matter of fact the registration and approval of charitable organizations should move from the corporate affairs commission and the local council to the FIRS as practiced in sane climes.
The FIRS should set guidelines for registrations of charitable organization. These guidelines should include the definition of what qualifies as a charity as well as the constitution of an arms’ length board. Boards constituted by people who are not at arm’s length are prone to fraud and corruption. More so, mandatory annual filing should be introduced. All registered charities must also be registered with a unique identification number.
In the UK, the Charity commission oversees the charities; on the commission’s website you will be able to see every registered charity in the UK including the churches and mosques. Their annual returns are also displayed included their financial details and board members.
The Charity Directorate under the Canada Revenue agency oversees charities in Canada. On the CRA’s website one can easily search and find any registered charity in Canada, their financial information as well as other details. Churches and mosques owned by Nigerians adhere to these guidelines in diaspora and I see no reason why they should not do same in Nigeria
The import of this is that once you are exempted from taxes then you should be open to the public. In Nigeria, charities are abused and are treated as private companies. Some charities even maintain one account with the founder. That’s corruption. Charities are for the good of the society and not to make money and that’s why they are exempted from taxes.
Promotion and Support for Small business: This may not be a taxation issue but if increased revenue generation is important to the agency then it should take this serious. Here is why it matters. In the US small businesses represent more than 99.7% of all employers, over 50% of all working population work in a small business while small business pay 44.3% of all the total US payroll .
At the start of 2014 in the UK, small businesses account for 47.8% of all private sector employment , they also employ 15.2million people with a combined turnover of £1.6 Trillion, while in Canada 98% of businesses have 1-99 employees , 55% have fewer than five employees . Small businesses account for 77% of all private jobs created in Canada.
The statistics speak for itself. The FIRS should initiate ways to collaborate with states, LGs, NGOs and financial institutions on ways increase support for entrepreneurs. The Nigerian entrepreneur is need of support. The FIRS should realize that when the number of businesses increase so will the number of employees and ultimately this will increase revenue generated from taxes.
Eliminate Crude Collection of taxes: Tax officers from the local council to the federal level continue to use crude methods to collect taxes .They collect fees, taxes and levies through intimidation and harassment of taxpayers. Some even take it further by mounting road blocks, selling stickers, using motor park touts and employing the services of untrained and illegal agents. These must be stopped.
Mr. Fowler has his job cut out for him. The FIRS is a reflection of Nigeria’s inefficiency, policy summersaults and bureaucratic hold ups. The above may not be easily achieved as some of it requires advocating to and lobbying other arms of government to make them realistic.
The FIRS knows that compliance is a two way street. Indeed it has been observed that transparency, accountability and good governance are critical factors in ensuring voluntary tax compliance. Mr. Fowler must encourage and start building an ideal tax system that strikes a balance between domestic economic growth and global competitiveness.