Can new guidelines get Nigerians into tax net?

The Federal Inland Revenue Service (FIRS) which is now saddled with the onerous task of getting alternative sources of revenue for the federal government has since adopted a stick and carrot approach to bringing tax payers into the tax net. Assistant Editor, Nduka Chiejina looks at the issues contained in the existing and proposed guidelines aimed at encouraging tax compliance

With the fall in the international price of crude oil, and it’s attendant pressure on government to device alternative sources of revenue, it has become imperative for government at all levels to source for revenue to fund development projects and programmes as well as oil the wheel of governance and depend less on proceeds from crude oil sales.

The new policy, believed to be government’s response to dwindling revenue from oil, occasioned by the constantly falling prices of oil in the international market and a fall out of the visit to the country by the Managing Director of the World Bank, Christine Lagarde.

Lagarde also disclosed that the prices of oil, Nigeria’s main economy stay, will likely remain low for quite a long time, advocating the need to remove oil subsidy, which she said is hard to defend and the imperative for the country to increase the rate of Value Added Tax (VAT).

She said: “My first visit to Africa as IMF Managing Director was in late 2011, and the first country on my itinerary was Nigeria. At that time, Nigeria was emerging from the 2008-09 commodity price collapse and the banking crisis that followed.

“So, Nigeria faces some tough choices going forward. Nigerians, however, are well known for their resilience and strong belief in their ability to improve their nation and lead others by example. I firmly believe that Nigeria will rise to the challenge and make the decisions that will propel the country to greater prosperity.”

How credit crunch made tax receipt inevitable

In the N6.08 trillion 2016 budget estimates, borrowings constitutes the highest chunk of proposed revenue at N1.8trillion followed by non oil revenue of N1.45 trillion; another stream of about N1.45 trillion is being looked at, to be garnered from reforms initiatives of ministries, departments and agencies of government. In 2016, oil mineral proceeds which before now provided the bulk of the budget financing is expected to yield N820 billion.

With the price of crude oil projected to still fall below $20 per barrel, it is unlikely that government’s projected revenue from crude oil sales, benchmarked at $38 per barrel this year, can be realised.

This threat to oil revenue has forced the federal government to shift to attention and pressure to non-oil revenue generating agencies, particularly the Federal Inland Revenue Service (FIRS) and the Nigeria Customs Service (NCS) as main non -oil revenue drivers.

There have been several suggestions on how to boost the internally generated revenue of government. These include right investments and policies in agriculture, solid minerals and sports. Benefits are expected to accrue to government from all private and public investments in the identified areas in form of tax.

Thus the FIRS, which is the highest tax agency has since commenced initiatives to rev up revenue through voluntary compliance by tax payers, particularly those that have been evading taxes before now.

According to the FIRS, some of the taxes operational in the country are: Personal Income Tax; Companies Income Tax; Petroleum Profit Tax; Value Added Tax; Withholding Tax; Education Tax; Stamp Duties; Capital Gains Tax and National Information Technology Development Fund Levy.

Justifying the need for the new initiative, the FIRS said, “The benefits derivable from payment of taxes include but are not limited to providing sustainable finance and funding for governance, public and social services and economic development, promoting civic responsibility, patriotism by citizens and social responsibility by corporate citizens as well as stimulating priority social and economic activities and sectors while discouraging less preferred ones.”

It’s all about setting targets

Last year, the FIRS was given a revenue target of N4.5 trillion by the federal government but as at the end of August 2015, the agency had only generated N2.66 trillion. The cumulative generated revenue for the year has not been made available but there are fears that the target might not be met, thus raising questions on the ability of the tax agency to meet the huge demand for revenue placed on its shoulders by the federal government.

Many Nigerians are yet to be convinced of the ability of the FIRS to meet its revenue target for 2016 because of the high incidence of tax evasion in the country.

This fear is well placed considering that the immediate past Acting Chairman of the FIRS, Mr. Samuel Ogungbesan has once disclosed that out of the 450,000 identified companies in Nigeria, only 125,000, representing 27.7 per cent of them pay taxes. The implication is that about 325,000 companies are evading tax, thus denying the government huge revenue annually.

Tax evasion, though a global phenomenon, is very rampant in Nigeria and committed with impunity. Also worrying is the fact that many Nigerians do not pay the right taxes. PricewaterhouseCoopers once said that Nigeria has one of the world’s lowest tax revenues to GDP ratios.

“Estimates vary; while PwC this year (2015) estimates Nigeria’s tax revenues at eight per cent of GDP, the World Bank put it at 1.6 per cent in 2012 and the Heritage Foundation at 6.1 per cent in 2013. But in Norway, which manages its oil wealth far more sensibly, tax revenues were 26.8 per cent (World Bank), South Africa 25.6 per cent and Mozambique 26 per cent.”

Renewed vigour from a new helmsman

However, the newly confirmed Executive Chairman of FIRS, Mr. Babatunde Fowler and the President of the Chartered Institute of Taxation of Nigeria (CITN), Dr. (Mrs.) Olateju Abiola Somorin have at different for a assured that the tax agency and by extension taxes can comfortably fund the nation’s fiscal demands for revenue.

Fowler in his first official meeting with the staff in August last year vowed to ensure that all tax revenues due to the government are recovered from all tax payers. He warned that his administration will not take the issue of tax evasion lightly.

As the grim reality dawns on Fowler and his fellow tax officials in Abuja on the huge expectations that tax revenue must contribute to the purse, Fowler has swung into action with a stick and carrot strategy. While he has vowed to capture all taxable entities into the tax net, he is now encouraging tax payers with a bouquet of incentives, which include: Tax Refund to ensure that tax payers who are unduly over taxed or doubly taxed are refunded the element of the over taxation.

The tax authority has moved to simplify the process of tax refund to individuals and companies with genuine evidence of over taxation arising from either wrong assessment or over remittance by those who collect taxes on behalf of government

In the document proposing to amend the existing tax refund requirements, staff of the FIRS are already “primed and being prepared for the implementation procedurally covering all possible incidents and type of taxes these include: Double remittance by a tax payer or collecting agent; Stamp Duty; VAT; and other taxes such as the Companies Income Tax (CIT); Petroleum Profit Tax (PPT) ; Capital Gains Tax (CGT) ; Personal Income Tax (PIT) and Withholding Tax ( WHT). The Relevant staff are already being sensitised on the checklist required of them to fast track the process of refund so as not to unduly delay the tax payers and to encourage them to embrace voluntary compliance to paying tax” the document stated.

According to the FIR boss, raising between N5 trillion and N 6 trillion yearly was not a difficult task for tax administrators in the country but insisted that some of the tax laws posed serious encumbrances to the realisation of this task.

He however assured that the federal government hopes to undertake a review of the laws to smoothen on tax collection and administration in the country.

Also, tax payers education and sensitisation on the proposed amendment has been scheduled as soon as it is approved by the relevant authorities like the Federal Ministry of Finance and the Joint Tax Board as the new rule is to cover the whole tax authorities in the country.

With regards to the tax refund amendment initiative the FIRS recently said it has increased its sensitisation of the public on the benefits of paying taxes aimed at ensuring an increased buy-in.

The existing guidelines on tax refund describes it as the situation where the collecting bank/lead bank erroneously makes a double payment/remittance in respect of a single transaction. Refund of cash is required in this case.

For Value Added Tax (VAT): refund in respect of excess payments/wrong payments or payments made on exempted items, request should be in writing and supported with the following documents: Bank pay-in-slip; FIRS receipt issued; Import duty documents (if it is import VAT refund); Necessary exemption certificates (if applicable); Evidence of remittance by lead bank via web portal; CBN statement confirming entry into pool account

For other tax refund matters concerning Companies income tax (CIT); Petroleum Profits Tax (PPT); Capital Gains Tax (CGT); Personal Income Tax (PIT) and Withholding Tax (WHT), refund in respect of excess payments made for other taxes must also be in writing and supported with the following documents: Bank pain-in-slip; FIRS receipt issued and Duly stamped FIRS document indicating the type of tax paid (e.g. Assessment notices, Demand note, VAT return form etc.).

The FIRS however warned that before action can be taken, the following documents must be sighted: Evidence of remittance by lead bank via web portal; CBN statement confirming entry into pool account; Confirmation of the true tax liability by the audit and investigation department where necessary-(within three weeks).

Refund request and consequent amount due arising from the audit’s report will be forwarded to ECFIRS for approval-(one week). Upon the ECFIRS approval, the tax payer will then be informed accordingly-(within two days). Refunds will be made to applicants net of all commissions and processing fee of 0.25% of the amount of refund.

For tax refund to be effected “all documents submitted above will be carefully verified by FIRS and only successful applicants will be passed on to approving authority for Tax refund, which must be made within ninety (90) days of the decision of the service.”

To economic analysts, if the outlined guidelines are followed through, the economy will be better for it.