Tax
FIRS: Tax, The Untaxed and the Taxables
By Salisu Na’inna Dambatta
It is common truth that no country on earth, including Nigeria, is able to tax all the taxables, or even bring all the untaxed into the tax net. Tax registers everywhere rarely contain all the untaxed as required by the tax laws.
Even though the Federal Inland Revenue Service (FIRS) which last tax year (2022) celebrated a record N10.1 trillion tax collection for the federation, the country wants it to generate more than that amount of money in 2023.
It is a positively achievable ambition by the top tax man, Muhammadu Nami, who turbo-charged the tax gathering machinery to haul that N10.1 trillion despite low oil revenue and targeted tax waivers and holidays granted to encourage higher economic activities in some sectors. In 2022, over ₦1.8 trillion was granted in tax waivers and incentives. If this had been collected by the FIRS in tax revenue, the agency would have raked in almost N12 trillion in 2022.
As at the half of 2023, the FIRS had raked in over N5.5 trillion. Two interesting facts make this tax revenue collection remarkable. One, it is the highest tax revenue collection made in the first six months of any fiscal year. And in June of 2023 alone, N1.6 trillion was raked in—the highest tax revenue collection made in a single month in Nigeria’s history.
While ₦10.1 trillion is phenomenal by any standards, a doubling of this can be achieved by the FIRS and State Revenue Services if they can successfully tax the untaxed and bring in the taxables. A consultant’s report submitted to the former Minister of Finance, Mrs. Kemi Adeosun identified and listed about a thousand taxable activities that could yield huge revenue for Nigeria that were yet untaxed.
For instance, the countless iron mongers in cities, towns and villages all over the country, who forge beautiful doors, windows, security and ornamental railings, are definitely untaxed. The National Bureau of Statistics reported that in the third and fourth quarters of 2021 iron, steel and metals worth N837 billion were imported to Nigeria. Road-side informal iron-mongers who turn a significant portion of those products into useful items do not pay tax on their production activities.
The furniture industry in Nigeria has been transformed beyond imagination. So also the entertainment sector. Both are probably untaxed, or minimally taxed. The two sub-sectors can be taxed appropriately to boost Federal government revenue.
Hewers of wood, lumberers and drawers of water are depleting our forests, turning Savannah to sahelian bushes, rain forests into derived Savannah, just to produce charcoal for energy and timber for construction and furniture, without being taxed. Taxing them heavily enough can discourage the destruction of the country’s flora, and consequently, fauna, and the whole environment.
Another way in which huge tax revenue is lost is through dodging withholding tax by landlords who own rental properties such as residential, business premises and even undeveloped plots let out to mechanics and other artisans.
Huge number of warehouses let out at profitable rates are mostly untaxed, especially those which are located in the outskirts of major cities: Lagos, Abuja, Kaduna, Port Harcourt, Kano, Ibadan, Warri, Onitsha and even Owerri, among others.
The “unrecorded and unmonitored” economy, reportedly constituted a huge 57.7 per cent of the country’s total economy in 2022. It thrives and enriches its operators, but deprives the national treasury of a fraction of its treasures through the payment of taxes or fees and levies.
“The size of Nigeria’s informal (shadow) economy is estimated to be 57.7% which represents approximately $1,164 billion (over a trillion USD) at GDP PPP,” a report based on Quarterly Informal Economy Survey (QIES) by World Economics, London, indicates.
The $1,164 billion shadow economy in 2022 alone, is just a shadow below nine times the cost of the Kano-Maradi and Kano-Dutse Gadawur dual track railway lines under construction. Nigeria borrowed $1.9 billion to finance the project. Collecting just ten per cent of $1,164 billion would have almost covered the price of the project.
That lost tax revenue derivable from the shadow economy could have been utilised in massive rural electrification projects to power micro and small businesses that contribute to economic growth in rural areas.
It is perhaps in its bid to tax the untaxed that the FIRS recently entered a partnership with the Market Traders Association of Nigeria (MATAN), where the FIRS would educate members of MATAN on tax payments and cooperate with them to charge and remit Value Added Tax (VAT) in the course of their businesses. This masterstroke partnership may hold the key to untapping the volume of taxes hitherto uncollected from country’s trillion-dollar worth informal sector.
More of these kinds of partnerships need to be seen between tax authorities and organized unions in the business place if the FIRS and its colleagues in the State Internal Revenue Services must tax the untaxed taxables.
Salisu Na’inna Dambatta is a retired federal Director of Information.
Features
FIRS 2023 H1 Collection: A Reflection of the Power and Impact of Citizens’ Civic Obligations Compliance
By Femi Onakanren
In the aftermath of its record breaking N10 trillion tax revenue collection in the 2022 fiscal year, the Federal Inland Revenue Service (FIRS) has continued to show that its historic performance was no fluke.
The recently announced 2023 half-year performance update is a clear pointer to this.
The FIRS seems to be on course to completely change the trajectory of tax collections and federal revenue diversification by its unrelenting drive to surpass itself regularly.
The FIRS’ 2023 Half-Year Collection Report showed that the Service achieved its target, 100%, for the first half of the year with a mid-year returns of N5.5 trn, as against the projected N5.3 trn target.
According to the report, tax revenue collected from the oil sector from January to June 2023, stood at N2.03 trillion, as against a target of N2.3 trillion; while non-oil tax collection stood at N3.76 trillion, as against a target of N2.98 trillion.
However, the most impressive part of the report was:
Mr. Muhammad Nami, Executive Chairman of the FIRS reported
” This half-year performance was achieved as a result of improved voluntary tax compliance by taxpayers, the continued improvement of automation of our tax administration processes, including the updated VAT filing processes; as well as our dogged engagement with stakeholders in both the formal and informal sectors of the economy.”.
The improved voluntary tax compliance on the part of taxpayers was a particular delight! This means the citizens are getting to understand the value and import of paying taxes. The efforts of the FIRS in educating the public are clearly yielding fruits.
The FIRS, as custodians of public trust, is doing its part to ensure that citizens are delivering on their obligations in the social contract with the government. Thus, the FIRS as an institution has become a reference tool for social accountability.
The improved collections mean the Federal Government has more funds at its disposal to drive the provision of social amenities, improve public infrastructure, and deploy progressive, people focused fiscal policies.
The march towards a better country needs the support and contributions of everyone. The fact that the FIRS is leading this impressive paradigm shift is an under-appreciated feather in the services’ ever improving cap.
Femi Onakanren is a Business Development and Socioeconomic Policy Specialist. He writes from Lagos.
It is common knowledge that taxation plays a vital role in the economic development of every country whether developed, developing or under developed, and Nigeria is no exception. Government at all levels depends on the tax it collects to run the affairs of the State and it is the duty of every taxable citizen to contribute their quota to this effect. Without taxes, there can be no country.
According to the Constitution of the Federal Republic of Nigeria 1999: Section 24 (f) of 1999 Constitution (as amended) it states that “it shall be the duty of every citizen to declare his income honestly to appropriate and lawful agencies and pay his tax promptly”. This is a legal requirement and it is fundamental to the successful operations of the country. Mind you, it is not an option or a recommendation but an obligation of every Nigerian citizen.
Some Nigerian Tax laws and Regulations which require compliance to tax payment include: Federal Inland Revenue Service (Establishment) Act (FIRSEA), Cap F36 LFN 2007; Personal Income Tax (PITA ), Cap P8, LFN 2004 as amended; Petroleum Profit Tax Act (PPTA), Cap P13, LFN 2004 as amended; Companies Income Tax (CITA), Cap C21, LFN 2004 as amended; Value Added Tax Act (VATA), Cap V1,LFN 2004 as amended; Tertiary Education Trust Fund (Establishment, Etc) Act (TETFEA) 2011 as amended; Stamp Duties Act (SDA), Cap S8, LFN 2004 as amended; Capital Gains Tax Act (CGTA), Cap C1, LFN 2004 as amended; National Information Technology Development Agency Act and the provisions of the Finance Act 2019, 2020, 2021 and 2023. These laws have provided the legal framework containing various tax obligations of a taxpayer.
Every taxpayer has certain rights such as: right to non-discrimination, transparency and accountability, adequate notice and information, redress, compliance assistance amongst others. But with these rights come responsibilities and obligations that must be fulfilled in compliance with the country’s tax laws. Some taxpayers fall short in fulfilling their tax obligations not necessarily because they want to but for lack or poor understanding of these obligations. This piece aims at shedding light on the key tax obligations of taxpayers in Nigeria.
The obligations of Nigerian taxpayers include, but are not limited to the following: registration for tax: Taxpayers are obligated to register with the appropriate tax authorities, depending on the type of tax they are liable for. This includes obtaining a Taxpayer Identification Number (TIN) from the Federal Inland Revenue Service (FIRS) for companies and the Joint Tax Board (JTB) for individuals.
Another obligation expected of taxpayers is record keeping. Taxpayers are required to maintain accurate and up-to-date records of their financial transactions, including income, expenses, assets, and liabilities. These records are essential for filing tax returns, substantiating deductions, and complying with tax audits. Record keeping is not common practice among small businesses. Yet it is the foundation for fulfilling your tax obligations. If you do not keep your records, how would you know what taxes you are meant to pay?
It is also the obligation of a taxpayers to file tax returns within the prescribed timelines. Individuals are required to file their Personal Income Tax (PIT) returns annually, while companies must file their Corporate Income Tax (CIT) returns within six months after the end of their financial year. Other tax returns, such as VAT returns and WHT returns, may also be required depending on the taxpayer’s activities. All too often, taxpayers think that if they do not make profits, or do not have a turnover above N25 million, then they are not required to file. This is not true. Filing returns is to be made whether or not you made profits or losses. As long as you are a taxpayer, you ought to file returns with the relevant tax authority.
Flowing from this obligation is the obligation to pay taxes—the most commonly spoke about obligation. Taxpayers have an obligation to pay the taxes they owe to the relevant tax authorities. This includes the timely remittance of Personal Income Tax, Companies Income Tax, Value Added Tax, Withholding Tax, and other applicable taxes. They also owe it as an obligation to comply with tax deductions. Employers and businesses that make payments subject to withholding tax (WHT) must deduct the appropriate tax amount at source and remit it to the tax authorities. This includes deducting WHT from salaries, contracts, dividends, interest, and other relevant payments.
Furthermore, taxpayers are required to provide accurate information and documentation as requested by tax authorities. This includes providing supporting documents for deductions, exemptions, and claims made on tax returns as well as cooperating with tax audits and investigations, providing requested information and records, and responding to inquiries in a timely and accurate manner.
To crown it all, taxpayers must comply with all relevant tax laws and regulations which includes staying updated on changes in tax laws and fulfilling their obligations accordingly.
By understanding and diligently leaving up to tax obligations, individuals and businesses actively participate in the development and progress of the country, ensuring a more prosperous, greater and equitable society for all.
Rachel Jantiku, is a researcher and writes from Abuja.
By Kelechi Okoronkwo
For a long time, more than twelve years, Nigeria wore a “Lowest Tax-to-GDP (Gross Domestic Product) Ratio” in the whole world like a garment. In tax and economy conferences and public discussions both local and internal, Nigeria’s tax-to-GDP status was always on the front-burner. While some people showed genuine concern, others scorned Nigeria for having a Tax-to-GDP ratio quoted as hovering around five to six percent.
Earlier in May, 2023, the Chartered Institute of Taxation of Nigeria (CITN) expressed genuine worry about Nigeria’s tax system and the Tax-to-GDP ratio. The CITN was not alone in expressing concerns on the presumed low and static ratio. And it was worth showing concerns for. The implication of this statistic was that despite enormous effort at reforming Nigeria’s tax system, the system was not getting any better in terms of tax revenue contribution to the GDP. It also meant that Nigerians and Nigerian taxpayers are not tax compliant; and that tax authorities in Nigeria are not upping their game on getting the taxpayers to comply. More: it also meant that the people may have lost confidence in the Government, hence their refusal to pay their taxes. But little did we know that Nigeria’s tax system is not performing as badly as we had thought.
Recently, in his effort to measure the progress which the Federal Inland Revenue Service (FIRS) has made in terms of institutional reforms and its impact on tax revenue collection and contribution to the GDP, the Executive Chairman of FIRS, Muhammad Nami, initiated a review of the record on Nigeria’s tax-to-GDP. This review was carried out in collaboration with the Nigerian Bureau of Statistics (NBS) and the Federal Ministry of Finance using data from 2010 to 2021. Upon conclusion of the review, the NBS on May 25, 2023 communicated to the FIRS that Nigeria’s tax-to-GDP as at December 2021 was 10.86 percent.
The revision took into account revenue items hitherto not previously included in the computations; particularly, relevant revenue collected by other agencies of government.
Tax-to-GDP ratio is a measure of a nation’s tax revenue relative to the size of her economy as measured by Gross Domestic Product (GDP). The ratio is a useful tool for assessing the “health” of a country’s tax system, and highlighting its tax potentials relative to the size of the economy. It is the ultimate measure of the effectiveness of a nation’s tax system compared to other countries.
In a statement announcing the new Tax-to-GDP ratio, the Executive Chairman of FIRS, Mr. Muhammad Nami, explained that sources which previously put the country’s Tax-to-GDP ratio at between 5% and 6% did not consider tax revenue accruing to other government agencies in their computation. Particularly, revenues collected by agencies other than the FIRS, Customs and States Internal Revenue Service were excluded. This situation was peculiar to Nigeria as most other countries operate harmonised tax system (all or most tax revenues are collected by one agency of government) with single-point tax revenue reporting. As such, all relevant tax revenues are included in the computation of the Tax-to-GDP ratio.
“In order to correctly state the Tax-to-GDP ratio, the FIRS initiated a review and re-computation of the ratio for 2010 to 2021. In recomputing the ratio, key indicators that were previously left out were taken into account. This resulted into a revised Tax-to-GDP ratio of 10.86% for 2021 as against 6% hitherto reported,” the statement noted.
Mr. Nami further noted that Nigeria’s Tax-to-GDP ratio should ordinarily be higher than 10.86% but for certain economic and fiscal policy factors, including tax waivers and leakages occasioned by the country’s fragmented tax system.
“It is important to note that the Tax-to-GDP ratio for Nigeria should be higher, but for the impact of tax waivers contained in our various tax laws (including exemptions to Micro, Small and Medium Enterprises brought-in by Finance Act, 2019), low tax morale, leakages occasioned by the country’s fragmented tax system and the impact of the rebasing of the GDP in 2014”, he explained.
The FIRS boss implored the government to consider reviewing its policies on tax waivers thereby guarantying increased revenue to prosecute its programmes and positively move the needle of the country’s tax-to-GDP ratio.
The Statistician-General of the Federation, Prince Adeyemi Adeniran, in his letter to the Executive Chairman of FIRS, described the revision as a facelift to the Tax-to-GDP ratio for Nigeria in comparison with other countries.
He further noted that the NBS had “carefully and diligently reviewed the methodology used for computing the revised estimates, as well as the various items that have been included in the new computation,” and that the NBS as an outcome of its review and meetings with FIRS has adopted the new Tax-to-GDP computation.
For Nigeria, and particularly the FIRS, the new tax-to-GDP ratio is both a confirmation and exoneration. It is a confirmation of the efforts made by Governments over the years to reposition Nigeria’s tax system. It also a confirmation of the effort being made currently by the Management of the Service to make Nigeria’s tax system stronger. The new tax-to-GDP ratio is a confirmation of the optimism often expressed by Nami, that Nigeria’s tax system can become the best in Africa and the world by continuous and conscientious application of moral and professional tenets in the administration of taxes in Nigeria.
Kelechi Okoronkwo is an author, and tax practitioner.
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