The Federal Inland Revenue Service (FIRS) says it will begin to impose value-added tax (VAT) on online transactions, both domestic and international, with effective from January 2020. Babatunde Fowler, FIRS executive chairman, made this known recently at the African Tax Administration Forum (ATAF) technical workshop that held in Abuja. Fowler said a lot of countries that see Nigeria as a good market are into online businesses, adding that there was a need to tap into the potentials to generate more revenue.
However, he said the date of commencement of the VAT on online transactions would be subject to government’s approval. “We have thrown it out to Nigerians. Effective from January 2020, we will ask banks to charge VAT on online transactions, both domestic and international,” Fowler said. “VAT remains the cash cow in most African countries, with an average VAT-to-total tax revenue rate of 31%. This is higher than the Organization for Economic Cooperation and Development’s average of 20%. “This statistics, therefore, is a validation of the need for us to streamline the administration of this tax with the full knowledge of its potential contributions to national budgets. “It is, however, also bearing in mind the rights of our taxpayers.”
Fowler said Nigeria could do better with VAT collection. Giving the example of Senegal, the FIRS boss said the West African country generates 51% of its revenue from VAT while Nigeria generates 17%. He said the tax agency wrote a letter to banks in May 2018 requesting for a list of companies with a banking turnover of N1 billion and above to ascertain the companies complying with tax laws.
Given the sharp drop in oil prices, Federation Account Allocations to states have dropped by an average of about N2 billion monthly per state, which partly explains their inability to meet some basic recurrent expenditures including payment of workers’ salaries. More worrisome was the fact that prevailing negative economic environment had a very adverse effect on the performance of the Federal Inland Revenue Service (FIRS), the nation’s most important revenue agency. The FIRS collected only N1. 207trillion in 2016 compared with a total of N2.92trillion from taxes in the first nine months of 2015, statistics obtained from the Service revealed. The 2015 amount, when compared with the N3.44trillion, which the Federal Government had set for the FIRS as target for the nine-month period, represented a decrease of N520 billion. In fact, the recession has forced the Federal Government to reduce its Company Income Tax (CIT) budget for 2017 to N808 billion, representing a 7 per cent cut. A summary of collections indicated that only N 299.802 billion was collected as CIT, which was a far cry from the expected N867 billion contained in the 2016 budget. This therefore calls for urgent steps not only to save the Nigerian economy from slipping into depression, but to boost revenue in order to settle immediate recurrent obligations.
In this regard, the Federal Executive Council approved a revised National Tax Policy to address low taxation in the country. According to the former Minister of Finance, Mrs Kemi Adeosun, the main thrust of the tax policy is to establish fundamental principles to guide and orderly develop the Nigerian tax system toward meeting its objectives. It also recognizes the primacy of the taxpayers and clearly states their rights and duties. Nigeria’s tax contribution to the Gross Domestic Product (GDP) is said to be the lowest in the world with about six per cent. Its Value Added Tax is also said to be the lowest in the world at five per cent. The minister, however, said under the new tax policy, consumers of luxury goods would pay a higher Value Added Tax (VAT). This better explains why the Value Added Tax budget has been increased from N198 billion in 2016 to N242billion in the 2017 budget, a N44 billion or 22 per cent increase. The ex-minister expressed the hope that the new revised tax policy, which was recommended by the ministry’s National Policy Tax Review Committee in August 2016, would entrench an efficient tax system. “What the committee has shown is that we should look at actually increasing VAT on some luxury items. With VAT of five per cent, we have lowest VAT; and whilst we don’t think VAT should be increased on basic items, if you are going to drink champagne, champagne in the UK has VAT of 20 per cent, why should it be five per cent in Nigeria?” she stated.
Even before the approval, many stakeholders had expressed their strong support for exploring tax options especially now that the revenue accruing to the Nigerian Government has been reduced drastically. It would be recalled that, the immediate past Coordinating Minister for the Economy and Finance Minister, Dr. Ngozi Okonjo-Iweala, disclosed that about 30 per cent of those who are enjoying tax holidays in the country have abused the privilege. She also explained that 75 per cent of registered businesses were not captured in the tax system. She said between 2013 and 2015; 65 per cent of taxpayers have failed to file their reports to the authorities in charged. The failure, according to her, is responsible for the low tax to the Gross Domestic Product (GDP) ratio of12 per cent whereas countries like South Africa are doing more than 20 per cent.
It is important to note that, any country seeking to improve its revenue generation would opt for a concept enabling it to best realize its objectives with due regards to its peculiar socio-economic make-up. One of these ways is by taxation. A tax can therefore, be defined as a means by which, a Government appropriate part of the private sector’s income. The accumulated revenue is used in meeting recurrent expenditure. Tax occupies a unique position, because it is an important part of government policies. The ability of a government to generate revenue from this sector affects services offered by such a government. Hence, taxation is a compulsory payment levied by the government on her citizens to generate revenue and control economic activities and it is backed by law. Taxation has not only influenced the economy, it has also become an important instrument of economic policy.
It is however very sad to note that, many high profile companies and wealthy people in the society do not pay tax, and tax invasion is a very serious offence, but nobody or corporate entity has ever been prosecuted for non-payment of tax, which is a horrendous act of economic sabotage. In fact, from available statistics many foreign companies in the country do not pay tax and when they rarely do, it is usually underestimated as there are no full disclosures. It is also important to state that, taxation must be effective, functional and dynamic. The tax assessment process must be made more attractive, even getting the tax form and filling term can be very cumbersome, which necessitates the hiring of third party or consultants, this brings about bureaucratic bottlenecks and this discourages people from paying tax as they ought to. Besides, the use of Best of Judgement and other negotiation procedures breeds corruption and tax manipulations.
It is instructive to note that that people pay tax in Nigeria not because they are willing to pay tax, but rather because they are compelled by law to do so. This reason for this is quite fathomable; the people do not see the good use to which their taxes are being used for. Taxation and tangible development should go hand in hand, without this taxation will be a burden on the generality of the people. Hence, Nigeria must have a tax system that must have all the attributes of a good tax system such as, fairness, objectivity, equity, certainty etc.
The social democratic principles of the government is becoming a mirage because all these tax initiatives are not skewed to protect the downtrodden but rather to go a long way to further reduce their disposable income, because of low incomes and mass unemployment in our society, hence, taxation must be done equitably. Taxation should capture every segment of the society that can pay tax, while leaving out those that cannot and should not pay tax.
Another sore point in tax administration in the country has to do with the oft-repeated complain by Manufacturers Association of Nigeria (MAN), Lagos Chamber of Commerce and Industry (LCCI) and NACIMA, of multiple taxations, which is a great disincentive to manufacturing and industrialization by the various tiers of government. The tax administration in the country must be restructured; it must be more open and transparent. There be a system in place where every taxable adult must be captured, monitored and collected. The tax system must not to be arbitrary. The government must have a comprehensive system through which every corporate entity-big or small, as well as every adult of tax paying age will be captured and offenders will be prosecuted. Besides, government must ensure that those that are appointed to handle tax matters in the country are not only professionally qualified, but they must also be who are clearly above-board and beyond reproach. Hence, the present government is restructuring the tax regime in the country to enable individuals and corporate entities to pay tax with ease as well as account for tax paid for development purposes.
A public policy analyst, Adebola Olubanjo believes that taxation should continue to be a major focus for revenue generation, while also stressing that “the tax authorities are expected to be more aggressive in enforcing those laws that were hitherto left in the statute books without any attempt to ensure compliance.” This means that the tax regimes are already in extant laws but are not or poorly implemented, except for a state like Lagos that is adjudged to be doing very well in this space. Lagos State has been recognized as one state in the federation that quickly understood the goldmine in taxation as the major source of Government revenue. But how well the state and other states following its template have been able to apply basic principles that should guide a good tax system remains a subject of debate. Apart from the above policy analyst, other stakeholders have even gone a step further to unravel hidden areas to be explored.
For instance, in recommending “Policy Options for Reversing Nigeria’s Economic Downturn”, CBN governor, Mr. Godwin Emefiele at the 2016 bankers’ night acknowledged that there are several ways the federal and state governments can raise additional revenue to finance the increased expenditure that is needed to engender fast and sustainable growth in the economy. One of such is taxation. In his words: “I think we can consider introducing a negligible telecom surcharge to be entirely borne by the initiator of a call. In order to protect the poor and vulnerable amongst us, we could structure it to only take effect after the third minute of talk. “He said some analyses have indicated that the government could earn about N100 billion per annum from this alone since Nigeria at the moment has more than 216 million registered mobile phones . What Emefiele had in mind obviously is that this surcharge will mainly be borne by middle and upper class people since “I do not know many poor people who make calls for more than three minutes.” “We could also consider introducing minimal property taxes across the country. This not only raises money for the government but also could be a veritable weapon against corruption since it creates a database of who really owns homes in this country,” the governor suggested. While some analysts agree with Emefiele’s suggestion, others differed, saying that it has resemblance to a bill seeking to introduce a communication service tax of 9 per cent introduced by the former National Assembly but was vehemently rejected by telecommunication providers, other stakeholders and the public. There are over 93.2 million bank accounts as at September 2016 according to the Nigeria Interbank Settlement System (NIBSS). 65.435 million of the number are savings accounts and about 49 million registered Bank Verification Number (BVN) as at last quarter of 2016. According to the National Bureau of Statistics (NBS), there are over 30 million Nigerians who work in public and private sectors who meet the criteria of joining the Retirement Savings Account (RSA) system.
Nigeria has 7.2million people in the Retirement Savings Account (RSA) system as at December 2016, whose pensions are being remitted. That means that the owners of the retirement savings automatically pay some form of taxes to the government while close to 22.8 million working people do not have retirement savings accounts. A little comparison exposes the fact that somebody is not paying taxes. Someone that has BVN may not be a minor but must be earning some kind of income apart from students. Clearly, if tax authorities begin to mine that BVN data base, data base on 30 million Nigerians who work in public and private sectors and encourage them to pay something, both states and federal government will have higher revenue from taxes. Corroborating this idea, Managing Director of Afrinvest West Africa Limited, Mr. Ike Chioke said: “If there is a verification system that ties your BVN to your bank account and to more than 216 million registered mobile phones in Nigeria, it will also expose more taxable agents. These tell us that Nigerians can participate in any programme if there is transparency, efficiency and clear operation.” The move by the executive chairman of FIRS, Mr Babatunde Fowler can be said to be in line with the above discovery. He created a new unit early 2016 and the unit was able to add into the tax net, about 700,000 companies that have not paid taxes. It was then predicted that about 10 million individuals across the nation would also be added into the tax net by December 2016.
Hence, taxation in Nigeria, if properly management could be a veritable source of revenue generation for the country at this trying moment; which is the agenda the present administration is pursuing vigorously.
*** Written by Jide Ayobolu