On taxation
The Federal Inland Revenue Service (FIRS) has revealed plans to significantly increase its tax revenue collection by 57% to ₦19.4 trillion. According to Bloomberg, the FIRS hopes to increase its oil revenues to ₦9.96 trillion with non-oil tax revenue at ₦9.45 trillion. To achieve this, the FIRS plans to enhance efficiency and tax compliance by restructuring its organisational framework to prioritise taxpayers and implementing additional automation measures for tax collection, as outlined in the document. It also plans to carry out internal reallocation from oil to non-oil.
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The FIRS sets its targets each fiscal year, but its performance has fluctuated. Four have seen year-on-year increases over the last eight years, while the other four have experienced declines. The new leadership of the FIRS will have its inaugural full fiscal year in 2024 to put its policies to the test, especially as these promised figures are almost double what the agency generated two years ago in 2022. Given the sluggish growth of the underlying economy, potential drivers of growth could be an assertive compliance campaign or benefits resulting from the depreciation of the Naira. Drawing from the current President’s past actions as the governor of Lagos, it is likely that the former scenario will prevail, so businesses should make necessary preparations. When highlighting things needed for Nigeria’s growth and economic revival, it is common to hear experts (both domestic and international) talk about the need to increase tax revenue. Although important, it is noteworthy that simply increasing tax revenues does not guarantee prosperity for the country, as higher tax rates alone cannot lead to economic success. A good way to increase tax revenue is to expand the tax net by making processes easier, improving tax education and using taxpayers’ money for tangible things. Reports of government officials misappropriating public funds raise serious concerns about tax collection and allocation, potentially dampening taxpayer confidence. People will only be eager to comply with tax laws when they see that the government uses the proceeds judiciously. The FIRS has done well by automating some processes in the past. Hopefully, this can be replicated by the tax agencies at the sub-national level. Improved efficiency at the lower level will certainly make the job easier for the FIRS. Tax tsar, Taiwo Oyedele, announced that the government plans an “electronic invoicing” of Value Added Tax that would make it more difficult to evade tax. Additionally, it aims to implement the Digital Service Tax Regulation, which mandates digital companies providing various paid cross-border online services to Nigerian residents to remit income tax. These companies are to remit 6% of their annual turnover, derived from online business activities conducted within Nigeria’s digital realm, as income tax to the FIRS. While these are applaudable, there is a need to take lessons from past failures. The Buhari administration began its tenure with a rhetoric about broadening the tax base to increase revenues, and various initiatives were launched, such as the Voluntary Assets and Income Declaration Scheme (a tax amnesty programme). However, VAIDs had limited success, and analysts described the programme as a well-intended scheme that failed to punish defaulters who did not take advantage of the amnesty. Therefore, a vital lesson to take from past initiatives is that implementation is key.
