When Muhammad Nami was appointed to take over the helm of affairs at the Federal Inland Revenue Service (FIRS), many were of the view that the appointment is to sate the demands of some influential persons as his antecedents doesn’t show him as one that can lead the revenue collection agency in the face of dwindling government revenue. But two years down the line, his appointment appears to be a round peg in a round hole. How was he able to convince naysayers? Samuel Morakinyo examines his activities.
Introduction
In the face of the skepticism that greeted his appointment by the Muhammadu Buhari led-administration as the honcho of the Federal Inland Revenue Service (FIRS), the Executive Chairman, Mr. Muhammad Nami, knew that if he has to hit the ground running, then an audit of the agency should be his first priority. This is particularly necessary as the nation is facing a cash crunch due to falling oil prices and how the government will shore up its revenue base aside from the oil sector is of concern to the populace.
To demonstrate its readiness for the job, on the assumption of office, Nami drew up a four-point objective as a template for his mission to reposition the Service, for efficient service delivery. Previously, the Service is not known to operate under any codified principle, thus negating any attempt by the staff to base their activity under any theory.
The cardinal objectives of his administration are Rebuilding FIRS institutional framework; Collaboration with stakeholders; Making FIRS a Customer-centric institution, and Making FIRS a Data-centric institution.
These objectives indubitably correlate with the three core areas of a tax system, which are, tax laws, tax policy, and tax administration. A tax system works better by having a robust rapprochement with critical stakeholders, a properly nurtured and sustained customer-centric sentiment, and a bias for data analysis and utilisation. All of these can blend well within the framework of a properly positioned and structured corporate institution.
It is to achieve all these that Mr. Nami applies himself diligently since he took over the mantle of leadership at FIRS. Two years down the line, the range of initiatives and reforms he has implemented thus far convey him as a focused and devoted tax administrator and a team player, who understands how to harness human and financial resources to improve the country’s tax system.
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Nami’s Approach to Improving Nigeria’s Tax System
The current Management at FIRS led by Mr. Muhammad Nami, realising the strategic importance of a tax system to the nation’s economy immediately mapped out strategies on how to reposition the FIRS for greater service delivery. It thus adopted a range of initiatives aimed at the overall strengthening of the tax system. These strategies covered the three core areas of a tax system: tax laws, tax policy, and tax administration.
Tax Laws
It is an obvious fact that there is no taxation without legislation. Every round of tax reform must therefore begin with a review of the legal framework. As of the date the new Executive Chairman assumed office, the 2019 Finance Bill was already in the works but had only been passed by the House of Representatives. Through concerted efforts by the new Management, the Senate passed the Bill on 11th December 2019 and presidential assent was given on 13th January 2020 and the Finance Act 2019 came into effect, setting the tone for several other reform initiatives by the Nami-led FIRS.
The Finance Act 2019 was a wholesale amendment to seven different tax legislations namely: The Companies Income Tax Act, Value Added Tax Act, Capital Gains Tax Act, Stamp Duties Act, Customs and Excise Tariff Act, Petroleum Profits Tax Act, and Personal Income Tax Act.
Small and medium businesses were the biggest beneficiaries of the reforms introduced by the Companies Income Tax Act (amended). Specifically, the amendment divides companies into three categories for taxation. These are small, medium, and big companies. Companies with an annual turnover of less than N25 million (small companies) are exempted from payment of corporate tax. Companies with an annual turnover of between ₦25 million and ₦100 million (medium companies) are taxable at 20 percent of assessable profits. Companies with an annual turnover of ₦100 million and above (big companies) remain taxable at the rate of 30 percent of assessable profits. This reform intervention recognises that small and medium businesses are the main drivers of job creation and economic growth. The reform is therefore aimed at reducing operational costs, encouraging recapitalisation and business expansion by small and medium companies.
Another major reform is with the Value-Added Tax. In addition to clarifying certain ambiguous provisions of the VAT Act, the amendment increased the rate of VAT from 5 percent to 7.5 percent. The concomitant reduction in Corporate Tax rates on one hand and an increase in the rate of Value-Added Tax, on the other hand, is consistent with the National Tax Policy which aims at a gradual shift from direct to indirect taxes. The guiding principle behind this stipulation in the National Tax Policy is that indirect taxes potentially offer higher yield while remaining cheaper to administer than direct taxes.
Within the Year 2020 and as a follow-up measure to strengthening the legal framework, a Committee was constituted to further review all relevant tax laws. As a result of the Committee’s work, Draft Bills with amendments to the Federal Inland Revenue Service Establishment Act, the Value Added Tax Act, and the Finance Act 2019 were prepared and submitted to the National Assembly (NASS) for further review.
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In addition, within the same year, 13 information Circulars were also developed and released as follows:
Taxation of Non-residents in Nigeria
Taxation of seafarers onshore and offshore platform workers
Taxation of companies involved in shipping, air transport, and cable undertakings
Taxation of Real Estate Investment companies
Guidelines for filing income tax returns by foreign companies
Circular on clarification for taxation of insurance companies
Circular on clarification on commencement and cessation of business and business reorganisation
Circular on tax implication of the operation or regulated securities lending transaction
Circular on stamp duties
Circular on value-added tax
Clarification on sundry provisions of the Finance Act 2019 as it relates to CITA
Guidelines on the tax treatment of section 27(C) of Companies Income Tax Act (CITA) on the deductibility of Foreign Tax Framework for the implementation of the country-by-country reporting in Nigeria.
Tax Policy
To minimise the incidence of double taxation and to further facilitate international trade and investment between Nigeria and the rest of the world, the FIRS in collaboration with the Federal Ministry of Finance, Budget & National Planning engaged in bilateral/ multilateral agreements.
In 2020, FIRS concluded the negotiation of the Avoidance of Double Taxation Agreements with Turkey. Negotiations are also at different stages with the following countries: Hong Kong, Saudi Arabia, Cyprus, Iran, Germany, Switzerland, India, Botswana, Japan, Greece, New Jersey, and Russia. These will be concluded as soon as the few outstanding issues have been resolved.
In the year under review, Nigeria has an active ADTA agreement with 16 countries, namely: South Korea, Spain, Sweden, Singapore, France, Mauritius, UAE, Qatar, Kenya, Morocco, Ghana, Cameroon, Turkey, Sudan, Gambia, and Denmark.
Another key tax policy issue which the management of the Service continues to focus on is that of transfer pricing. The Management has, by way of follow up to the introduction of the Income Tax (Transfer Pricing) Regulations 2018, issued Demand Notes totaling N1.074 billion on 222 companies for failing to file their transfer pricing returns in line with the requirements of the Regulations. 54 companies paid penalties imposed on them and these amounted to ₦47.433 million. Currently, the Service is involved in several audits that have the potential for substantial revenue yield resulting from adjustments and additional assessments.
The Service also maintained its relationship with ATAF, WATAF, CATA, and the OECD and organised a WATAF workshop on Risk Management in Bamako, Mali in June 2020.
Tax Administration
During the 2020 fiscal year, FIRS continued the implementation of various administrative measures to enhance revenue collection to achieve its target. From the onset, the new Executive Chairman identified four cardinal pillars to drive his reform interventions in the area of tax administration. These objectives are:
Rebuilding FIRS Institutional Framework,
Robust Collaboration with Stakeholders,
Building a Customer (Taxpayer)-Centric Institution,
Building a Data-Centric Institution.
Rebuilding FIRS Institutional Framework:
The Management has been committed to building and strengthening the capacity of the Departments and Units of FIRS to deliver their mandates on a long-term and sustainable basis. In line with this, the Board approved a new structure for the Service on 17th January 2020. The new Organogram is composed of six Groups and 32 Departments including the Internal Affairs Department that reports directly to the Executive Chairman.
Taxpayer Segmentation has been re-introduced. The Audit and Investigation departments were also reviewed for effectiveness.
The Annual Corporate Plan Retreat was reintroduced and it was held between 7th and 8th February 2020 with the theme “Repositioning FIRS for Efficient Service Delivery.” The 2020 Corporate Plan was approved by the Executive Chairman, FIRS, and exposed to the staff at the headquarters.
The Intelligence, Strategic Data Mining & Analysis Department (ISDMA) was established to deploy technological tools, analyze tax data and distill for improved assessment of taxpayers.
The Tax Incentive Management Department (TIMD) was also established to manage, implement and report on tax incentives as provided by relevant extant laws and regulations. This department is specifically in charge of the tax affairs of companies/ enterprises enjoying tax exemptions and holidays. Companies enjoying pioneer incentives, NGOs, Cooperative Societies, companies in Export Processing Zones, Free Trade Zones, Oil and Gas Export Processing Zones, those engaged in Downstream Gas Utilization and all others enjoying tax holidays are being managed by this department to forestall revenue leakages, such that companies, enterprises do not use their statuses as a cover to earn taxable income and refuse to pay tax on that income.
The National Tax Week:
The FIRS hosted the first-ever National Tax Dialogue in January 2020. The event brought together leaders, institutional stakeholders, and tax experts from across the world to discuss matters relating to improving taxation, especially in Nigeria. Attendees included President Muhammadu Buhari, AFDB President, Dr. Akinwunmi Adesina, Executive Governor of Ekiti State, Dr. Kayode Fayemi, Executive Secretary of the African Tax Administration Forum, Mr. Logan Wort, among others.
The Executive Chairman has approved that a week at the beginning of every year is set aside as the National Tax Week, to host events on tax education awareness, discuss contemporary tax matters, and proffer solutions to fiscal challenges.
Collaboration with the Stakeholders:
The objective in this regard is to foster cooperation and collaboration between FIRS and key stakeholders in the Nigerian Tax System to provide a unified view of its plans to eliminate critical bottlenecks which hitherto impede efficient tax administration. Some of the stakeholders include:
Federal Ministry of Finance
The collaboration with the Federal Ministry of Finance on the recovery of tax debt from contractors or tax debtors that were uploaded on the FMF (GIFMIS platform) has yielded recoveries of over N500 million.
Corporate Affairs Commission
Through inter-agency collaboration, the Corporate Affairs Commission has provided integration to the Service on its information system for data reporting via the Application Programme Interface. This enables the FIRS to track and bring new corporate taxpayers into the tax net; generate taxpayer-identification number for new taxpayers at the point of incorporation, issue a certificate of incorporation and improve efficiency in the administration of stamp duties.
Security Agencies
The Service, through collaboration with the Economic and Financial Crimes Commission (EFCC); the Department of State Security Services (DSS), and the Nigeria Police Force (NPF) established a joint task team known as the Special Crimes Division. The Division is responsible for intelligence gathering, joint investigation, and enforcement activities relating to tax evasion and tax fraud. In addition to these collaborative engagements, the new FIRS Board through the Technical Committee of the Board set up a Committee and tasked it with the following terms of reference:
Review all existing memorandums of understanding between the Service and its stakeholders,
Prepare new MOUs for consideration, and
Recommend other agencies/stakeholders the Service may enter into an MOU with to deepen stakeholder collaboration.
The key objective for stakeholder collaboration is information and intelligence sharing to enhance effective and efficient tax administration. The MOUs are intended to provide the framework, scope, and obligations for such collaboration.
MDAs
The Service continued to engage with, and sensitise many functionaries of the Federal & State Government Ministries, Departments and Agencies (MDA) in a bid to make them more aware of their tax obligations and ensure improved tax compliance.
On Building a Customer-centric Institution:
Making FIRS “customer-centric” entails building an institution that is viable for ease of doing business by focusing on efficient service and providing a positive customer experience on all tax-compliant processes. In line with this, the following measures were put in place for the period being reviewed:
Taxpayers facing challenges in sourcing for FOREX to offset their liabilities are given the option of paying in Naira at the prevailing Investors & Exporters (I & E) FOREX window rate on the day of payment.
Palliative measures to remove penalty and interest on the following category of debts.
Self-Assessment filing.
Tax Audit, Tax Investigation, and Desk review assessments.
Approved installment payment plans under VAIDS.
Extension of VAT returns filing to the last working day of the month.
Extension of CIT returns filing by one month.
Filling of returns with the possibility of delayed delivery of audited accounts component till 2 months after revised filling date.
Enhancement of the capabilities of various e-platforms for tax returns filing, tax payments, receipting, and application for Tax Clearance Certificates.
The period for filing personal Income tax annual returns (Military, Police, Foreign Service officials, etc.) extended to 30th June 2020.
The e-filing process has been made much simpler, user-friendly, and robust for the taxpayer to take advantage of instead of visiting tax offices, taxpayers have been provided with a dedicated email address to submit documents online.
The late returns penalty (LRP) has been waived for taxpayers that pay early and file later. Supporting documents can also be emailed to the dedicated email address or submitted later to the tax office, for those who are not able to use the email facility.
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On Building a Data-Centric Institution
Reliable data is indispensable in modern tax administration. The various modernisation projects embarked upon by the new Management are aimed at either improving the integrity of available data or generating data for informed decision making. As part of the new Management’s drive to make the Service a data-centric institution, the following strategies have been initiated:
Technological Reforms
The TaxProMax was developed and deployed. It is an in-house Tax Administration Solution, which covers the major processes of a tax administration system (Registration, Filing, Payment, and Reporting) by the extant tax laws and IMF Tax Administration Diagnostic Assessment Tool (TADAT) standards. This solution became operational on 1st June 2020 and is in use in all FIRS tax offices. The solution has led to the development of initiatives like;
‘My Bank Statement’ application has been developed for the transmission of customers’ transactions.
FIRS has developed a portal for Deposit Money Banks (DMBs) to provide information of corporate customers transactions above ₦10 million and individuals above ₦5 million.
An MoU between FIRS and NIBSS on funds sweeping and settlement of all FIRS taxes to Federation Account at CBN, which is operational.
On the 6th of October 2021, the FIRS under Muhammad Nami was awarded the International Standard Organization (ISO) 27001:2013 certification. This affirms that the Services’ network is secure, the data processes and data it possesses are secure as well as the taxpayer information it holds and receives within Nigeria and across the world.
Conclusion
Total revenue remitted to various FIRS accounts with CBN at the end of the year 2020 stood at N4.95trillion. This amount shows a slight shortfall compared to the revenue target for the year, which was N5.07 trillion. This is attributable to the general economic depression, volatile exchange rates, prevailing global economic crises occasioned by the COVID-19 pandemic, and poor tax culture among the populace.
As of the 30th November 2021, the Service had collected over N5.03 trillion, being 85 percent of the national tax target. It projects to meet and even overshoot its target by 31st December 2021.
