How to increase government’s retained earnings, by experts

Besides broadening the nation’s tax base, the government would need to work at changing the level of distrust by the citizens, which invariably, is making many to avoid paying tax voluntarily.

The move would start by ensuring that there is a transparent system of accounting in its businesses and enforcing financial regulations across its agencies.On the other hand, the Federal Inland Revenue Service (FIRS) would need to sharpen its strategies in the collection of tax revenue, which currently, is leaving billions of Naira out of government coffers, shorting the country’s revenue budgets.

FIRS should learn not to overstate facts, as it appears that tax expectations currently, are not actually based on agreed liabilities and but estimated liabilities, which creates false hopes and disputes.Reacting to the latest report of the Auditor-General of the Federation (AuGF), which detailed several infractions amounting to hundreds of billions by government’s agencies and huge tax revenues that are collected by FIRS, experts said there is definitely need to restrategise.

The AuGF, Anthony Ayine, in reaction to the development, said several government’s agencies violated fiscal provisions that have imprisonment and refunds as penalty.The laws violated include those of the procurements, Financial Regulation 603(i); Financial Regulations 405 and 406; Financial Regulations 301 and 302; and VAT Act No. 102 of 1993, among others.

The Partner/Head of Tax and Corporate Advisory Services at PwC Nigeria, Taiwo Oyedele, called for fiscal transparency, as there is no way development can be achieved the globally acknowledged high level distrust for government with tax revenue, which now is inducing tax evasion and avoidance.“With such a high level of apathy towards tax, it is impossible to move the needle on revenue generation. Government at all levels must urgently start taking steps to address fiscal transparency issues to build the much-needed trust in the system.

“This trend, unfortunately sends the wrong signal about tone from the top, which further dampens citizens’ tax morale. The vast majority of citizens and Nigerian businesses are unwilling to voluntarily comply with their tax obligations majorly due to lack of transparency and non-commensurate social services.

“This is a key factor responsible for Nigeria’s low tax to Gross Domestic Product (GDP) ratio. Addressing the problem could easily raise the country’s tax revenue by over 100 per cent from the current six per cent to at least 12 per cent of GDP,” he said.Unfortunately, FIRS appears to be failing in many fronts in terms of depth and financial value, as the auditor’s report chronicled huge numbers of uncollected tax obligations worth several billions of Naira and distorting the country’s revenue projections.

The agency’s sectoral segments, according to the report, have hundreds of companies owing taxes across Pay As You Earn, Withholding Tax, Company Income Tax and VAT remittances, ranging from a low of N5million to as high as N10 billion by group of companies.A Fellow of the Chartered Institute of Taxation of Nigeria, Dr. Titilayo Eni-tan Fowokan, lamented that other tax avenue for government like the much-touted luxury tax was suspended, while no one is sure are not sure if the new Minister of Finance will resuscitate the tax considering that there were plans to amend the tax laws and revisit the issue of luxury tax before the end of last administration.

She advised that government should intensify efforts in monitoring the TSA framework, which seems to have helped in blocking some revenue leakages, while FIRS should ensure that taxes expected are actually based on agreed liabilities and not estimated liabilities.“The question we should first ask ourselves is that are those tax debts actually debts owed the FIRS or arbitrary amounts assessed on tax payers, which are either in dispute or estimated.

With the recent collection and recovery method adopted, the FIRS may even be making tax payers to pay taxes not actually due most especially for tax payers whose accounts are under lien and have little or know knowledge about how tax is determined.“If the FIRS encourages voluntary tax compliance and improve on its taxpayers services approach, there is tendency to collect more and minimise the level of Tax debts. Creation of a Tax Payer friendly environment and adopting a business partner approach to tax collection will also help in managing the tax debt level,” she said.

Speaking on the non-transparency of public sector accounting, she added: “This attitude amounts to lack of integrity and accountability on the part of the officials.“The Ministry of Finance should ensure there is compliance with the financial regulations on expenditure and advances through enforcing accountability via the Accountant General and Auditor Generals Offices. Sanctions should be in place for any personnel that breach the controls.”