Nigeria’s tax amnesty: Weighing the costs and readiness

At the turn of events due to the fall in the international price of crude oil, Nigeria’s major revenue source and foreign exchange earner, professionals were unanimous that non-oil sector development and harnessing of tax opportunities are the next big things for the country.

While the crude oil crisis and irresponsible management of public funds have been the bane of the country’s development, inefficient tax system leading to tax avoidance and outright evasion has re-ordered compliance level.

Granted, the nearly 30-month oil price crisis has affected economic activities across board. It has stoked debt defaults, credit squeeze, poor profit level/losses for majority of corporates, through the transmission mechanism of low purchasing power, low consumption, inflation and foreign exchange rates. Yet, the country is deep-seated into the culture of non-voluntary tax compliance.

The Federal Inland Revenue Service, as a way to rev up revenue pool for the government, has enlisted more companies in its “dragnet”, but compliance has remained an issue, particularly, with the recession that keeps grinding activities.

FIRS had set a revenue target of N4.9 trillion in 2016, but by the first quarter of 2016, key revenue generating agencies of the Federal Government failed to meet revenue targets, resulting to revenue shortfall in excess of N916.3 billion. This trajectory has persisted until now.

About 53 days ago, FIRS, in a dramatic policy shift announced the opening of a special window, which would waive off penalties and interest charges for tax defaulters between 2013 and 2015.

Already, experts have said it is a win-win for both the government and identified tax defaulters.

Unfortunately, the window has closed on November 24. But the agency said the response was commendable. This means that a fresh vista of hope may have been opened for the cash-trapped government. The window though, was left open for only the members of the National Association of Small and Medium Enterprises.

The dilemma has also remained by the fact that government is looking for funds, with shortfalls already in its revenue target, yet the new policy would discount billions of Naira for the defaulters. How beneficial will this step be to the country? Will it widen the pool of taxpayers in the country? Is this the wisest step to take given the current circumstance?

A lawyer and tax administrator, Chukwuemeka Eze, said in a period of recession like this, government needs to take unusual measures that have been tested elsewhere by way of financial engineering to change the negative fiscal template of the economy and the present policy is one of them.

“As you know, we are in the eleventh hour of the 2016 Budget and there is need to improve the performance of the Budget. The Senate is already complaining that they are tired of passing budgets that will not be implemented by the Executive.

“Without more funds, there is basically nothing the Executive can do to improve budget performance. I am sure that FIRS has reaped bountifully from this policy,” he said.

The President of the Chartered Institute of Taxation of Nigeria, Dr. Olateju Abiola Somorin, at the body’s 12th induction ceremony, said the 45-day tax amnesty on penalties and interest regarding outstanding tax liabilities for the years 2013 to 2015 provided the tax defaulters a rare opportunity.

For the institute, she said, it is a bold move by FIRS. It also showed that the initial position of the FIRS that the amnesty was applicable only to taxpayers who have been audited and issued assessments has now been revised to cover voluntary disclosures and self- assessments.

“This revised position is more consistent with the content of the FIRS Public Notice released on the subject matter and the general intent of a tax amnesty. Our Institute has forwarded reactions on five specific issues to National Tax Policy Review Committee, which are geared towards effective delivery of a virile tax system.

“What we are witnessing in recent times is that tax revenue contribution to total government revenue continues to increase but with a low tax-GDP ratio of 3.98% at 2015 levels in a N94.144 trillion GDP economy.

“With government’s quest to achieve a 20% tax to GDP ratio, it leaves no one in doubt of the legion of tax administrators and professionals required to navigate the tax laws on behalf of tax clients to ensure equity and fairness in its application and compliance.

“This onerous task falls on Tax Professionals who must continually update and display the requisite skill set in order to offer top notch services to their clients and the general public. The Mandatory Professional Training Programmes are organized by the institute across the various geo-political zones in the country. This capacity building programmes have become more obligatory than ever before,” she said.

Also, another lawyer and tax administrator, Samuel Agbeluyi, said FIRS’ database will now be updated, which is critical to tax administration, beside the immediate revenue boost in terms of monthly VAT returns, while accumulated and disputed revenue would be cleared.

“It will definitely bring positive development in terms of tax administration. It also shows good gesture from FIRS as a dynamic government organisation.

“Yes, I can tell you that what government will be losing in the short run will be insignificant when compared to the long term gain. It is bound to build some level of confidence in the taxpayers that they can partner with FIRS.

“The step should encourage law abiding tax payers whose only fear before now was how to pay the accumulated debt. With the relief, it is a new beginning, in a way. The law should be allowed to take care of the defiant,” he said.

Also, Prof. Grace Tola Olutunla, while speaking on “Tax Administration Towards Economic Recovery And Growth In Nigeria,” in Lagos, at the weekend, said that providing right answers to tax questions will help in getting increased revenue and expanding government expenditure and economic activities.

Taxation is a veritable tool to encourage the protection and growth of domestic industries. Tax holidays and exemption can be used to increase the production and exports of locally produced goods and services. The net effect is an expansionary domestic medium and large industries, entrepreneurial activity and employment generation, and overall increased economic activities that speed economic recovery and growth.

“The current trend of indigenous and multinational companies moving out of Nigeria to other countries and regions should be halted. Instead, there should be stimulus packages including improved infrastructure and favorable tax rates and administration that lead to local businesses expansion and increased tax revenue for government,” she said.

However, Eze, commended the step, saying what FIRS has done is akin to what is referred to as “Tax Amnesty”, a principle that has been successfully applied in many tax jurisdictions outside Nigeria.

Noting that it would be beneficial to the country, he described tax amnesty as forgiveness of tax liabilities in whole or in part for a given period of time.

“This enables taxpayers to turn a new leaf or start on a clean slate in applicable circumstances. This policy promotes voluntary tax compliance and will enable the FIRS capture more taxpayers into its tax database.

“Unknown to many, ample taxpayers have been disputing tax liabilities ascribed to them by FIRS, leading to litigations in extreme cases. With the waiver of penalties and interests, many taxpayers will find no further basis not to fulfill their tax obligations. The measure will prompt tax evaders to come forward and be counted.

“By this act, FIRS will be standing on a higher moral ground to invoke, in appropriate circumstances, its powers. Some of the acclaimed debts are phony and cannot be substantiated in practical terms. So, it is a process of sifting the grains from the chafes. The policy will help FIRS meet its revenue target in the 2016 Budget, thereby boosting the non-oil revenue receipts, upon which the budget is largely predicated,” he added.

So, taxpayers have no option than to pay either now or enter into arrangements with FIRS on how to discharge undisputed liabilities.

On the other hand, FIRS will be in a position to differentiate taxpayers who are still in business and responsive, and those that are  “dead”.

With this knowledge, Eze noted that FIRS will cease spending money chasing  “bad debts”, which will be impracticable to recover. This will reduce its cost on tax administration with a positive reverberation on the economy generally.

“I encourage FIRS to grant tax amnesty every 10 years. This is not a carte blanche not to pay tax, but a means of moving forward in tax administration in applicable circumstances,” he added.

As with other initiatives that have received unanimous commendations and expectations, but failed, this is another policy shift that is up for time in Nigeria.