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Understanding power of FIRS in tax administration

By Joseph Chibueze, Abuja
30 September 2022   |   5:37 am
The Federal Inland Revenue Service (FIRS) has vast powers bestowed on it by its enabling act and other tax laws. Very few people are aware of the enormity of these powers.

Executive Chairman of Federal Inland Revenue Service (FIRS), Muhammad Nami

The Federal Inland Revenue Service (FIRS) has vast powers bestowed on it by its enabling act and other tax laws. Very few people are aware of the enormity of these powers.

Perhaps, this obliviousness can be blamed on the multiplicity of revenue agencies across the country at the state and local government levels especially.

Section 8 of the FIRS Act gives the Service powers to assess persons, including companies and enterprises, collect, account and enforce payment of such taxes as may be due to the government or any of its agencies.

Subject to appropriate due process, the FIRS can direct anyone, including a bank to pay amounts belonging to a tax defaulter directly to the FIRS or distrain on assets of a recalcitrant taxpayer or prosecute through the court process, among others.

This is not a Nigerian thing, tax experts agree that it is the same in even advanced countries because without such powers it would be difficult to enforce tax compliance, and consequently tough to earn much-needed revenue for the government. As they put it, tax payment is not something one will ordinarily want to do.

On this issue, Technical Assistant to the Executive Chairman, FIRS, Olufemi Olarinde, in an interview, said in all advanced and developed climes, the tax authority is given unfettered powers to taxpayers’ information, including their private conversations.

“The powers of FIRS extend, even to examine and audit the tax returns made by companies and individuals, which could lead to the taxpayer being asked to pay additional taxes,” said Chimenka Ezeribe, who also added that the FIRS equally has the powers to investigate companies and individuals on suspicion of tax fraud.

“I want to tell you this, the powers of a tax authority to enforce tax compliance are largely the same in most jurisdictions, regardless of the state of development. The performance gap that exists in Nigeria emanates from factors such as political will, use of technology, human capacity, etc.”

Fiscal Policy Partner and Africa Tax Leader at PwC, Taiwo Oyedele, while justifying the powers given to FIRS to carry out its function, said the powers conferred on the Service to enforce tax compliance are comparable to what obtains in many other countries around the world.

However, he said, “The aspect, which diminishes the effectiveness of the FIRS compared to their counterparts in other countries is the multiplicity of revenue agencies including the Nigeria Customs Service, which is unified under the revenue authority in many countries, thereby improving tax intelligence, while limiting available loopholes for tax avoidance.”

This explains the current campaign by the Service for the harmonisation of the Nigerian tax system to enable it to take full charge of revenue collection in the country.

Even the President, Muhammadu Buhari agrees with this. Declaring open the 2022 National Tax Dialogue, the president said, “Our current tax system is characterised by fragmented administration and multiple (and sometimes, overlapping) taxes. In most tax-efficient nations, tax administrative processes and practices are harmonised within a single system.”

He went further to say that multiplicity of tax administration is as undesirable as the multiplicity of taxes because it creates uncertainty and instability and above all, it is inefficient.

FIRS tax administration mandate
Tax administration for FIRS involves the registration, assessment, returns, collection, compliance monitoring and enforcement, taxpayers’ education and awareness and other activities to improve the efficiency and effectiveness of taxation.

The Federal Inland Revenue Service (FIRS) has the mandate from the Federal Government to register corporate entities/taxpayers for taxes within their jurisdiction; while the State Boards of Internal Revenue have the jurisdiction to register individuals, who are either in employment or are running their small businesses, under a business name or partnership.

According to the law, all taxable persons in either jurisdiction shall be registered and issued with a unique number called Taxpayer Identification Number (TIN) applicable nationwide, to enable them to pay taxes.

FIRS leverages the database integration with the Central Bank of Nigeria on Bank Verification Number (BVN), National Identity Management Commission (NIMC), Nigeria Communication Commission (NCC), Corporate Affairs Commission (CAC), Federal Road Safety Commission (FRSC), Nigeria Immigration Service (NIS) and other relevant sources during this stage of the tax process.

With revitalized collaboration with the Corporate Affairs Commission (CAC) and FIRS’ newly deployed TaxProMax solution, the TIN is generated immediately after corporate organisations are registered on the CAC portal.

What is more, the Service is also empowered to enlist the assistance and co-operation of any of the law enforcement agencies in the discharge of its duties.

The law enforcement officers are to aid and assist an authorised officer in the execution of any warrant of distraint and the levying.

According to the law, a tax officer armed with the warrant issued by a judicial officer and accompanied by several law enforcement officers, as may be determined by the Executive Chairman shall enter any premises covered by such warrant and search for, seize and take possession of any book, document or other article used or suspected to have been used in the commission of an offence; inspect, make copies of, or take extracts including digital copies from any book, record, document or computer, regardless of the medium used for their storage or maintenance; search any person, who is in or on such premises; open, examine and search any article, container or receptacle; open any outer or inner door or window of any premises and enter or otherwise forcibly enter the premises and every part thereof; or remove by reasonable force any obstruction to such entry, search, seizure or removal as he is empowered to effect.

The question however is, why is it that with all these powers, there is still a high level of tax evasion and avoidance in the country?

Stakeholders’ reactions
Olarinde said the major reason for this is because Nigeria practices self-assessment with a voluntary compliance system where the taxpayer has the duty of trust to government, to truthfully declare all businesses, income and profits, compute tax and pay the appropriate tax.

“The power of the FIRS is just to verify the accuracy of the declaration made by the taxpayers,” he said.
“What can be done to help the Service exercise its powers to the full is for everyone including government ministries departments and agencies (MDAs), companies and individuals to collaborate with the Service by declaring accurately, fulfill their obligations to help collect taxes from payments such as withholding tax (WHT) and value-added tax (VAT) where applicable, allow connection to FIRS technologies for smooth access to business tax-related information, whistle blow when necessary and pay taxes as and when due.”

For Oyedele, the major reason for a high level of tax evasion in the country is the multiplicity of revenue agencies. In his words, “Almost 60 different MDAs are charged with various powers to collect taxes and levies rather than unifying all such functions under the FIRS. This as well as the silos of data and intelligence about economic activities of taxpayers compromise the ability of the FIRS to effectively fight tax avoidance and evasion.”

He counseled that if the FIRS should adopt the use of data anchored on a unique identification system such as the NIN for individuals and CAC incorporation numbers for companies, which are linked to various economic activities in addition to effective collaboration with States Internal Revenue Services and international exchange of information, it would drastically reduce the tax compliance gap. Also, prosecution of tax evaders including politicians will serve as a deterrent,” he noted.

The PwC chief said that the issue of whether or not the Service has the resources to effectively carry out its function is relative, as according to him, “no tax authority has all the resources needed. However, the available resources can be managed to achieve an optimal outcome by using technology and adopting a risk-based approach to tax enforcement.”

For Ezeribe, “the FIRS has the needed resources to enforce its powers. However, the reality is that it does not have adequate resources in terms of technology, human expertise, collaborative resources, etc.

“The high level of tax evasion and avoidance in this country is a result of many factors. Some of them include lack of collaboration between FIRS and other agencies of government, wrong application of technology, inadequate technology tools, low motivation to pay tax, corruption as well as poor performance by governments at all levels.

“The taxpayer is asking you on what grounds should he pay tax when he practically provides himself everything that the government ordinarily should provide. So, he sees no reason why he should pay. That is the reason we insist that if we want Nigerians to voluntarily pay their taxes, governments at all levels should show evidence of performance.”

He said FIRS would do better if it can use the right technology, build a robust database of all taxpayers in Nigeria, collaborate with all relevant government agencies, invest in a central database of government transactions and train its staff to acquire the necessary skills to detect tax evasion schemes.