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How government denies self of N5.26tr tax revenue

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Federal Inland Revenue Services (FIRS)


• Revenue could be raised to over N12tr with plugged loopholes
• Nigeria’s IGR, company tax decline in 2020 as VAT revs up
• Tax evasion, avoidance may persist as revenue pressure mounts 
• ‘With good tax system, govt has no business borrowing’

The inability of the Federal and state governments to judiciously use tax revenue, especially in reducing the challenges faced by masses and the Organised Private Sector (OPS), as well as weak technical and human capacity, may continue to limit potentials of tax revenue in the country.

This is coming in the face of declining revenue amid controversy over whether or not the Central Bank of Nigeria (CBN) is printing money to meet revenue shortfalls .

In 2020, the 36 states and the Federal Capital Territory generated a sum of N1.31 trillion as Internally Generated Revenue (IGR). This was contained in the state IGR report, which was recently released by the National Bureau of Statistics (NBS).

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According to the report, the states’ IGR declined by 1.93% from N1.33 trillion, recorded in the previous year to N1.31 trillion in 2020. It, however, increased by 11.7% compared to N1.69 trillion recorded in 2018.

The severe impact of the coronavirus pandemic constituted impediment on the revenue generation capacity of the government, which over the past months recorded a tepid growth in its total collected revenues across the states.

Also last year, Nigeria generated a total of N1.41 trillion as revenue from Company Income Tax (CIT). Of this figure, 56.09% came from sectoral collection, 16.89% was e-payments, and 27.02% from foreign sources. However, the country recorded a 13.35% decline in total CIT generated in 2020 when compared with 2019.

While the CIT had been the highest source of tax revenue for the government, it was exceeded by Value Added Tax (VAT) in the year 2020, the first time in five years, according to the NBS data. The NBS reported a VAT of N1.53 trillion received by the government, surpassing CIT for the same year.

However, states and federal debt stock data currently stands at about N32.92 trillion, whereas the country’s total yearly tax revenue stood at N5.26 trillion as of 2019, according to the Federal Inland Revenue Service (FIRS).
   
Coming at a time when Federal Government and states are bickering over loans repayment and falling revenues, experts in taxation have insisted that more than N12 trillion could be raised from tax revenue in the country if government-induced challenges are tackled headlong.

The concern for tax experts is the growing infrastructure deficit, especially roads, water and electricity, stressing that the country would have no business borrowing money if these infrastructure were in good shape to justify what taxpayers’ money is used for.  

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They stated that individuals and organisations paying taxes in the country are still faced with growing infrastructural and other challenges that affect the standard of living and business operations.

The experts are also concerned about tax evasion in the country, stressing that while government must encourage voluntary compliance with tax laws, people must see reasons why they must pay and desist from tax evasion, avoidance and illicit financial flow.

Though President Muhammadu Buhari had admitted that Nigeria was struggling with illicit financial flows (IFF), The Guardian had reported that more than N103 trillion has been stolen from the country in last 15 years in illicit transfers. The FIRS had in 2019 said Nigeria lost $15 billion to tax evasion yearly. The $15 billion lost is close to half of the 2021 $35 billion budget.

Speaking at a Tax Practice Management Workshop organised by the Chartered Institute of Taxation of Nigeria (CITN) in Abuja, president of the institute, Dame Olajumoke Simplice, noted that compliance with tax regulation may remain elusive without enforcement through Information and Communication Technology.

Noting the opportunities in the tax sector, especially at a time that both state and federal government are struggling to fund their appropriations, Simplice said there was need to harness the opportunities in the informal sector.

Reportedly, the size of the informal sector in Nigeria stands at about 65 per cent of the economy. The economic activities in this sector include agriculture, mining and quarrying, small-scale building and construction, machine-shop manufacturing among others.

Represented at the event by a former Treasurer of CITN, Orabor Innocent, Simplice noted that tax revenue would increase in the country if leakages were blocked, especially from the informal sector where taxes are collected illegally and usually end up in private pockets.  
 
“The compliance level is not impressive. With ICT, that can be addressed. If the compliance increases, tax revenue will increase. Non-compliance is the greatest threat to tax revenue in the country,” she said.  

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According to her, apart from the opportunities in the company income tax, the informal sector, including consumption can provide a great tax revenue.

Chief Executive Officer, Gabe Fasoto & Co, who is a tax expert and former chairman of Council at CITN, Gabriel Fasoto, said the country has no business borrowing provided it has a good tax system, adding that over N12 trillion could be raised yearly from tax revenue.

Fasoto noted that voluntary compliance towards payment of tax would remain a challenge since government continues to burden existing taxpayers without corresponding efforts to bring new people into the tax net.

Fasoto, who noted that the poor management of tax revenue was discouraging citizens from paying tax, stressed that a lot of high-ranking people replaced social responsibility and philanthropy for tax payment.

“Nigeria has neglected the number one principle in taxation, which is tax enumeration. Nigeria has been paying lip service to this starting from the population census to National Identification Number (NIN). If you don’t know the number of people who are eligible to pay tax, it will be difficult for you to know how much you can generate. 

“If we should estimate, if Nigeria is about 200 million people and about 20 per cent is paying tax correctly, we will get more than N12 trillion yearly from tax revenue. But since tax enumeration has been ignored, we are not generating optimally. Nigeria has no business in borrowing money under a good tax system,” Fasoto insisted.

He added that there was need for political will to change the narrative, noting that tax evasion, illicit financial flows and tax avoidance remain a challenge so long people are able to take advantage of the country’s weak legal system. 

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A Council member of the institute, Justina Okoro said there was need for prudence in use of tax resources, stressing that most organisations and people currently paying tax are still solely responsible for the infrastructure, especially road, water, electricity and other critical infrastructure leading to their facilities, which should have been the responsibility of government.

“Tax money should not be money that people will share in the National Assembly. Government can encourage people to pay tax by using tax money judiciously. Industries are paying tax but there is no road leading to their organisations. People therefore don’t see reasons to pay tax,” Okoro said. 

According to her, public officials who are paid by taxpayers money must also justify the reasons they are paid by being productive instead of focusing on award of contracts that will open avenue for corruption.

Okoro noted that it was necessary to improve the capacity of tax experts to contribute towards government aspiration of increasing tax revenue and helping people to become entrepreneurs. 

Okoro noted that a lot of tax experts have the capacity to become entrepreneurs, noting that the workshop was aimed at raising as many entrepreneurs within the tax industry, who have necessary capacity.  

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Another tax expert, Benjamin Ogbeide, insisted that the country could increase tax revenue to over N12 trillion except for government-induced challenges, which continue to discourage people from paying tax. To him, while the country is facing challenges with adequate data necessary for voluntary compliance, tax revenue has not been put to best use. 

Ogbeide said: “It is not difficult to convince Nigerians to pay tax if they are able to see what government is using their taxes for. Despite the current revenue, there’s no good road. Electricity has been a challenge. There is no water and other social contracts that tax should be used for. 

“The potentials in the informal sector is huge but there’s no data. Apart from government employees, who government will deduct their taxes from their salaries, there’s no adequate data to show accurate statistics about the population.”

The expert, who was a former chairman of the Abuja branch of CITN, noted that public enlightenment remained a critical tool for voluntary compliance, adding that a contract like kind of agreement between the public and government on the judicious use of tax payment was enough to convince Nigerians on tax payment.

A scholar, Prof. Godwin Oyedokun, noted that unless government improves services to the governed to promote tax justice, improvement in tax revenue would remain a mirage. 

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