FIRS, tax collection and economic growth

As the Office of the Citizen is becoming increasingly proactive about accountability and transparency in the governance process, it is also important for citizens and those in authorities to note the correlation between diligent tax collection and payment and economic development of a country. And the reasons for this simple civic education are not too far to seek.

It has become customary for most economically active Nigerians and corporate persons to ignore or only volunteer to pay as little direct taxes as possible. Also where some indirect taxes are adopted to mimic similar measures elsewhere, they are implemented half-heartedly. Thus, the Federal Inland Revenue Service is wont to play the passive receiver of part taxes benevolently surrendered by taxpayers rather than the active collector of taxes due through strictly enforced compliance with the law.

And not surprisingly, the Joint Tax Board found in 2017 that only 20.0 percent of the country’s 69.9 million qualified taxpayers (corporate entities presumably inclusive) have been contributing the country’s entire broad-based tax revenue, which as a proportion of GDP represented just 6.0 percent.

Thereupon, the JTB set the target of raising the tax revenue to GDP ratio to 15.0 percent by 2010. But its offer of tax amnesty under the Voluntary Assets and Income Declaration Scheme (VAIDS) did not set off any stampede among the inverterate tax defaulters towards settling any hitherto skipped tax liabilities within the allotted period of grace. Launched with fanfare two years into the revenue-strapped Buhari administration, VAIDS yielded barely N100 billion additional tax returns, which did not improve the tax revenue to GDP ratio.

Following the expiration of the VAIDS period of grace, the FIRS Executive Chairman in September this year, gave a lowdown about the degree of tax compliance. The highlights are, first, the majority of large businesses being allowed to do tax self-assessment failed to truthfully declare or pay taxes that were due.

Second, the observed large increases in the volume of tax payments in 2017 and the first eight months of 2018 were attributable to an unchanged set of tax payers and suggested that, “either the tax payers did not disclose fully their financials to tax consultants or the tax consultants got involved in tax planning”. These organizations succumbed to what may be charitably termed high degree of tax avoidance, but FIRS has embarked on a comprehensive audit to establish the level of undeclared tax liabilities.

Third, the FIRS bestirred itself and examined “all businesses, partnerships, corporate accounts that have a minimum of N1 billion per annum in the past three years.” Effectively, each of the 18,602 distinctive businesses which, were studied, had a banking turnover of between N3 billion and over N5 billion.

But it emerged surprisingly that 6,772 establishments did not file tax returns at all. To force them to meet their tax liabilities, it was resolved to do substitution on or freeze the accounts of such tax evaders. The banks holding the frozen accounts would act as tax collection agents in accordance with the law.

Fourth, the FIRS found a category of tax defaulters with a criminal bent,namely,businessesthat collected but failed to remit VAT to government coffers. It is not clear why FIRS has not taken appropriate legal action against such brazen criminal activity.

Fifth, FIRS found that there were over 2,000 properties and land that were built or developed in corporate names, which were collectively worth over N 2 trillion in Abuja alone. It is proposed to levy taxes on the value of the properties and, in the event of persistent refusal to pay any assessed taxes, FIRS would approach the courts for approval and/or order to sell off such properties. The exercise is intended to cover the entire country.

The foregoing concerns essentially direct taxation and relates to one side of the tax revenue coin. The belated awakening by FIRS to enforcing tax compliance among direct tax payers is laudable. Nevertheless, it should be made clear that FIRS and other main revenue collecting agencies duly receive the wherewithal to perform optimally. In 2017, the FAAC refunded to the FIRS, the Department of Petroleum Resources and the Nigeria Customs Service as cost of collection the tidy sums of N73 billion, N35 billion and N44 billion respectively. Yet, like FIRS, the similarly underperforming DPR and NCS do not know, for example, the exact volume of crude oil, which international oil companies pump out of the country annually not to mention the vast imports on which requisite import duties were not paid.

In sum, government revenue is not being fully captured. With at least 70 million qualified tax payers to bring into the direct tax dragnet, the FIRS requires time to reach and pry out the much needed taxes. Even then, it is doubtful whether the expected tax harvest would adequately plump up the tax revenue to GDP ratio.

Meanwhile, why should the public and corporate persons pay tax? To the lolling FIRS leadership, “if you have had the opportunity to make your wealth in this country, the least you can do is pay your tax”. To tax protagonists, it is good to be voluntarily tax-compliant to ensure both ownership of and qualification to accessthe dividends ofgood governance as well as to demand for provision of public goods.

Others hold the view that taxpayers would instinctively pay up where previous tax collections were visibly and judiciously applied to furnish public socio-economic needs rather than being frittered away and being looted. Despite the overall low tax takings, there are complaints of multiple taxation and over-taxation. The provisions in the tax law for checking and resolving such occurrences should be made use of when necessary.

However, the FIRS should realise that in a developing economy indirect taxation offers the surest and quickest route to increasing government revenue. But why should government collect tax revenue when, technically, government can print fiat money instantaneously to meet any budget expenditure as and when desired? Economic rationality and the need to avoid uncontrolled hyperinflation rule out that option. (Recall Robert Mugabe’s Zimbabwe while Dr Gono a.k.a. Dr. Inflation held sway at its Central Bank.

Focused and successful economies rely on taxation and other revenue sources. But since 1975 Nigeria has ruinously been printing by fiat over 50 per cent of funds for budgetary spending to the bane of national economic advancement. This is so because Federation Account oil accruals (and external loans) are not properly converted to naira revenue. Instead, they are withheld to form the illegal and ill-intentioned CBN’s external reserves for frittering away only to be replaced with naira funds printed by fiat for spending by the tiers of government. For a tip of the iceberg-proportioned harmful manifestation of CBN’s improper procedures, hear CBN Annual Report 2017, “Taxes were conveniently evaded in the country through transfer of assets overseas, the use of offshore companies as tax havens to secure assets and registration of assets in nominee names.”

And yet, part of FIRS strategy to boost tax revenue has been for government to enter into various international arrangements in an uphill if not futile attempt to recover the assets already transferred overseas no thanks to CBN’s improper procedures. It is preferable for government to first and foremost put an end to the faulty fiscal and monetary practices that facilitate dissipative transfer of national forex assets abroad via crooked Nigerians and predatory foreign interests.

To return to the unmatched promise of indirect taxes, some roads have to be taken. As earlier noted, FIRS should ensure that VAT is fully collected as well as promptly and entirely remitted to the public treasury. Also it has been repeatedly and incontrovertibly shown in this newspaper that through correct implementation of the yearly Appropriation Act (it is the product of the National Assembly and bears presidential assent and it is the President’s bounden duty to correctly implement the budget), an embedded indirect forex access tax (FAT) amounting to 2.9 trillion naira should have been remitted to the public kitty on account of the $45.6 billion transacted via the Importers’ and Exporters’ forex window between June 2017 and June 2018.

But the embedded government revenue was wangled by CBN (it carries on like the tool of Nigeria’s enemy) in cahoots with superfluous forex-dealership operators while government is severely starved of revenue.

It is FIRS’ bounden duty to diligently ferret out not only government revenue contained in various economic activities but also actively support policy reforms that boost revenue. Accordingly, in tune with the VAIDS amnesty, the FIRS should proceed to recover the undeclared FAT liability from defaulters of the tax on forex over the past three or six years as the case may be.

Meanwhile, the known lifestyle of those put in charge of FIRS should not constitute any excuse to concede the moral high ground needed to implement and enforce the country’s tax laws and regulations.

In the main, the implementation of correct fiscal and monetary measures will not only prevent loss of national assets to other countries but also significantly grow revenue and thereby put paid to unnecessary public domestic and external borrowing as well as bring about rapid inclusive growth and economic development.