‘Only Thorough Professionals Can Make An Efficient Tax System Achievable’
Samuel Sunday Ogungbesan is the chairman, Federal Inland Revenue Service (FIRS) Nigeria. Examining some knotty taxation issues in the country and on the continent, he told OLAWUNMI OJO that tax administration would not improve so long as the right things are not done.
Considering the issues and challenges associated with taxation in Nigeria, what do you think drives our process of tax policy formulation and implementation? IN 2002, Professor Dotun Philips’s committee was constituted to look at the Nigerian tax system.
Before then, the tax system was reviewed every 10 years, and the focus was either on Tax administration or the policy. Each was treated differently without the other but there was a gap left unfilled until 2002 when, for the first time, the three legs of the tripartite tax system were examined.
That is, the policy, laws and tax administration. A lot of tax issues were looked at, one of which was the need to reduce tax rate in Nigeria to 25 from 45 per cent.
Thereafter, it came down to 40, then 35, and today it is 30 per cent. The Prof. Philips’s committee was the one that recommended to the government that we needed a policy framework to drive Nigeria’s tax policy and that was what gave rise to what today is known as the National Tax Policy document, to which every tax authority in Nigeria at all levels must and had subscribed to.
It is because of this document that a state government cannot just introduce its own series of taxes. We have a law in place that prescribes what kind of taxes each level of government can collect.
At the Federal level, it is about seven; state level, 13 and the lower level, which is the local government council, about 21. Unfortunately, in spite of the National Tax Policy, some states by 2012, had over 69 taxes on their desk.
The case is worse with the local government councils. It is the responsibility of the Ministry of Finance to drive tax policy in Nigeria. Our agency, the Federal Inland Revenue Services (FIRS) is just to provide assistance when it is required of us.
The statutory function of FIRS is to manage taxation for the country and it is not about local taxes only, we are expected to also manage the international dynamics.
FIRS cannot on its own begin to introduce taxes or increase the rate of taxes. Government understands its budgets and needs; if government feels that the introduction of higher rate or multiple rates of taxes will address the problem of debt financing, they alone have the prerogative to either introduce or increase taxes.
We can only make input; to say well this is the practice in neighbouring African countries. However, there is a certain line in the National Tax Policy document that says we will subsequently move towards indirect taxation, which means we will eventually de-emphasize direct taxation and be able to reduce the rate of tax from the 30 to 25 per cent and increase the rate of VAT, which is a more seamless way of making tax contribution.
If you consume, you pay; if you don’t consume, nobody will force you to pay. There are some products we all don’t need to buy. For instance, milk; some people can choose to buy wara, the local Nigerian milk gotten directly from cow.
I mean there are certain things that are for the poor and some for the bourgeois’, who can and are always willing to pay for luxury, even when multiple rate of taxes are introduced.
In my view, implementation of tax laws should be jointly done by the executive, administrators and national assembly. We all have a role to play. The legislature can and should question implementations.
It is their duty to raise questions if they strongly feel that the laws they passed are not being implemented in a way they feel it should have been implemented.
The Judiciary should also assist in the interpretation of the implementation of tax laws. Are there external influences in the development and implementation of taxation in Nigeria and what is the level of these influences? No country can stand on its own; Nigeria is a member of the comity of nations and we interact with a lot of other countries as regards tax laws.
For instance, Nigeria is a member state of ECOWAS thus we have signed up to ECOWAS protocol agreement, which is about bringing all ECOWAS states under the administration of one Value Added Tax (VAT) system.
This requires Nigeria to have a threshold; the agreement stipulates that everybody should not be brought into the VAT net. Consequently, we are now reviewing our VAT law in Nigeria to be able to prescribe a threshold.
We could look at $40,000, which today is about 8 million naira, meaning that if your turnover per annum is below 8 million, you don’t have to come into the VAT net. When you are making your purchase, you pay VAT.
All we are saying is that you don’t need to be an agent of collection for government, but as a consumer you will pay but cannot recover.
However, as a VAT entity, that is a taxable entity, if you are in the net, you will pay and can recover your input taxes from the output you are charging, so that at the end of the day you are returned to zero level.
The cascading effect is eliminated; the consumer who bears the final brunt should not be brought into the VAT net when turnover is not up to the threshold. This hasn’t taken off yet as it is still in process, we are yet to submit this bill to the National Assembly.
There are also lots of interventions from the Organisation for Economic Co-operation and Development (OECD). There are exchanges of tax information.
If you look at our own article 25, which deals with exchange of information, the OECD, the G20 or the G7 are the ones that now ensure that countries can exchange tax information, so that they can get more taxes.
There is the Foreign Account Tax Compliance Act (FATCA) requirement for countries to furnish information about US citizens and US businesses in their country.
The same principles apply to the United Nations when you do treaty negotiation. It’s not just about one’s country anymore, every country is looking at what other countries are doing and will want to ensure that they don’t discourage investment in their countries.
So I will say that these external influences, to a large extent, have helped us shape our tax system. In my opinion, the most intriguing aspect of foreign interventions is that when they come here, they do not ask us for money.
Rather, they use their resources to help us. What are the things we are doing right as regards taxation today? Though, all seem right, there are still a lot of things we are not doing right yet such as proper records of tax payers, which remains a big challenge.
Some state tax agencies are not interested in knowing the people that they want to collect taxes from. So one thing we are not doing right is the fact that premium is placed on IGR and they don’t care what it is, the focus is will it give the money? If so, ‘Go and pay’.
What do you think can be done to achieve an efficient tax system in Nigeria? Like in any other nation, there must be healthy interaction of tax policy, laws and administration for us to be able to achieve an effective tax system.
This means the ministry of finance that is driving policy should be mindful of the things they need to do to enhance compliance. On our part in FIRS, we have introduced what we describe as enhanced relationship management designed to deal with all intractable issues dating back many years.
Some of these issues are connected with wrong interpretation. We at FIRS say this is the way we see it and the tax-payers say they see it in another way, and the cases have remained in court.
We have discovered that the court will not resolve it for us; they are not experts in tax matters, so such cases are best resolved between the tax-payers and we, the tax collectors.
This is one of the methods we have adopted to enhance compliance. Our principal, that is the government, should on their part make sure that they checkmate all revenue authorities that have the penchant to tax consultants administering tax for them.
Government must agree at all levels on the need to build institutions, not just collecting for today. There must be a definite agreement between the federal and state governments on all areas of mutual interest.
Tax administration is a very sensitive job, so government must ensure that the people at the helm of the administration of taxes are thorough professionals who are knowledgeable about taxation matters. These are policy areas that must be taken very seriously.
For the laws, legislatures must know that they have a responsibility to work side by side the administrators and with the policy makers. Once a law is made, and a bill is presented to the national assembly, they should have the mind of urgency to quickly pass it into law.
A situation where we have had the Petroleum Industry Bill (PIB) in the national assembly for almost five years is not good for the development of tax administration in Nigeria. Everyone has a role to play. I want to reiterate the need for policy makers, lawmakers, and the judiciary to work with us.
We can only do this if we engage with ourselves and collaborate. Another critical plea is the need for third party information; if you don’t have information about your customers, you can’t do business together. Now that we have this project called TIN (Tax identification Numbering platform), we should be able to key into the information kept by NIBS, so that for everyone issuing a cheque, receiving money or making purchases at POS points, their information is available to the tax man.
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