The Federal Capital Territory Internal Revenue Service Act, 2015



The last time any new tax authority of the status of a state internal revenue service was established in Nigeria was 19 years ago. This happened in 1996 following the creation of 6 new states by the Abacha military government. The world has changed dramatically since then but the laws and the old tax administration system have largely remained unchanged.

Whenever and wherever the story of Nigeria’s tax system is told, there are usually more failings than positive achievements. Major indicators such as the ratio of tax to GDP and our ranking on the ease of paying taxes, remind us that we have a longer journey ahead than we have travelled in the past 55 years since independence.

Unfortunately by global standards, none of the tax authorities in Nigeria stands out as a benchmark or an ideal model for others to follow. The various tax authorities do not measure up in all key indicators and performance outcomes including efficiency of tax administration, accountability and transparency, robust taxpayer base, ease of filing and tax payments, quality of reporting and dispute resolution.

The federal government recently enacted a new law, the Federal Capital Territory Internal Revenue Service Act, 2015. The Act establishes the Federal Capital Territory Internal Revenue Service (FCT IRS or the Service) charged with the responsibility of assessing and collecting taxes in the FCT. The big question is whether this can and indeed be an opportunity to change the narrative of tax administration in Nigeria.

Key Provisions of the New Law
The new law establishes an FCT IRS Board for the Service made up of 14 members including 6 persons from the 6 geopolitical zones two of whom must be women. All members of the Board, other than the Chairman, shall be part time members.
Section 8 of the Act empowers the FCT IRS to assess all persons chargeable with tax in the FCT. This power has historically been vested in the Federal Inland Revenue Service (FIRS) by virtue of section 2(1)(b) of the Personal Income Tax Act, LFN 2004 as amended and the FIRS (Establishment) Act 2007.

The First Schedule to the new Act listed the legislation to be administered by the FCT IRS to include the Personal Income Tax Act, Capital Gains Tax Act, Stamp Duties Act, Federal Capital Property Tax Regulations and all enactments or laws imposing taxes and levies within the FCT. Section 8(1)(g) requires the FCT IRS Board to issue a taxpayer identification number to every person taxable in the FCT. This is an area where some careful thoughts will be needed to plug into the existing framework of the FIRS and Joint Tax Board but without getting entangled in the web of dysfunctional IT architecture.
Other key provisions of the law include the establishment of a body of appeal commissioners called the Tax Appeal Committee (TAC) to hear dispute between taxpayers and the FCT IRS. Interestingly section 50(3) requires any person aggrieved by the decision of the TAC to appeal to the FCT Minister.

The Service will receive up to 5% of revenue collected for administration and cost of collection. It is also required to make a determination of the extent of financial loss arising from tax waivers and other related matters.

The Grey Areas
Sadly again, like with many of our laws, this legislation contains errors, gaps and potential overlaps all indicating lack of sufficient diligence on the part of lawmakers. For instance, section 85 defines chargeable income to include income of a body corporate on which tax is charged. Also, the Forth Schedule to the Act listed Companies Income Tax Act as one of the tax laws on which the TAC can adjudicate. This is notwithstanding the fact that taxation of corporate income is exclusively under the purview of the FIRS.

While it is clear that certain taxes are to be collected by the FCT IRS such as the personal income tax of Abuja residents, it is not clear if the intention is to transfer all the functions previously performed by the FIRS under the Personal Income Tax Act to the FCT IRS. These include collection of income tax from persons employed in the Nigerian Army, the Nigerian Navy, the Nigerian Air Force, the Nigerian Police other than in a civilian capacity; officers of the Nigerian Foreign Service; and non-resident individuals who derive taxable income from Nigeria. This is in addition to the uncertainty as to whether all taxes contained in the “Taxes and Levies (Approved List of Collection) Act” are now collectible by the FCT IRS. Also the 1% Mansion Tax announced by the past administration on residential properties in FCT with value in excess of ₦300m will have to be collected by the FCT IRS if and when it comes into effect.

No commencement date is stated in the law and no transition arrangement from existing agencies to the new tax authority.

As much as the intention could have been to grant the FCT IRS full autonomy, certain provisions of the new law suggest otherwise. Sections 7(1)(f) requires the Board to stipulate remuneration, allowances and benefits of staff in consultation with the FCT Minister while 7(2)(e) grants powers to the Board to determine the terms and conditions of service (including remuneration, allowances, benefits and pensions) of staff after consultation with the Federal Civil Service Commission. Section 14(2) requires the conditions of service including remuneration and allowances to be determined by the Minister while section 20(2) forbids the Service from borrowing money which exceeds limits set by the Minister.
Also, it is difficult to rationalise the need for a TAC solely for the FCT when there is a functioning Tax Appeal Tribunal (TAT) in all the geopolitical zones in Nigeria with jurisdiction over personal income tax matters.

What Does This Mean for Tax Administration in Nigeria?
If the FCT IRS gets it right, it can easily become the reference point for tax administration in Nigeria and across Africa. Being in the capital city means its impact can easily trickle down to the rest of the country as federal lawmakers, ministers, president, government agencies and so on pay the right amount of tax on all their income and allowances. Not only will this generate more revenue for the FCT, the increased tax awareness will have a positive impact on the making of tax laws and fiscal policy.

The breakdown of revenue collection by the FIRS does not show personal income tax as a separate line item, an indication that the amount is insignificant which should not be the case. Going by the amount of overhead spent on salaries and allowances for political office holders, other civil servants and a good number of private companies in the FCT, personal income tax revenue alone should easily surpass N100 billion per annum.

As people pay their taxes more social services and infrastructure will be demanded. There is really no reason why the FCT should not be one of the top cities in Africa comparable to, if not better than, Johannesburg or Cape Town.

The Way Forward
Since there is no specific commencement date in the Act, it therefore takes effect immediately and all affected employers and individuals should take steps to comply as soon as the necessary information such as tax forms and bank details of the new tax authority are made available.

Given that the FCT is largely funded and controlled by the federal government, all taxes relating to individuals previously administered by the FIRS should be transferred to the FCT IRS to avoid overlap and unnecessary duplication.

In addition, both agencies should work together to ensure a seamless transition. They should jointly handle the communication of the new changes to taxpayers and other stakeholders to avoid confusion. They also need to jointly consider any legacy issues and how to address ongoing and open tax audits. It may be useful for the new FCT IRS to declare a tax amnesty in order to quickly expand its tax base while building capacity to enforce full compliance in the shortest possible time.

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