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World Bank, NGF partner on tax administration in states

The Nigeria Governors Forum (NGF) is seeking to strengthen tax revenue collection in states, leveraging internet-based business support systems and payment platforms.

This is against the backdrop of the current economic challenges resulting in dwindling federal allocation to Nigeria’s 36 states and the federal capital territory, Abuja.

The NGF is partnering with the World Bank, the Federal Inland Revenue Service (FIRS), and others, in a one-day gathering of tax and finance experts, to develop a seamless platform for tax administration, especially at the state level, with the understanding that future economic prosperity lies in revving up taxes.

The tax experts, service providers, researchers, and tax authorities from the private sector and the 36 states, according to the NGF spokesman, Abdulrazaque Barkindo, “are expected to use the opportunity of the one-day event, to share lessons critical for driving tax digitalisation in Nigeria. Lessons will focus on practical in-country and international experiences that have worked”

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A recent survey by the International Centre for Tax and Development (ICTD), shows how rapid growth in the use of digital financial services has impacted on tax

The value of web-based transactions in Nigeria rose from N31.6 billion (2.3 million transactions) in 2012 to N478 billion in 2019 (103.5 million transactions).

On the other hand, point of sale (PoS), transactions grew from N48.5 billion, from 2.6 million transactions, to N3.2 trillion, or 438.6 million transactions, within the same period. Mobile transactions also grew to N828 billion (377.3 million transactions), from just N31.5 billion (2.3 million transactions) in 2012. Growth in these channels were in contrast to the value of cheques which dropped from N7.5 trillion in 2012 (12.2 million transactions) to N4.5 trillion in 2019 (7.3 million transactions).

One big lesson emanating from the COVID-19 pandemic is the criticality of these internet-based Business Support Systems and Payment Platforms for the automation of all back-end operational processes and payments across all revenue streams.

In selected countries where the research was conducted, the rise in mobile money has seen governments move to raise tax revenue easily and at low cost by imposing taxes directly on mobile money and similar transactions. If not well implemented however, this may undermine the development gains that have arisen from the rise in digital transactions.

The result also indicates that slow digital road for tax administration, coupled with a weak environment for tax policy and tax legitimacy, low technological integration in tax administration undermined efforts to mobilise domestic revenues in the country.

This has undermined the capacity of tax authorities to collect taxes efficiently and the ability of taxpayers to meet their tax responsibilities conveniently. Oftentimes, many governments take the path of least resistance, maintaining tax systems that allow them to maximise whatever limited options are available rather than establishing rational, modern, and efficient tax systems.

The rise of digital payments does not only provide opportunities to advance financial intermediation and financial inclusion, but also domestic revenue mobilisation, as it provides transaction efficiency and convenience for both tax authorities and taxpayers.

As the COVID-19 pandemic weighs on Nigeria however, tax has become harder to administer in a period of unprecedented growth in digital transactions.

Before the COVID-19 global lockdown, online payments were already undergoing significant transformation in the country, spurred by the rise of non-bank entrants and payment platforms such as Paystack, Rave by Flutterwave, VoguePay, GTPay, Interswitch WebPay, Amplify, Remita and PayU.

Despite the significant boost in E-commerce, digital payments, instant payments, and cash displacement, in the last few years, the COVID-19 induced global lockdown and social distancing measures implemented in the last year, compressed the transition cycle for businesses and service providers as they scramble to innovate to survive.

The tech-driven companies have gained access to financial infrastructures and have continued to introduce innovations to promote digital transactions.

The importance of financial transactions and financial infrastructures had been identified before the rise of platforms, as the fields of financial security and economic prediction show.

This rise is not unique to Nigeria. It is in fact a global phenomenon that is blurring the lines among providers serving various stages of the transaction value chain. Luckily, payment providers and governments in regions that have lagged in digitisation, in many cases, possess greater potential for revenue increase in the new environment.

Since lessons of the COVID-19 pandemic point to direction that all revenue administrations need to move to a digital future, there is therefore, the need for modern taxpayer-friendly digital revenue administration that must provide world-class online services; characterized by efficient, paperless operations; equipped with shar, ICT-enabled risk-based enforcement to optimise revenue mobilisation. But the pathways to this end will vary from country to country.

The digital revenue administration of the future will be “digital by default”. It will provide a high-quality taxpayer user experience; for example, using Artificial Intelligence to run its call centre so that taxpayers are instantly recognised, and their records accessed seamlessly. All tax assessments would be algorithm-based E-assessments. Predictive data analytics would be used for risk analysis, enabling a sharp focus only on risky taxpayers and leaving the vast majority out of any active verification saving them time and compliance costs.

The design of such revenue administrations would be user-centric, and engagement with taxpayers will be tailored. Such administrations will incorporate smart portal solutions, use mobile apps wherever possible, blockchain solutions and cloud services where possible.

States are expected to use the opportunity to rev up tax collection efforts, leveraging on global perspectives on digitalisation to strengthen tax system, by developing appropriate tax policies and administration

“It is expected that the program will also help states scale up modern, taxpayer-friendly and technology-driven revenue administrations in all states of the federation that will be capable of providing world-class services, characterised by efficient, paperless operations, and equipped with ICT-enabled risk-based enforcement to optimize revenue mobilisation in the country.”

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