There is no gainsaying that the COVID-19 pandemic took a heavy toll on the Nigerian economy, stalling its gradual recovery from the 2016 oil price collapse. Over the period spanning March to September 2020, the pandemic’s impact intensified, culminating in the worst economic recession in four decades.
However, the authorities’ swift pandemic response measures and funds support under the Rapid Financing Instrument (RFI), helped preserve lives and livelihoods. The country’s response has been anchored by the Economic Recovery and Growth Plan (ERGP), a home-grown development strategy designed to restore growth, invest in people and build a globally competitive economy.
Accommodative fiscal and monetary policies were adopted alongside financial sector intervention measures and exchange rate adjustments to counter the pandemic shock.
Nigeria ranks 115 among 150 other countries in the World Bank’s data on general revenues such as oil and non-oil. In the last five years, Nigeria, on the average, has been collecting about 8 percent of GDP in revenue while the world average is around 30 percent.
“So, when you rank these 150 countries, Nigeria ranks 115th; so it has the lowest revenues in the world on this particular ranking. That highlights the urgency. So, we are starting with the need for urgency to mobilize revenues,” Marco Hernandez, World Bank’s Lead Economist, said.
Doyin Salami, Chairman, Presidential Advisory Committee on the Economy, in his state of the economy presentation, said from January to May 2021, actual fiscal deficit was N3.01 trillion (53.8% of total budgeted deficit for 2021). While the overall expenditure has grown by 102 percent from N5 trillion to N10.1 trillion between 2015 and 2020, revenue increased by just 15 percent.
This subdued government revenue is as a result of; constraints around domestic production/investment, low tax base as tax revenue to GDP still revolves around 7 percent, limited effort to explore and unlock opportunities for revenue generation at state level – over-centralization and issues relating to efficiency in revenue collection.
The only way to make the informal sector contribute to building a modern society is by making them pay when they use the roads
A director at International Monetary Fund (IMF) had, in Article IV 2020, which was released early this year, stressed the need for significant revenue mobilization to reduce fiscal sustainability risks, relying initially on progressive and efficiency-enhancing measures with higher tax rates awaiting a more sustained economic recovery.
However, the Federal Inland Revenue Service (FIRS) has been aggressive in its revenue drive. FIRS collected N4.2 trillion in tax revenue between January and September this year.
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“This feat was achieved as a result of the efficiency and effectiveness of the TaxProMax Solution and intelligence/data we gathered, mined and analyzed in the period under review,” according to Muhammad Nami, executive chairman of FIRS.
The Service had proposed the introduction of Road Infrastructure Tax in Nigeria, to make the informal sector contribute to building a modern society.
Nami said the proposed Road Infrastructure Tax to be administered by FIRS, will provide government with adequate funding for road construction, rehabilitation, and maintenance, as well as providing the needed security for roads in the country.
“The only way to make the informal sector contribute to building a modern society is by making them pay when they use the roads. That is why we are proposing that government should consider introducing Road Infrastructure Tax in Nigeria,” the FIRS chairman said.
He said that despite sharp practices by some companies who were in the habit of evading taxes, by shifting their capital and profits to tax havens, as well as low revenue from Petroleum Profit Tax, due to the shortfall in crude oil production among other factors, the FIRS has been putting forward critical reforms that have been yielding positive impact on its operations.
The FIRS and other revenue generating-agencies of the Federal Government remitted N1.54 trillion revenue to the federation account in the first quarter of 2021.
Growth in non-oil tax revenue
The Central Bank of Nigeria (CBN)’s economic report notes that significant growth in non-oil tax receipts in April, prompted by the gradual return of business activities to their pre-COVID-19 levels, led to a 28.2 per cent increase in federation revenue, relative to the preceding period.
According to the report, the federation receipt in April 2021, which stood at N1.10 trillion, outpaced both the budget benchmark and collections in March 2021 by 28.2 per cent and 7.9 per cent, respectively.
While oil revenue accounted for 35.5 per cent (or N392.91 billion) of total receipts in the period, non-oil revenue contributed 64.5 per cent (or N712.87 billion). The diminished share of oil was explained by the meagre remittance of N3.79 billion from crude oil and gas exports, compared with N52.50 billion in the 2021 budget estimate.
This reflected the exacerbating incidence of cost ‘under-recovery,’ as reported by the Nigerian National Petroleum Corporation (NNPC). In addition, the significant decline in domestic crude oil and gas sales, also contributed to the meager oil receipt during the period.
The strong performance of non-oil revenue in April 2021 reflected the maturing benefits of the Strategic Revenue Generation Initiative (SRGI) of the Federal Government, as contained in the 2019 and 2020 Finance Acts. The contribution of non-oil revenue was driven, majorly, by higher earnings from Corporate Income Tax (CIT) and Value Added Tax (VAT), which increased by 73.7 per cent and 51.1 per cent, respectively.
Introduction of Tax Appeal Tribunal
In June 2021, ZainabShamsuna Ahmed, minister of finance, budget and national planning, approved the Tax Appeal Tribunal (TAT) (Procedure) Rules, 2021 pursuant to her powers under Section 61 of the Federal Inland Revenue Service (Establishment) Act, 2007 (as amended).
The rules, which replaced the defunct TAT (Procedure) Rules, 2010, enable the Tribunal to deal justly, fairly and expeditiously with appeals and encourage and promote the settlement of disputes among parties.
Other sections of the rule require taxpayers to pay 50 per cent of any disputed amount into a designated account of the TAT as security for prosecuting an appeal, prior to commencement of appeals.
It also involves modification of some old definitions, and interpretation of additional terms such as “appeal”, “notice of appeal”, “decision of the Tribunal” and so on; recognition of service of documents or processes carried out by email or such other electronic means as the Tribunal may permit; and recognition of virtual/ remote hearing of applications and delivery of rulings by the Tribunal.
It also included introduction of a six-month time frame from the date of commencement of trial for the TAT to conclude and provide a decision; and provisions for hearing of ex-parte and non-contentious applications in Chambers as well as summary appeal procedure for liquidated money demands.
Although the TAT (Procedure) rules, 2010 is effectively replaced, the rules allow for “anything done” under the defunct 2010 rules to remain valid, as long as such is not inconsistent with the provisions of the new rules, thereby grandfathering existing matters and ensuring a smooth transition.
Analysts speak
WoleObayomi, partner and head, tax regulatory and people, KPMG, said the implementation of the new rules emphasises the federal government’s commitment to improving Nigeria’s tax landscape, which commenced with the enactment of Finance Acts, 2019 and 2020.
According to him, the amendments to the TAT (Procedure) Rules, which is the initial forum for formal tax adjudication in Nigeria, align with changes in global tax administration systems and would ensure that the TAT’s procedures are up to date and give taxpayers increased confidence in the system.
The role of the Tax Commissioners is not those of “judges” in the constitutional sense and so, rather than becoming a part of the judiciary, the TAT should be preparatory to, and supplementary to the formal judicial system. Therefore, the changes may revive the challenges on the legality of the TAT and its encroachment on the constitutional preserve of the Federal High Court on revenue and taxation issues.
On their part, analysts at PwC noted that: “The new procedures took effect from June 10, 2021, but taxpayers generally became aware of it by the end of September 2021. The Rules are intended to make the TAT more efficient in the dispensation of justice.
“They are also a reflections of the current realities, given the wide adoption of technology in the administration of justice. With the powers to order costs, the TAT now has powers to penalise erring parties for unprofessionalism and unnecessary delays.”
To improve revenue, we must block leakages, unlock opportunities at state level, improve tax efficiency and coverage, sell-of dead assets, which value is estimated at US$900 billion,” Salami said.
IMF report
In the light of high poverty, staff recommended revenue measures that are progressive and efficiency-enhancing, drawing on previous IMF technical assistance recommendations (text table).
These include increasing the VAT rate to, at least, 10 percent by 2022 and 15 percent by 2025, rationalizing the pioneer status system and other tax exemptions and customs duty waivers, increasing rates for excises and broadening the base, developing a high-integrity taxpayer register, and improving on-time filing and payment. A significant increase in non-oil revenue is critical to balance the negative revenue impact of the global decline in demand for oil in the long run.
The authorities are prioritizing domestic revenue mobilization by strengthening tax collection, modernizing tax administration and broadening the tax base. In this vein, they adopted the Strategic Revenue Growth Initiative (SRGI) to improve the tax administration framework, reduce informality and attract external investment. The authorities look forward to coordinating revenue mobilization efforts with IMF staff through active technical assistance.
They have rationalized tax expenditures, by adopting electronic payment platforms and processing of tax clearance. In the medium term, their commitment to improved public financial management would help address macro-stability risks.
They have outlined strategies for creating fiscal space through higher revenue mobilization and increase in VAT rate. As the crisis abates, fiscal consolidation will resume to enhance buffers through intensified revenue mobilization and expenditure control.
Continued commitment to the transparency of COVID-related resources is being demonstrated by frequent dissemination of spending information on the Federal Ministry of Finance and the Nigeria Open Contracting transparency portals, including the use of the Bureau for Public Procurements’ guidelines.
