‘TIN’ for government contract payments
Contractors of federal government ministries, departments and agencies [MDAs] are now required to provide their Tax Identification Numbers (TIN) on their invoices before getting paid for services rendered. This directive was given by the Minister of Finance Kemi Adeosun in Abuja last week as one of the measures aimed at harnessing maximally from the huge reserve of taxable revenue in the Nigerian economy.
According to Adeosun, “the order is part of resolute efforts by the government to block revenue leakages by the various vendors of these MDAs.” Justifying the directive, she stated that as much as “N100 billion has been discovered as tax revenue shortfall by federal government contractors between 2012 and 2017.” By extension the scope of lost tax revenue for the various states and local government councils could be even higher.
Adeosun also revealed that the leakages in government’s collectible taxes were identified through a special purpose vehicle - the Project Lighthouse; a system wide revenue intelligence data warehouse. The project categorically identified that the poor level of tax policy compliance by contractors to MDAs, as evidenced by the absence of Tax Identification Number (TIN) from them, was largely responsible for the tax revenue leakages. Of particular concern is the absence of TIN in respect of Value Added Tax (VAT) and the Withholding Tax (WHT). By implication the government is therefore hinging on the foregoing to justify its resolve to ensure tax compliance by relevant government contractors. This is especially so as according to Adeosun, the directive is in compliance with the provisions of the Federal Inland Revenue Service and Procurement Acts of 2007 respectively.
From the perspective of effective tax administration the directive can hardly be faulted and the government needs to be commended for the use of such a strategy for trapping would be tax evaders among the contractors. Tax evasion has remained a historical problem for every administration in Nigeria right from the colonial era. Initially, under the British colonial masters a cross section of Nigerians had in a similar disposition to other equally colonised people in Africa and beyond, seen taxation as an imposition by an alien power and therefore resisted its administration. However with the advent of independence the paradigm had shifted as tax was to be used for national development.Yet resistance to paying tax remained - manifesting as outright tax evasion and underpayment; all of which translate into loss of revenue for government.
Due to the endemic nature of tax evasion in Nigeria, succeeding administrations had explored several options to address the malady, with the current regulatory mechanism of the FIRS Act of 2007 serving as perhaps the best fit facility for resolving the issue. But even at that the demand for TIN from government contractors is at best just one measure. The bigger problem remains with the challenge of assessment of taxable individuals and entities.With about 60% preponderance of the informal sector operators in the economy, Nigerian business environment is replete with poor documentation and possible tax assessment of active economic actors. Hence of the possible three categories of economic actors namely those in the public as well as the organized private sectors and the self-employed operators in the informal sector, tax administration routinely captures the public and organized private sectors, while the contributions of the informal sector remains sub optimal. The directive therefore provides the government with the opportunity of harnessing some taxable revenue from actors in the informal sector who are beneficiaries of government contracts.
However for the purpose of reaping maximally from this window of opportunity of deploying the TIN for tax revenue collection, the federal government needs to relate with the other tiers of government namely, the states and local governments which also award contracts and pay for such.