The Challenges Before Fowler

The tax authorities should simplify the process of payments to meet with global best practices

The appointment of Mr. Tunde Fowler as the acting chairman of the FIRS came at a time a new report by Action Aid and Tax Justice Network Africa revealed that governments in four membercountries of the ECOWAS…

The appointment of Mr. Tunde Fowler as the acting chairman of the Federal Inland Revenue Service (FIRS) came at a time a new report by ActionAid and Tax Justice Network Africa revealed that governments in four membercountries of the Economic Community of West African States (ECOWAS) lose an average of $9.6billion revenue every year through corporate tax incentives and waivers. The report, which examined tax incentives granted over the years by Nigeria, Ghana, Côte d’Ivoire and Senegal, to attract foreign investment, noted that despite the huge revenue losses involved, there was little evidence that the policy actually increased investments in the region.

Given his antecedent, Fowler came well recommended for the job. However, he has his job cut out for him once he is confirmed by the Senate. While a former FIRS Chairperson, Mrs Ifueko Omougui-Okauru, initiated a lot of reforms during her tenure upon which Fowler can build upon, the challenge ahead is no doubt daunting.

Despite the size of our country and its huge resources, the FIRS has a list of only 450,000 registered companies in its fold. Even at that, only 125,000 of the lot in Africa’s largest economy perform their obligatory duties of paying taxes to the government. But now that the country’s public finances are in a dreadful mess as a result of the sharp fall in oil revenues, there is a new pressure on the tax body to generate more money to address pressing issues in the economy.

However, the challenge is far deeper in a country where most citizens do not consider it an obligation to pay taxes and where public officials in fact discourage what ordinarily should be a duty, essentially because of some cheap oil rent. For instance, in the United States, there are three main sources of federal tax revenue

OUR TAX REGIME SHOULD MEET THE TWIN REQUIREMENTS OF EFFICIENCY AND EQUITY, WHILE ADEQUATE SENSITISATION AND INCENTIVES SHOULD BE PROVIDED TO ENSURE VOLUNTARY COMPLIANCE

which are: individual income taxes, payroll taxes, and corporate income taxes. But 46 per cent of such revenue comes from individual income taxes while 34 per cent comes from payroll taxes. What that implies is that corporate income taxes account only for 20 per cent.

To the extent that there are no easy ways out of the hole, the tax authorities must come up with clever ideas to address declining revenues. The FIRS has lately been doing more to ensure that companies and indeed individuals perform their civic responsibilities. It is also beefing up its revenue through the automation of its system in the introduction of the integrated tax administration system (ITAS), automation of taxpayer registration and issuance of tax identification number (TIN) to both corporate organisations and individuals and for tracking and remittance of value added tax (VAT) from key sectors.

The FIRS has also introduced e-tax payment, an online electronic system, and it is collaborating with the Office of the Accountant General of the Federation to ensure deduction at source. Besides, it is working with the Central Bank of Nigeria (CBN) to enforce compulsory registration with the tax authority by companies and individuals before they can access their bank accounts. While these are bold and encouraging measures, they are just the starting points.

As we highlighted only recently, not much can be done to enhance tax administration if there is no comprehensive database of the tax payers while there is an urgent need to revise existing legislations and simplify our tax laws, some of which are out of tune with present realities. Real efforts must be made to expand the tax base while keeping the rates low. Our tax regime should meet the twin requirements of efficiency and equity, while adequate sensitisation and incentives should be provided to ensure voluntary compliance. And perhaps most important, the tax authorities must simplify the process of payments to meet with global best practices while tax expenditure must be transparently governed. The bottom-line is that many people would gladly pay their taxes if “their money” is seen to be appropriately spent.