ANALYSIS: Nigeria’s 2020 tax outlook and the tasks before new FIRS Chairman

Federal Inland Revenue Service HQ Abuja
Federal Inland Revenue Service HQ Abuja

President Muhammadu Buhari penultimate Monday approved the exit of Babatunde Fowler as the chairman of the Federal Inland Revenue Service. Mr Fowler’s tenure as FIRS chairman expired and the president could have appointed him for a second term in office, something Mr Fowler coveted.

But Mr Buhari asked him to hand over to the most senior director in the outgoing board of the revenue agency. The president also named Muhammad Nami, a tax consultant, as the new chairman of the tax commission.

In a statement by his spokesperson, Garba Shehu, Mr Buhari announced the constitution of a new board for the FIRS. The newly appointed chairman has since assumed office at the FIRS headquarters in Abuja.

Mr Nami, who was cleared by the National Assembly penultimate Wednesday, has since convened the maiden meeting of the management and staff of the service. He also pledged to work with them to achieve President Muhammadu Buhari’s agenda.

The newly appointed Chairman of the Federal Inland Revenue Service (FIRS), Muhammad Nami. [PHOTO CREDIT: BBC]
The newly appointed Chairman of the Federal Inland Revenue Service (FIRS), Muhammad Nami. [PHOTO CREDIT: BBC]
PREMIUM TIMES highlights some of the issues that surround the expectations of stakeholders and the huge tasks before the new FIRS boss.

1. Ease of Paying Taxes

In October, Nigeria, Africa’s most populous nation, improved its ranking on the World Bank ease of doing business index as the nation ranked 131 on the World Bank’s Doing Business 2020 index. Details showed that it moved up 15 places from its 2019 spot and has been tagged as one of the most improved economies in the world for running a business.

However, despite the favourable ranking, the nation slipped two points to 159 from 157 in its Ease of Paying Taxes in the same index. Analysts said the FIRS and other relevant agencies must put structures in place to ensure that the 2020 outlook is complemented with easier modes of tax payment.

2. FIRS Controversial Freeze Mandate

By far the FIRS’ most controversial policy under Mr Fowler was its decision to freeze the bank accounts of tax defaulters. In September 2018, Mr Fowler said the service was going after 6,772 tax defaulters, stating that they would have their accounts frozen till they pay due taxes.

“So, all these ones of TIN and no pay and no TIN and no pay, to the total of 6772 will have their accounts frozen or put under substitution pending when they come forward,” he had said. “First, they refused to come forward in 2016, they refused to come forward under VAT and are still operating here. So, we are putting them under notice that it is their civic responsibility to pay tax and to file returns on these accounts.”

The FIRS also ordered the banks to deduct the alleged tax debt from these bank accounts “in full or partial payment”.

In the heat of the numerous controversies and related lawsuits that trailed the move, the FIRS in February temporarily suspended the policy. It would, however, resume freezing action amidst controversies.

The policy generated widespread condemnation among experts and affected tax payers.

“We are of the view that the substitution power granted the FIRS under the relevant laws does not support the freezing of bank accounts in the way and manner the power is being exercised by the FIRS,” PwC’s Taiwo Oyedele wrote at the time.

On its part, KPMG, one of the Big Four global auditors, described the action as “draconian”, adding that “nothing in the CITA or FIRSEA authorises the FIRS to impose a freeze order on a taxpayer’s bank account beyond the amount of tax proven to be due and payable by that taxpayer”.

Days after the change in leadership, the FIRS announced a seven-day notice to tax defaulters, with a warning that it will soon begin a nationwide tax enforcement to bring tax defaulters to book. It remains unclear whether the new FIRS management would toe the line of Mr Fowler, as stakeholders eagerly await the policy direction of the new management.

3. Finance Bill 2019

Earlier in the year, the Finance Bill 2019 was presented together with the 2020 Appropriation Bill to the National Assembly by President Muhammadu Buhari. It has now been passed by the lawmakers. The bill, amongst other things, seeks to promote fiscal equity, align local laws with global best practices, introduce tax incentives for investments in infrastructure and the capital market as well as support small businesses in line with the ongoing Ease of Doing Business reforms.

Some of the sweeping changes introduced by the bill include a regulation that exempts small businesses with turnover less than N25 million from Companies Income Tax; excess dividend tax to apply only to untaxed distributions other than profits specifically exempted from tax and franked investment income; a lower CIT rate of 20 per cent to apply to medium-sized companies with turnover between N25 million and N100 million; insurance companies would be allowed to carry forward tax losses indefinitely, deduct reserve for unexpired risks on time apportionment bases; as well as a bonus of 2 per cent of tax payable (medium-sized companies) and 1 per cent for large companies for early payment of CIT; among other significant changes.

It is expected that the bill would aid penetration and ease collection on the part of the FIRS, depending on how well the provisions are implemented by the agency.

4. AfCTA and Its effect on taxes

In July, President Muhammadu Buhari signed the African Continental Free Trade Area (AfCFTA) agreement. Nigeria said it was delaying its signature to the agreement to widen and deepen domestic consultations. The treaty aims at taking advantage of 1.2 billion population of the continent with a combined Gross Domestic Product of more than $2 trillion to create a single continental market for goods and services. There have been concerns over the potential impact of the treaty on the nation’s revenue drive and overall growth.

In an interview with CNBC Africa, Theophilus Emuwa, Managing Partner at AELEX, noted that the revenue that would be most affected when AfCTA agreement becomes fully operational is the custom duty. “Things coming through the port right now, there is a duty that is payable, when this agreement comes into force, you may have to reduce some of those rates…,” he said.

The effect is different for countries that are net exporters and others that are net importers, he explained, adding that trade within Africa is still largely about agricultural products and related commodities. The expert noted that there is difference between tax revenue and GDP, adding that even if Nigeria exports more, the GDP may grow but it may have no significant effect on taxes. The growth in tax is dependent on how effective the collection system is, he added. “If they (FIRS and other collection agencies) are not efficient, they won’t collect more even though the GDP is growing,” he explained.

Invariably, this expectation puts the responsibility for revenue increase in an era of free trade across Africa in the hands of the FIRS and its new leadership, as well as other agencies.

5. Non-resident Persons Tax Offices (NRPTO)

Last October, the FIRS announced that tax offices established for the administration of taxes for non-resident taxpayers will become operational by January 2020. The designated non-resident persons tax office (NRPTO) is designed to serve “non-resident taxpayers” – referred to as foreign companies as defined in the Companies Income Tax Act (Cap C2, LFN 2004 as amended).

Analysts said the new move would address concerns by non-resident persons, including all tax treaty operational issues, cross-border transactions, inter-company transactions and income derived by non-resident individuals in Nigeria. How far it can go in ensuring penetration, experts said, depends on the leadership of the FIRS.

6. VAIDS and FIRS partnership with sister agencies

Between November 2017 and March 2018, the FIRS said its partnership with EFCC led to the recovery of N29 billion Withholding Tax from banks and other financial institutions in the country. The management teams of the Federal Inland Revenue Service (FIRS) and the Economic and Financial Crimes Commission (EFCC) are expected to deepen and strengthen their collaboration to track individuals and organisations who refuse to pay the right taxes.

The partnership is equally expected to beam searchlights on defaulting taxpayers who also refused to rely on the Federal Government’s tax amnesty programme: Voluntary Assets and Income Declaration Scheme (VAIDS) to offset their tax liabilities.

7. Police Trust Fund, VAT and Miscellaneous Concerns

The outgoing year witnessed a slew of increment in various taxes paid by Nigerian businesses, corporate bodies and individuals. Apart from the introduction of the Police Trust Fund, there was an increase in VAT rate, telecommunication tax, among others. Clearly, the Nigerian government has shown no pretense about its aggressive revenue drive ahead of 2020.

Experts have however opined that the increment would only be meaningful and affect government’s revenue if the collection system is well handled, a responsibility that falls on the shoulder of the FIRS and other relevant agencies.

Similarly, in September, the Lagos State Internal Revenue Service (LIRS) issued a Public Notice informing the general public of the launching of its Enterprise Tax Administration System (eTax). The digital platform is expected to improve compliance and ease collection, as it affects what goes into the federation account.

8. Global Collaboration

In Nigeria, the Organisation for Economic Co-operation and Development (OECD) model has served as the basis on which most of the current double taxation treaties (DTTs) with other countries have been formulated. According to Delloitte, Nigeria currently has DTTs with 13 countries including The United Kingdom, The Netherlands, Canada, South Africa, China, Philippines, Pakistan, Romania, Belgium, France, Mauritius, South- Korea and Italy.

As the new leadership takes over, experts expect the FIRS to integrate the terms of these agreements and ensure compliance where necessary.

9. Sustained increase in non-oil revenue

In February, the FIRS disclosed that the non-oil sector contributed about 54 per cent of the N5.32 trillion revenue it generated in 2018. The disclosure claimed that the manufacturing sector and other sectors under the non-oil sector overtook the oil sector in contributing immensely in terms of revenue generation to the nation’s economic growth.

Although the FIRS failed to meet some of its overall targets, a development that led to the disagreement between Mr Fowler and the presidency, the former FIRS boss claimed that the agency performed better because of its success in collection of non-oil taxes like VAT and CIT, especially at a time when oil prices nosedived and the nation slipped into recession.

Experts suggest that the new leadership of the agency would do well by sustaining the increase in the non-oil sector, to increase government’s earnings and drive growth.


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