Fowler: We Are Reforming our Tax System

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Executive Chairman of the Federal Inland Revenue Service (FIRS), Mr. Babatunde Fowler,

The Executive Chairman, Federal Inland Revenue Service, Mr. Babatunde Fowler, in this interview on Arise Television, spoke about efforts by the federal government to increase non-oil revenue in the country, plan to expand the tax, as well as other tax related matters. Nosa Alekhuogie provides the excerpts:

Is the inauguration of the Joint Tax Board Identification Registration System the same thing as the Tax Identification Number (TIN) and what proportion of the tax paying public has been issued with the Tax Identification Number(TIN)?

Basically, it is the same thing as the TIN and we have a consolidated tax data base. All tax payers in the country and corporate organisations have the tax information residing in one data base. Prior to this, in line with the constitution, every state has a right to have a tax identification number for its residents. So, if you have a transaction for example, in Lagos, and you reside in Kano, the Kano revenue service will issue you a tax payer certificate which you would bring to Lagos, which will now manually confirm that the certificate is genuine and also access the tax based on the transaction you want to carry out in Lagos.

Also, if they believe your taxes paid in Kano were not sufficient, they would ask you to pay additional tax but now, at the touch of a button, your tax history can be seen by tax officials in Lagos and you can carry out your business seamlessly or if you want to do a government contract, and part of the requirements is that you show evidence of a tax clearing certificate, at the touch of a button, that official would see your tax status. This system also keeps accurate records of all payments to the government. So, if you want to check your payments from about three to five years ago, you would be able to access your tax information and adequate records of all your transactions, it makes business much easier and also improves transparency and accountability and all these can be done 24/7 online, anywhere in the world.

Would companies and individuals be mandated to change to this new TIN or is it going to be an automatic process that moves peoples’ TIN over to this new system?
If you had a TIN in Lagos for example, that number is in the combined tax data base. The tax payer doesn’t need to do anything at all. He/she just needs to be operating as normal, and for new tax payers, they can apply online.

A lot is being done about data because it is central to tax administration, but what are the factors responsible for low tax compliance?
If I can go back to history a little bit, in the early 70s when Nigeria started to export palm oil in commercial quantities, and people realised that the revenue generated from oil was sufficient to carry out respective budgets, both at the federal and state level, people forgot about taxes and for the next 30 to 40 years, relied on oil and we have now come to the realisation that the only way to ensure sustainable economic and social development is through tax revenue. Now, it is clear that every developed country has to look inward, has to have their citizens pay taxes to fund government on a consistent level and that’s where we are now. We are reforming our tax system, we are trying to make sure that regardless of the oil price, both the federal and state government would have sufficient revenue to meet their mandates and provide a conducive environment for business and for living.

What exactly is the situation with the Value Added Tax (VAT) as it has been reported that there is a plan to increase it to 7.5 per cent by next year. What is the true situation with the collection of VAT?
Well there is no official government position to increase VAT. However, based on my personal opinion, I think VAT should be increased and I would give you two reasons: First, VAT in Nigeria is one of the lowest in the world, the only other country that charges VAT is Dubai in the UAE and they recently introduced it. VAT is a consumption tax, meaning that if you don’t consume or make a purchase on certain items, you do not pay VAT. VAT is the fastest growing tax type in the world and 85 per cent of it goes to the state government. A lot of state governments complain that they do not have sufficient revenue to pay salaries and carry out capital projects and this is one way for them to have additional revenue. So from the stand point of a tax administrator, in term of economics, it is only logical that once you expand the tax net, you get a higher level of compliance, you take a view and see how much VAT is being generated in the country and then if need be, I’m sure that maybe next year, people would reason with the government and once they see the impact of this additional revenue, I’m sure that the increase of VAT should not be an issue.

The government doesn’t declare what our taxes are used for, why is there a lack of transparency?
In a situation where majority of the people and corporate organisations were not paying taxes, or not paying the correct amount of tax, then of course it becomes difficult for them to question the government, especially when you have a situation whereby on a monthly basis, based on oil sales, there would be a division of revenue. Nobody rarely paid attention. Also, now, we find ourselves in a situation where we have to improve our infrastructure and the oil revenue is not sufficient and so we have to rely on taxation. When you pay tax, this year for example, you might not see the impact until after a year. It takes a while for a road to be constructed, a school or hospital to be renovated. So there is a time line to see the impact of this current government. Eventually, the benefits of this tax payments will be clear to you and I, sometimes people are impatient. As the revenue continues to improve, government would be in the position both at the federal and state level to provide all these services and also put in place the required infrastructure.

During the presidential campaign for the 2019 elections, one presidential candidate argued that one way Nigeria can expand is to reduce taxes. He cited the Company Income Tax, which he said is to be too high. What is your take on this?
If you say you want to reduce taxes for the small scale businesses, from maybe 30 per cent to 20 per cent, that is a possibility, but at the same time, where oil revenue is dwindling, and you reduce the taxes that you are currently collecting , then you find yourself in a situation where both the federal and state government would not be able to meet salaries or current expenditure, so there has to be a strategic plan whereby when we get a high level of compliance and the tax revenue is close to being sufficient, then we can consider reducing the tax rate. But in terms of the rate, we got to realise that Nigeria currently has one of the lowest tax rates when it comes to both individual rate, Value added tax (VAT) and corporate tax. The countries that Nigerians love to go for holidays and businesses have higher tax rates than we do.

There was a scheme developed to increase the tax base known as the Voluntary Assets and Income Declaration Scheme (VAIDS). How will you rate this scheme amongst other schemes we have seen in terms of increase in the tax base?
In terms of increase in the tax base, it did play a very vital role as it brought to the fore front the importance of paying taxes. on the individual level, we saw an increase of about eight million individuals, but in terms of the financial increase, it was minimal. But I think what we now have to consider are the consequences of those defaulters who don’t come forward or don’t pay the correct amount of taxes. We have spent the last two to years trying to encourage defaulting organisations and individuals to come forward and I think at the joint tax board we have taken a position that it is unfair for a few to pay taxes and for others to benefit from the tax payments

Why do you think the VAIDS scheme wasn’t has not been quite successful?
I think this it is as a result of people thinking that the government doesn’t have sufficient information. People thought that even if they did pay, it might open doors to things that they have been trying to hide for a while. Under the VAIDS scheme, we had about 5,000 applications at the federal level, which resulted to about N92 billion, out of that about N60 billion has been paid, but since then, after talking with various stakeholders, we have recognised over 46,000 accounts that have banking turnover of over a N100 million and above annually for three years that are still not in the tax net. 1,500 of those accounts alone have already remitted N63 billion in terms of tax revenue and that is about two per cent of the 46, 000 that did not come through this. So I think Nigerians still believe that we don’t have that information, but with the launch of the new TIN project, it was clearly made known to them that we have info and there would be consequences for those who do not pay their taxes.

The blocking of current account of people who defaulted in paying taxes served as serious deterrent for foreign investors, where is the middle ground for such a matter?
I see things a bit differently. For people who love their country, they would support their country, the people we are referring to as investors whether they are from Europe or the United States of America, would not invest their money in a country where citizens don’t pay taxes. I think in those countries, the worst thing to do is not pay your taxes. It certainly shows you don’t want to be part of the society. Taxes have never deterred any investor, what they want to have is certainty and that is what this government has done in terms of the Ease of Doing business when it comes to tax administration, we have moved positively by 25 places in the last two years and I am sure by 2019, in the World Bank ranking, we would improve further. If you look at the increase in the foreign direct investment in the last two to three years of this government, you would see that it has been on an increase.

In some states of the federation like Zamfara and Bauchi, there is a lot of illegal mining by companies, what is the FIRS doing to make sure they are brought into the tax net and are made to pay taxes to Nigeria?
When it comes to royalties and approvals, it is actually the Ministry of Mines and I’m quite aware that in the last dispensation, although it’s still the same government, they have done quite a bit in terms of registering all the miners , they have also looked at all the outstanding royalties that are supposed to be paid, but when it comes to the taxes based on the profit that they generate, we also work with them, we have the list of all the approved organisation or businesses that are involved in mining and they are to file annual returns and we would be make sure they pay taxes on the profit declared and in terms of the individuals, the state government should ensure that they pay as at when due. I agree there are lots of them who are not paying what they should be paying, but the government is certainly following up on that.

For multiple taxation, what is the Joint Tax Board doing to streamline multiple taxes?
First of all, what we are talking about here is double taxation, whereby you pay a tax to one state and you pay same tax to another state. This new system would basically remove that situation permanently. Once you have a tax identification, that identification is seen across the nation. So, if for example, you under paid in your state and you have a transaction in another state, the tax official will simply look at your profile and tell you that for you to carry out this business, you have to go back to your state, file the returns properly and pay the short fall to that state. We also have situations whereby people spoke about taxes at the local government level and we found out that some of those charges are not legal or the amounts were not correct. The JTB have met with the various state chairmen and we have publicised it in the paper that if you are given a tax that does not seem accurate or reasonable by any local government, contact any FIRS office or contact the state chairman for verification.

The informal sector accounts for about 70 per cent of business and trade in Nigeria, is there a data base covering the sector and is there a framework for bringing a lot of them into the tax net?
Yes, we have a data base for the small scale businesses, they actually account for 37.5 million individuals and we do have a working relationship with several stakeholders like the Central Bank of Nigeria through NIBSS (Nigeria Inter-Bank Settlement System), they also have the Bank Verification Number (BVN) information for about 35 million individuals and we are also connected online with customs and the Corporate Affairs Commission (CAC). As soon as we get the balance of the BVN from the CBN, that would increase those on our tax data base from 20 million to 45 million and we believe by the end of this year or early in 2020, we should be able to go up to about sixty million individuals on our tax data base.

Where do you see taxation in Nigeria by next year, what is the current percentage of individuals and companies given the new reforms by the FIRS?
If you look at where we are coming from and where we are right now, last year we did N5.3 trillion out of which the non-oil sector accounted for 53.6 per cent and that of course was the highest revenue generated in the history of Nigeria. I think going forward, the country would continue to generate more revenue from the non- oil sector and I see within the next three years, non -oil sector should account for at least 75 per cent of all tax revenue in the country. At the same level, the number of tax payers should be in excess of sixty million. In terms of corporate organisations, we do have registered corporate organisations within our tax net, it is left for them to do the right thing and pay taxes as at when due. With all that money at the federal and state level, it is now left for you and I as voters to vote into office people who spend this tax money wisely to our benefits.