Of Taxation, FIRS, Fowler and Other Matters



W hen, in October, President Muhammadu Buhari presented to the National Assembly the Appropriation Bill for 2020, he submitted along with the budget proposal as it is known, a Fiscal Strategy or Finance Bill, 2019. The Minister of Finance, Budget and National Planning has since then spoken about the importance of the Finance Bill, to the growth of the Nigerian economy. The stated objective is to promote fiscal equity, address problems with the prevailing taxation order, and reform existing taxation laws in line with global best practices. The Bill contains changes to the Companies and Income Tax Act, Value Added Tax Act (which has been quite controversial), Personal Income Tax Act, Capital Gains Tax Act (CGTA), Customs and Excise Tariff (Consolidation) Act, Stamp Duties Act and Petroleum Profits Tax Act (PPTA). Overall, the Bill seeks to expand the government’s revenue base, strengthen the extant regulatory framework (??) and also provide incentives for small and medium scale enterprises as engines of economic growth and development. The Minister is pleased that the Bill has already passed the second reading stage in the National Assembly. No one should be surprised about that. The present National Assembly will pass anything presented to it by the Executive with unprecedented enthusiasm.

It should be noted, however, that despite all efforts that have been made to reform taxation in Nigeria and turn taxation into a strong vehicle for effective governance, Nigeria’s tax receipts have remained relatively low. The country’s tax-to GDP ratio is one of the lowest in the world. It is far below the average in sub-Saharan Africa. The Economic Recovery and Growth Plan (ERGP) targets a tax-to-GDP ratio of 15% by 2020. Current efforts by the Nigerian government to focus on tax reform is in part a response to arguments by both home-based and foreign analysts that Nigeria needs to diversify its revenue base, and expand government revenue if it hopes to meet its targets of double-digit economic growth, wealth creation and sustainable development through foreign direct investment and local entrepreneurship, and of course a tax-to-GDP ratio of 15% by 2020, which is certainly, ambitious because the real problem is productivity and earnings.

There are specific challenges that stand in the way of these targets: (a) Nigeria’s over-dependence on extractives, particular crude oil, which accounts for 80% of the country’s forex receipts, and a casual attitude to revenue collection and taxation – for 20 years, for example, nobody deemed it necessary to protect Nigeria’s interest under Section 16 of the Production Sharing Contracts Agreements Act with international oil companies – resulting in a calculated loss of between $28 – $62 billion dollars for the country; (b) the weakness of tax laws, institutions and policies in the country, the effect of which is a low quality tax system; (c) the negative attitude of the Nigerian tax payer towards taxation. The average Nigerian tax payer does not trust the tax authorities and (d) there are also issues of transparency, accountability – (that is lack of accountability for collected revenues) and good governance which accounts for the poor administration of the country’s tax system.

It must be admitted nonetheless that there is some merit to the cumulative efforts that have been made over the years, to transform the tax regime in the country, or to be more specific, to encourage non-oil revenues, and mobilise non-compliant taxpayers to see the need for tax payment as a civic responsibility. After independence, an Income Tax Management Act (ITMA) was enacted in 1961. There was also the Companies Income Tax Act No 22 of 1961 (CITA) which placed corporate taxation under the control of the Federal Board of Inland Revenue (FBIR). In 1979, CITA, 1961 was replaced with the CITA Decree No. 28 of 1979. The FBIR was responsible for the operationalization of the Act. In 1991, the Federal Government set up a study group on Nigeria’s tax system, whose recommendation led to the Finance Decree of 1993 and the establishment of the Federal Inland Revenue Service (FIRS), State Boards of Internal Revenue and Local Government Revenue Committees. There were other efforts at tax reform in 1992 (led by Dr. Sylvester Ugoh), in 2002 (led by Professor Dotun Phillips), in 2004 (led by Seyi Bickersteth) and in 2012 (led by Mckinsey and Co). The turning point at the Federal level was in 2004.

At the state level, Lagos State took the lead in this regard as far back as 1999 and by 2007, the state was already directly reminding Lagos residents of how tax payer’s money was working for them thus linking taxation to good governance and accountability. Many Nigerians are not motivated to pay tax though, because they do not trust the political elite or tax administrators and they hardly ever see why they should pay tax when everyone else is enjoying oil money. Tax evasion is therefore common and this is even facilitated by tax officials who take a cut of the reviewed rates and help to doctor the papers. In truth, tax payers do not also see why they should pay any tax when paid taxes are likely to be mismanaged to fund the wasteful official and private lives of elected or appointed officials. Given new realities however, that is: the volatility of oil prices, the pro-climate change, anti-hydrocarbon lobby, increase in the production of Shale oil, increased inventories in non-OPEC countries, high budget deficit, mounting debt, a weak national currency, shifts in geo-politics beyond local control, slow domestic economic growth, Nigeria has every need to adopt new, workable and sustainable strategies.

Institutionalizing a strong tax governance regime is only one of many options, but beyond all the problems already identified, the biggest challenge is the needless politicization of tax administration in Nigeria.
This is precisely what the Minister of Finance, Budget and National Planning and the President should worry about if Nigeria must achieve its stated objectives and targets with regard to revenue mobilisation and an efficient tax system. How can we insulate Nigeria’s tax system from politics and the greed of politicians? How do we ensure that an engine of growth and development does not become a play-field for political conflicts? I raise this point because this is what has been happening in the FIRS, and even at the state levels in recent times. Politicians want to get hold of the tax office. It is the favorite posting for anybody that a Godfather wants to help. Every jobless man wants his first job to be in the tax office or Customs or any department of government that is considered “juicy”. The juiciness or non-juiciness of an appointment must be a uniquely African and Nigerian invention.

The way it works out is that whoever is appointed to a position that is considered “juicy” or influential is considered a target for attack and blackmail. Everybody wants the position. And the detractors would go to any length to pull the person occupying the attractive office down. We have seen traces of that in every administration and also in this administration. Public service is an arena where you cannot trust anybody. You have to constantly look behind your shoulders. There are civil servants who tell you: “Yes sir, Yes sir” every other minute but they are busy compiling evidence against you to be used the day the Devil seizes control of their souls. There are politicians who believe that the office you occupy belongs to them because their kinsman is the President.

Nigeria wants to diversify its revenue base and strengthen its revenue collection system. How do we do this without the threat of primitive politics? With regard to revenue collection, two departments of government at the Federal level are of primary importance: the Federal Inland Revenue Service and the Department of Customs and Excise. If President Buhari’s advisers would tell him the truth, he should know that both departments are in the eye of the storm. Some people and stakeholders want the leaders of both departments of government changed. In fact, with immediate effect if possible. I have nothing against Col. Hameed Ali. He can be there indeed for as long as the President needs his services in line with the Enabling Act but he needs to tone down his military-style tactics.

The Customs under his watch has been more military than para-military. Locking down people’s shops, harassing car dealers and seizing cellophane bags of rice, turning the Customs into a military unit create the wrong impression, but no one can doubt the fact, however, that Hammed Ali loves his job and that he means well for Nigeria. With a little change of style and tactics, he is probably the Customs Manager that Nigeria needs. Those who are insisting that he should not be re-appointed should check his records of performance and state in clear terms their objections to his methods.

Like Hameed Ali, Babatunde Fowler who heads the Federal Inland Revenue Service, the operational department for internal revenue is similarly embattled. There have been complaints and petitions against him purportedly signed by faceless and nameless staff who accuse him of all kinds of infractions including the engagement of consultants and using FIRS money to attend parties every weekend. Fowler denied all the allegations. His cowardly detractors have not provided any concrete evidence. When the blackmail failed, one Mr. Okwara, an Abuja-based lawyer went to court in Kano to ask Babatunde Fowler to vacate his office, on the grounds that his tenure expired in August 2019, having been appointed on August 20, 2015. The plaintiff alleged that Fowler’s continued stay in office is illegal unless he is re-appointed by President Muhammadu Buhari. Counsel for Fowler raised issues of locus standi and jurisdiction. The Court eventually threw out the case, noting that whereas Fowler was appointed in acting capacity in August 2015, the effective date of his appointment was December 15, 2015, the very day the Senate conveyed its approval of his appointment.

In August 2019, Fowler further received a query from the office of the Chief of Staff on the failure of the FIRS to meet revenue projections. He was required to explain “significant variances between the budgeted collections and actual collections for the period 2015 to 2018.” Mischief-makers seized upon this to allege that they had been been vindicated. Fowler responded to the query, and the Presidency issued a statement to say that the FIRS boss was not being probed by the Presidency. Given the fact that the FIRS and Customs and other revenue collection agencies of government are given set targets, and the history of abuse of the processing of revenues, it should not come as a surprise if the Presidency demands explanations.

But what is clear is that whenever a person’s tenure in government is about to end, especially if the person is imagined, thought, or considered, to be occupying a “juicy” position, and such a person is eligible for re-appointment, other persons who are interested in that position would embark on a campaign of blackmail and calumny. Their goal is to influence the appointing authority to get their quarry out of office in as vicious a manner as possible. With regard to Nigeria’s fiscal strategy going forward, the Nigerian government must separate politics from policy if it hopes to make any difference. To avoid taking any rash decision, beyond policy, the administration must ask critical questions and conduct a proper audit of the revenue collection agencies, and their leadership. Is Hameed Ali, a soldier in Customs, terrorizing everybody as alleged? Even if he brings in high revenue? The people who accuse Fowler in FIRS, do they mean well for Nigeria or they are just resisting change? What is their motive? Do they just want Fowler out because they think he is close to persons who may be interested in the Presidential politics of 2023?

I understand Hameed Ali has nothing to fear. But Fowler? Appointed in August 2015 in an acting capacity, and subsequently as Chairman of the FIRS in December 2015, Babatunde Fowler’s first tenure appointment expires on December 15, 2019. He can only remain in that position if he is re-appointed by the President. Fowler, a former banker, was the pioneer Chair of the Lagos State Inland Revenue Service (LIRS). When he assumed office at the Federal level in 2015, FIRS revenue stood at N3.2 trillion. The figure at the end of 2018 was N5.3 trillion, this increase came at a time the economy suffered recession and oil prices crashed. Fowler’s FIRS recorded non-oil tax revenue of N2.85 trillion in 2018 alone, representing more than half of the total revenue for the year. He encouraged innovation and automation. In 2016, he was elected President/Chairman of the African tax body, the African Tax Administration Forum (ATAF). In October 2018, he was re-elected for another term of two years in that position. His term expires in October 2020 as head of the African Tax Forum. In 2017, the UN Secretary-General, Antonio Guterres further appointed Babatunde Fowler as a member of the International Experts Committee on Tax Matters.

As I write, Fowler is in Kampala, Uganda, as Nigeria’s ambassador, providing leadership as Africa’s Tax Chief. The African Tax Administration Forum (ATAF) is by the way, 10 years old today. The 4th Conference of African Tax Administrators, international organizations, civil society groups, academics and policy makers is also being held today in Kampala, Uganda, the same city where the inaugural meeting of the Forum was held in 2009. The Forum’s theme for this year is “Innovation: Digitalization and Harnessing Technology ICT to improve tax systems”. Nigeria’s Babatunde Fowler is leading that entire process. Back home, he is being derided by some faceless characters. Those who should be proud of him are trying to pull him down. We must not reduce tax administration in Nigeria to petty politics. In the long run, tax management must be linked to per capita income and productivity within the economy, merit and achievement, not personalities.

Our educated concern is to draw President Buhari and the public’s attention to these issues and the need to be fully apprised of the growing politicization of revenue collection agencies beyond whatever obvious limitations that may exist. Mr. President is hereby invited to consider the foregoing submissions and act with utmost discretion pursuant to Sections 5(1), 130, 147, 171 of the 1999 Constitution of the Federal Republic of Nigeria.