Welcome to another tweetax session. It’s Episode 5 of #TaxWiseNG. Today’s episode of #TaxWiseNG is titled Abuja Tax Blues. This is the season where many people eagerly await news flowing from the Federal Capital Territory. So, why not tax news?

Without any iota of doubt, Nigeria is going through its most trying times in the recent past. Borrowing from the ideas of the ongoing 21st Nigeria Economic Summit (#NES21), it’s time of tough choices. It is so because of our current economic realities. A lot needs to be done but so little resource is available.

Nigeria is often described as a mono-product economy with oil as its main source of income. Oil represents about 9% of Nigeria’s GDP but accounts for over 75% of its earnings. Imagine that price of crude which is Nigeria’s main source of income is currently about 50% of what it was few years back! Just imagine the impact of about 40% fall in National revenue where all States of the Federation depends on this income to survive! It is now a proven fact that most States of the Federation cannot survive with internally generated revenue. The recent experience with defaults in salary payment by many States says it all.

The level of infrastructure deficit is daunting and the rate at which the population is growing is overwhelming.  According to the UN, Nigeria is projected to be 3rd most populous country in the world by 2050. Imagine an estimated population in excess of 400 million! Juxtapose that with growing agitation and level of public demand for performance and results (or miracles?)! If you understand the enormity of this challenge, you’ll pity those saddled with administering the country.

It is therefore understandable that government must look in the direction of growing tax revenue to finance its activities. The mood in the country is that it should be a time of business unusual in tax administration. The first action taken by the current administration on taxation issues is the appointment of a new Acting Chairman for FIRS. Dr. Babatunde Fowler was, until his appointment in August 2015, the Chairman of Lagos State Internal Revenue Service (LIRS). It is public information that the level of internally generated revenue in Lagos was said to be below N4b as at 2006. By 2014, Lagos generates over N20b internally. Mr Fowler and his team at LIRS would obviously share part of the credits. At a time when FG almost require a miracle to raise funds, it must look in the direction of whoever could wave the magic wands.

The FIRS Chair has left no one in doubt that one if its immediate priority is to raise the level of revenue collection. Steps being taken by FIRS in the 2 two months are about short term measures of raising revenue and improving collection. About 70% of companies registered with CAC are rumored to be non-compliant with tax obligations. There are nearly 450,000 companies in Nigeria and only about a quarter of that number are filing tax returns. The same analogy is applicable in case of individuals. Many eligible taxpayers are outside the tax net. Obviously, Nigeria can’t continue along this path. Those who want to benefit from commonwealth must contribute to the common purse.

So, what vibes are we getting from the Revenue House? I will highlight some of the actions being taken by FIRS to boost revenue collection. The first kind of vibe I got from FIRS is that of collaboration. FIRS indicated its intention to collaborate with relevant stakeholders – Taxpayers, Tax Consultants, State Internal Revenue Services (SIRS), Taxpayers, etc. The idea is that a collaborative effort is needed to move the country forward. Everyone need to understand the importance and urgency of the issue based on our precarious state. For taxpayers, it is about understanding that they owe an obligation to discharge their statutory responsibilities as and when due. Taxpayers are made to understand that FIRS could wield the big sticks to apply penalties and interest if moral suasion is not heeded.

For Tax Consultants, it is about understanding FIRS’ policy direction, securing their buy-in and passing same to clients. Clients should be adequately educated about their obligations and efforts should be geared towards raising compliance level. Partnering with Tax Consultants to resolve lingering client’s tax issues is also on the table. There are suggestions for collaboration with Tax Consultants for special audits where required for some companies. Tax Consultants may also be expected to offer professional support and technical inputs on naughty issues.

FIRS has clarified that Tax Consultants’ involvement does not extend to raising assessments and collecting taxes. Tax Consultants would only be involved in data gathering and probably providing technical inputs. One point that has been raised in defense of Tax Consultants’ involvement in tax audits is manpower requirement. There are probably about 1,000 staff in the Audit section of FIRS required to audit the books of about 450,000 companies. That level of manpower is grossly insufficient for nationwide exercise. If they do, it may require many years to accomplish such. Time is of essence! Mr. President needs all the money to execute its mandate.

The second of wave of news is tax audits and compliance checks. Earlier in the month, FIRS advertised its plan for nationwide verification of Withholding tax (WHT) and Value Added Tax (VAT). WHT and VAT monitoring exercise is different from the planned nationwide tax audit exercise scheduled to commence in November. The exercise is in accordance with the powers conferred on FIRS by S. 26 of FIRS Establishment Act and S. 7 VAT Act. This exercise will be followed by a full-fledged tax audit which is scheduled to commence on Monday, 2 November 2015.

Objectives of the compliance check exercise include (a) Education of tax payers on certain WHT and VAT issues (b) Improvement of voluntary tax compliance (c ) Reduction of  tax arrears (d) Boosting revenue collection (e ) Identification of tax evaders through third party transactions. It is unclear whether FIRS will send letters to companies to inform them of their selection and visitation dates. It is also unclear whether FIRS will seek to visit every company or adopt risk-based selection approach. What was announced is that minimum of 3 tax officers from FIRS will visit companies bearing their FIRS identity cards.  This is to address any security concerns that taxpayers may have.

The planned VAT and WHT compliance check is a prelude to the planned tax audit. The full-fledged tax audits is scheduled to commence in November. Two important points that have been noted regarding the planned tax audit are (1) the proposed duration and (2) possible involvement of consultants. The tax audit is being planned to be carried out within 30 days. That will be quite a feat if achieved! Due consideration would be given for the various year-ends and peak period activities of the various companies. The Joint Tax Board (JTB) has also approved proposed joint audits by FIRS and State Internal Revenue Services (SIRS). This is to alleviate the burden placed on companies having different tax authorities carry out audits at different times. Collaboration between FIRS, SIRS, Tax Consultants and Taxpayers would mark a turning point for taxation, if successfully implemented.

Without doubt, there will be greater level of transparency if we successfully harmonise exchange of information across all the revenue authorities. This may be partly achievable by synchronized tax audit by relevant tax authorities. Joint audits will however come with its challenges. To start with, SIRS have different level of resource and expertise. Many States are also far behind in terms the year already audited. Synchronization is therefore not as easy as it sound.

It may be arguable that the approach will help to improve accuracy, enhance transparency and drive compliance. It may also indirectly help to build capacity of tax administrators and improve compliance. This type of input from, and collaboration by, stakeholders is necessary for the expansion of the nation’s tax net. Let’s hope all these efforts would be a significant improvement in tax revenue and tax administration.

FIRS has also highlighted joint training programmes and workshop for tax administrators in the country. Review and amendments of tax laws and legislations is also in the pipeline. But you know how it is with law making in Nigeria! But the 8th Assembly has indicated that it will not be business as usual. Let’s believe them, let’s support them.

FIRS also just announced that taxes can now be paid without Tax Identification Numbers (TIN). Prior to now, TIN is required to make any tax remittance to FIRS. Many taxpayers have complained about their inability to remit taxes as and when due, as some vendors are not registered with FIRS. According to FIRS, such excuses will no longer be tenable as designated TINs have now been provided for such scenarios. Potential taxpayers who are yet to register with FIRS or do not have TIN could make use of the general TIN to remit taxes. This may be particularly helpful in collecting more taxes but reconciliation issues will abound.

According to FIRS, this step is all about simplifying tax compliance. Making it easy to pay taxes. The real issue with this new move is how to handle reconciliation issues that will follow. Rather than ask multiple taxpayers to remit taxes using one Tax ID, the whole process of TIN generation should be simplified. These days, even Bank account could be opened online, in minutes, even on mobile apps, without stepping into the banking hall. Whatever additional KYC information that’s required could always be provided much later. But account number is generated instantly, on the go. This should be the direction that FIRS should look into rather than multiply the existing reconciliation issue already being experienced with WHT.

What is clear from all the steps being taken by FIRS is a sense of urgency to raise the revenue profile of the country. So much is expected to be done with so little available funds. The only way out is to get FIRS up and running.  Nigeria needs all the money. FIRS seems to be in a mood to collaborate, educate, and apply moral suasion. If taxpayers refuse to take advantage of this window of opportunity, the next round of action may be less friendly. The powers of FIRS to enforce has not been removed from our laws. But it’s good to FIRS has chosen to treat taxpayers as partners-in-progress.

Let’s rest the case at this juncture today. Thanks for joining this tweetax session, looking forward to another episode of #TaxWiseNG.