As 2015 draw to a close and 2016 eases in, it is appropriate to take a peep into the future and see what the year portends. A discerning mind can tell that great challenges lies ahead. Well, difficulties are blessings in disguise, the optimist will say.
What Does 2016 Hold for Taxpayers? A lot! There will be a lot of activities in the tax space – tax will be the buzz word in 2016. Tax is the new gold; tax is the new oil. Tax is the new chic in town. Businesses and taxpayers will be at the receiving end of Government’s onslaught to bridge the revenue gap.
It has been widely reported that Government plan to raise only N820 billion from oil, about 13% of total outlay of N6.08 trillion. News are also filtering in that the Senate may review the $38 oil benchmark downwards as price has continued on the downward trend. Well, it is not so much about downward review, it is the price for which we end up selling our crude. This will determine the gap that must eventually be filled by non-oil tax revenue. Even when there is an immediate recourse to borrowing, the debt must be repaid somehow, at some future time.
Budgeted tax revenue is N1.45 trillion, about $7.3 billion. I will be the first to admit that this is still a far cry from what this economy should generate, considering the size of the economy. However, it is important to point out that personal income taxes collectible by State Governments are excluded. Petroleum profit tax (PPT) is also excluded and captured separately as federation account inflows. To truly ascertain the size of tax revenue, we must consider the total non-oil tax revenue by Federal and State Governments and PPT.
Our focus today is on the pressure that taxpayers may face in 2016 as Government makes effort to shore up revenue. A lot of efforts will be invested at opening up the tax space and identifying those who are not currently covered. Efforts will also be invested in ensuring maximum collection of what is due. From corporate bodies to individuals to not-for-profit organizations. The searchlight will be everywhere.
There are several ways to widening the tax net, we just need to get serious and use the available channels. Every business, limited by shares or guarantee, including enterprises have RC or Biz Registration Number. Business that don’t have TIN have Bank Account Numbers. All bank accounts have BVNs linked to them. If the business can’t be traced, operators of the accounts can be identified through their BVNs. The majority of individuals who should be paying taxes but not doing so have one form of unique identifier or another. There lots of unintegrated databases – Vehicle Registration, National ID, Passport, Census, PVC, NCC (SIM registration no), TIN, BVN etc. The list is endless.
It should be no rocket science to aggregate these information and seek to track down individuals. For starters, the BVN is a good tool, because it has links to financial flow. All BVNs should be tied to TINs. I expect that Tax Authorities will be forced to take proactive steps by making use of these databases. The FIRS Establishment Act already mandate all Banks to submit quarterly returns to the Tax Authorities. The returns cover all transactions of N5m and above for individuals and N10m and above for corporate bodies. As the law empowers FIRS to do, Banks may be requested to furnish this information with BVN, TIN, names and addresses.
If these returns are already being submitted, an enormous amount of information is already at the disposal of the Tax Authorities. With simple analytical tools and skills, a high degree of success is achievable in the area of getting more people registered for tax. It will be a great move to focus on those who have been running away from paying taxes instead of existing payers alone. Tax Authorities must be focused on enforcing annual tax filing by every eligible individual.
The harsh reality is that the heat will be on existing taxpayers. There will be pressure on corporate taxpayers through tax audits. The tax authorities will be under massive pressure to increase collection. They will in turn pass the pressure over to taxpayers. Their attention will be fixed on large taxpayers where small efforts could yield massive finds. Whether you like it or not, tax authorities will focus attention on where the money is – large taxpayers. My admonition is that we should not kill the goose with the golden eggs. While the law is there to support tax audits, it must be done with civility. Officials of tax authorities must remain professional in their approach and be ready to engage intelligently.
In 2016, we are likely to see the kick off of joint tax audits by federal and state tax authorities. This is one of the strategies communicated by Joint Tax Board (JTB) in 2015. Joint tax audit is aimed at helping taxpayers to manage time spent in attending to different authorities more efficiently. In the past, taxpayers have complained about the amount of time spent to attend to multiple authorities carrying out tax audits. Sometimes, there are overlapping reviews and the capacity of available personnel is stretched. Joint audit was conceptualized to lessen the burden on taxpayers by having synchronized tax audits. Tax authorities across the country would leverage on this to share information, knowledge and collaborate.
Joint tax audit has its challenges, which need to be carefully understood and adequately addressed. Will all tax authorities interested in a particular taxpayer be represented on the team? Or will it be a few of them? Will one team of tax examiners gather information on behalf of other authorities and just send the information to them? If so, will this team be selected by JTB, FIRS or State Boards of Internal Revenue? Won’t there be issues regarding cost of conducting the audit if done by representation? Who bears the cost of collection?
Will FIRS write other State Boards and notify them of an impending audit, request for their interest to join? Will this be on a round-robin basis? With one tax authority cover for the other in turn, in different places? Have we overcome the childish political game that gets in the way of sound judgment? Will Tax Authorities of APC controlled States be willing to collaborate with their counterparts in PDP controlled States? Do taxpayers have a say in all of these? If FIRS comes for an audit, is there an obligation to request for State’s information?
These are some of the issues that will come to the fore with the proposed joint audit. A thorough think-through process is key to successful implementation of joint audits. It will be a great idea if implemented as it will help to ensure that taxpayers are more transparent with their tax obligations. Hide and seek game will become difficult to play – “No, we paid it to the Other State”.
I also foresee increase in tax litigations in 2016. When the pressure gets much on taxpayers and they feel confident about their position, they may seek legal redress. This will be a good development as it will help to strengthen the tax system with clarity obtained on gray issues. There were few landmark decisions by Tax Appeal Tribunal and Federal High Courts in 2015. The system need more of such.
With adoption of e-collection by the Federal Government, electronic tax filing will become the new order in 2016. The pilot phase has been running for a while and some bit of e-filing and e-remittance is already in place. I expect a roll-out across all taxpayers at the Federal level and some States in 2016.
While the Government has reiterated its decision of not increasing taxes, the debate on increase in VAT rate will continue. By the time we get into the second half of 2016, the debate will pick up again. If we escape VAT increase in 2016, watch out for it in the next budget that may be presented in the last quarter of 2016. I do not see Nigeria escaping VAT increase sometime soon.
On a final note, one thing that I expect to naturally follow payment of taxes is increased demand for accountability. It’s been said that Nigerians don’t hold leaders accountable because they do not realise that it’s their money they’re spending. People think the leaders are spending Nigeria’s money rather than Nigerians’ money. There is a difference between “our money” and “my money”; the latter is more personal. Oil money is “our money”, tax money is “my money”.
In this new era where everyone will feel the pain of parting with their money in taxes, we will all find our voices. It will no longer be leaders spending Nigeria’s money, it will be “my money”. When we get to that point, transparent and accountable leadership will be the least of our demand of leaders.
It’s a wrap for the year. Thanks for following. Let’s do it again in the New Year, bigger and better. Please accept my best wishes for a truly successful year. Do have a prosperous and peaceful 2016.
Note:
This article was posted in verses via my Twitter handle, @YomiOlugbenro, on Wednesday, 30 December 2015. Every Wednesday at 17:00 WAT (CUT+1), I run a one-hour “tweetax” session with hashtag – #TaxWiseNG – where topical tax issues are discussed. The tweets are subsequently posted as an article on my blog www.yomiolugbenro.com and my social media accounts – facebook.com/YomiOlugbenro and LinkedIn.com/YomiOlugbenro.
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