The recent crash in oil prices occasioned by the COVID-19 pandemic has once more highlighted the grave consequences associated with Nigeria’s heavy dependence on oil revenue and its low tax base.
Nigeria is facing a revenue crisis no doubt. The country planned revenue of N5.84 trillion for the 2020 budget but was only able to raise N3.42tn, representing 59 percent performance.
To reduce its reliance on oil revenue, there has been an increased effort by the Federal Government of Nigeria (FGN) to boost its tax revenue with the hike in Value Added Tax (VAT), communications tax, amongst others.
Whilst this mounts pressures on the average Nigerian consumer and threatens their disposable income, the increase in Nigeria’s non-oil revenue is important to fund the country’s ambitious expenditure and investment programmes scheduled for the near to long term.
The times have changed. FG’s non-oil revenue grew through an increase in its share of non-oil taxes, from N704bn in 2012 to N1.58tn in 2019. Non-oil revenues have become the core of FG’s revenue as oil revenues contributed 41 percent to total revenue in 2020; in 2012, oil revenues accounted for 56 percent of FG’s total receipts.
There is a growing body of research that the more dependent a government is on tax revenues, the better the level of public goods it provides. At the same time, increased taxation may stimulate increased interest and involvement of citizens in the political process, which in turn shapes political institutions and government policy.
Governor Nasir el-Rufai of Kaduna State at the recent Annual Tax Conference of the Chartered Institute of Taxation of Nigeria (CITN) identified taxation as one of the ways to raise revenue to effectively run the government and provide social services to the people.
The governor disclosed that “Most countries are planning for a green economy in which oil will not be used at all.
“So, we must begin to move away from oil. Oil is neither the answer nor the question that will solve our problems.”
He lamented that Nigeria’s tax to Gross Domestic Product (GDP) ratio is something in the region of 6 percent to 7 percent; one of the lowest in the world, compared to countries that collect up to 20 percent of GDP.
He said: “In Kaduna State with a GDP of about N2trn, we should be collecting about N400bn per annum as taxation.
“Unfortunately, last year, we collected slightly above N50bn, 1/8th of what we should be collecting. That means that there is a lot of work to be done,” he said.
El-Rufai pointed out that the situation in Kaduna State is similar to the rest of the country, adding that it is worse in most states.
Strengthening Nigeria’s Tax System
The Minister of Finance, Budget and National Planning, Mrs. Zainab Shamsuna Ahmed, in June this year, approved the Tax Appeal Tribunal (TAT) 2021 pursuant to her powers under Section 61 of the Federal Inland Revenue Service (Establishment) Act, 2007 (as amended).
The rules, which replaced the defunct TAT (Procedure) Rules, 2010, enable the tribunal to deal justly, fairly and expeditiously with appeals and encourage and promote the settlement of disputes among parties.
Other sections of the rule require taxpayers to pay 50 percent of any disputed amount into a designated account of the TAT as security for prosecuting an appeal, prior to commencement of appeals.
It also involves modification of some old definitions, and interpretation of additional terms such as “appeal”, “notice of appeal”, “decision of the Tribunal” etc; recognition of service of documents or processes carried out by email or such other electronic means as the Tribunal may permit; and recognition of virtual/ remote hearing of applications and delivery of rulings by the Tribunal.
It also included the introduction of a six-month timeframe from the date of commencement of trial for the TAT to conclude and provide a decision, and provisions for hearing of ex-parte and non-contentious applications in Chambers as well as summary appeal procedure for liquidated money demands.
The amendments to the TAT (Procedure) Rules, which is the initial forum for tax adjudication in Nigeria, align with changes in global tax administration systems and would ensure that the TAT’s procedures are up to date and give taxpayers increased confidence in the system.
Partner & Head of Tax, Regulatory & People Service (TRPS) Practice of KPMG in Nigeria, Wole Obayomi noted that the implementation of the new rules emphasizes the federal government’s commitment to improving Nigeria’s tax landscape, which commenced with the enactment of Finance Acts, 2019 and 2020.
According to him, the amendments to the TAT (Procedure) Rules, which is the initial forum for formal tax adjudication in Nigeria, align with changes in global tax administration systems and would ensure that the TAT’s procedures are up to date and give taxpayers increased confidence in the system.
The role of the Tax Commissioners is not those of “judges” in the constitutional sense and so, rather than becoming a part of the judiciary, the TAT should be preparatory to, and supplementary to the formal judicial system. Therefore, the changes may revive the challenges on the legality of the TAT and its encroachment on the constitutional preserve of the Federal High Court on revenue and taxation issues.
On their part, analysts at PwC noted that: “The new procedures took effect from 10 June 2021, but taxpayers generally became aware of it in September 2021. The rules are intended to make the TAT more efficient in the dispensation of justice.
“They are also a reflection of the current realities given the wide adoption of technology in the administration of justice. With the powers to order costs, the TAT now has powers to penalise erring parties for unprofessionalism and unnecessary delays.”
Speaking on the development, Economist and Chief Executive Officer, Centre for the Promotion of Private Enterprise, Muda Yusuf, said Nigeria needs a tax environment that would ensure a balance between revenue objective and the imperative of investment growth.
“This economy is in dire need of investment. It is in dire need of jobs. It is in dire need of foreign direct investment. All these underscores the need for caution and deep circumspection in tax management. We should be careful not to create an impression of a punitive tax regime,” he said.
Yusuf added that tax policies and practices must reflect the cardinal principles of fairness, certainty, efficiency and convenience.
“If we truly need investment in the Nigerian economy, these principles must be upheld by tax authorities at all levels of government – federal, state and local. This is however without prejudice to the need for businesses to be compliant with extant tax laws and other statutory requirements. This is what responsible corporate citizenship demands,” he said.
