As the new acting chairman, what is your agenda for the FIRS?
I don’t have a personal agenda. It is an organisational agenda to ensure that we can produce on a sustainable basis and continuous flow of revenue for government. Our job is to assess, collect and account for the revenue in such a way that it will not be compromised at all. The organisational agenda/strategic direction, whatever it is, must not deviate from that mandate.
It also means that we must endeavour to bring everyone that should be in the tax net. However my personal agenda now is to ensure that I do this job in a way that promotes a positive investment climate for Nigeria. If all we are doing is just accessing local companies, then after assessing them, what next? You cannot distort their business because you want more money. If you diversify and bring in more investments into the country, of course, you are creating employment. You are building businesses.
So, Nigeria can’t do it alone. Nigeria cannot close its doors. Nigeria must open its doors for investors to bring investments into the country. So, what I will be doing with my team is to make sure that I build an investment friendly environment. Every tax system has the component of tax policy-the law, regulation and tax administration. The backing of the three is what will make a very good tax system. My job is to administer a smooth and successful tax administration and I am committed to doing it with my team. If I get it right and I’m doing the right thing, revenues will continue to flow. It will. It is because we do not understand the complexity of the institutional regime of the system. As I came in, because I have been long in the system, I looked at what we’ve been doing in the past and said this area, this area, need special focus. It is nothing magical. It is nothing esoteric. So, working with my team, we can be able to deliver continuous flow of revenues.
In recent time, tax revenue has been dwindling. Is it because of oil revenue or there are other factors responsible?
The good thing is that we have been able to segregate oil revenue from non-oil revenues. We in FIRS collect some aspects of the oil taxes, NNPC collects some others and customs does same. Oil revenue collection is contingent on the production volume. The portion of oil taxes we are collecting is the one that is shared and allocated to private companies, which they give back to us by way of petroleum profit tax. The one that is shared or allocated to government, NNPC handles. The oil allocation they take outside the country for sale, they then collect the money and remit it into the federation account. What NNPC gets and what FIRS gets is what forms the revenue from oil. In other countries, they will make NNPC also pay tax. So, the oil revenue tax is a tax component when you remove all their costs. The rationale behind our collecting oil taxes is to ensure that there will be only one source of tax but in our own experience, NNPC also handles the collections. We call theirs crude oil sales account and our own is called petroleum profit tax account. We focus only on oil. If NNPC is reporting high numbers, and we are reporting low numbers, then there will be a question mark there. But when they are reporting low figures and we are reporting low figures as well, it shows we are not selling enough oil or that we are not lifting as much as we expect or project to be doing. But what we really have power to re-engineer or control is the non-oil revenue. What is peculiar about the 2015 is the fact that government is significantly funding the economy. What is the contribution of the private sector? Oil does not bring out money. All the oil companies who do business with petroleum, who funds them? Government is principally driving the economy of the country. When you release money to them, the banks will pick out of it and will invest. That’s activity going on. The oil industries will get their own shares. If that government, for whatever reason, chooses not to put money in the economy, there is a big problem. That’s what we faced around January, February and March. The former minister of finance, Dr. Ngozi Iweala, confirmed that since January, they have not released a penny for capital expenditure. Construction and other industries were cutting down their operations, with some even laying off staff. Where is the tax revenue money or collections going to come from? Manufacturers, due to power problems, were not producing to their full capacity. The ripple effect of the oil problem or dwindling revenue from oil is the slowing down of the economy. There has to be activities before taxation can be at the optimum level. If you do not understand the dynamics you will think that the taxman can perform magic. We don’t perform magic here. That’s why we keep harping on the issue of building institutions because that way we can be sure of regular and sustained revenue from the non-oil sector. That’s why we say that we need to focus on what we are not doing right. There are so many companies now that should be in the tax net that are not in the tax net. They also can contribute. It could be small but little contribution into the coffers of government, no matter how small when pool together, will amount to quite a huge amount. I will work towards bringing those companies outside the tax net into our database.
What is the current status of the non-oil revenue?
I started by telling you that if there is no activity, there will be no tax to be paid. People say that the year of election usually comes with a lot of activities but this year was an exception. It is like people held back their money for whatever reasons. Collection in January was low. It was just about 50 percent of the target for the non-oil. January was higher than February. February was reduced by about five percent. But in March, April and May, it moved up. I wish I could show you a graph for you to see. You look at the report for 2012. You look at the report for 2013 and you look at the report for 2014 and 2015. You will see the shape. You will see the trend- January, February, March, and April. It is just the same trend. The pattern you witnessed then is the pattern you witnessed now and will be witnessed next year. Why is that? Because there are very few companies that are filing returns in January, February, March, April, May. We start collecting returns of corporate entities from May, June, July, and August. Of the 450,000 large tax companies that we have in Nigeria, over 75 percent of them file their returns in June. Every company must have an accounting day. Business runs from January to December. But the law allows you six months of grace within which you are to declare your account or everything that happened the previous year. That’s why we allow them that six months period to file their returns. So, if there is no activity by way of contract awards through the MDAs, state governments and local government councils, of course, you don’t expect any taxation from there. So, we were only relying on small portions from the private sector. Most of the activities in the private sector would lead to trading. Trading is not subject to withholding taxes. If you are selling cement, it is direct across the counter transaction and it is not subject to withholding taxes. The taxes come from contracts and if there are no activities, there can’t be just whatever you desire.
Some experts argue that Nigeria’s tax base is very narrow and the tax rate is high. Why can’t we expand the tax base and reduce the tax rate?
The issue of tax base, I don’t know what you mean. I give you an example, expansion of the base means even students in the university should pay tax because you are saying: increase the number of people who are inside that scope.
The emphasis is on the informal sector…
But that is not expanding the base because they are already in the tax net. When you say people in the informal sector where activities are going on, people don’t still understand that there is some level of taxation there. In most developed countries, you introduce the donkey tax for the companies that don’t keep records. If you don’t keep records, how do I assess you? I need records. I need to know the incomes you made. We now said let’s deploy ICTs to help us interact with the informal sector. Before now, if we have not gone into their midst to understand how they work, why will we be talking about taxation? Those in the informal sector, when they want to send their children to school, doesn’t government say go and bring tax clearance certificate? They do. If they don’t have tax clearance certificate, their children will not go to school. So, at one point or the other, they have paid tax.
Do you think your staff will not be cutting corners with regards to these innovations?
I said we are using ICTs. The information will be available to us. That information is not developed by my people. It is coming from third party sources. If you go to NEXT shop, and you make purchases using your card, that information is fed to the platform automatically. How can my staff tamper with that? It only helps them to do proper assessment on the individual. They cannot compromise it because I can see, they can see and the other officers can also see that. It is not created by us. We are just users of the information. But then, we will also introduce some controls.
You know we have not developed the platform yet. We are saying let the banks, FIRS and all relevant agencies that have a stake on it, let’s sit down together and say this is what we want. When that is done, we can now be talking about some level of control. In any case, the institution may look corrupt today, my own attitude is not to drive everybody away, otherwise you will kill everybody in Nigeria.
It is about what you are offering to ensure that you block all loopholes. You can get everyone to comply if you put the right structures on ground. If you owe me money, I will go through the bank and tell the bank that I am going to appoint you as an agent of collection under this section of the law so assist and freeze the account of this man. Don’t let him operate it until he has spoken to me. I will work with them to ensure that what is recovered is paid back to government.
There are still complaints of multiple taxation. What is FIRS doing to solve this?
This is often orchestrated by states and local government councils, not by the federal government. The federal government has done a lot of work in that direction. We have come up with a revised list of taxes assigned to each of the tiers of government. It was started by the president when the Manufacturers Association of Nigeria complained that most of their members were complaining of multiple taxations. For instance, you want to bring cows from Maiduguri to Lagos and everyone is levying you along the way. Taxation should not be a hindrance to movement of capital and goods of individuals.
They will end up paying corporate income tax or the individual to pay individual tax, if we get it right. But we are not getting it right that’s why everyone is carrying out multiplicities of levies and charges. By the time everyone is on the JTB chain platform, no one will have anything to hide. I am the chairman of JTB and we will continue to talk to our members to ensure that they operate within the revised law which government has approved. What we don’t have now is to recognise that some states have come up with their own taxes as approved by their various Houses of Assembly, let us not disregard those taxes but include them in the new list and then sanitise the system. The law recognises about 22 levies, not taxes for the local government councils, about 13 for the states and only eight for the federal.
But some state governments have increased their own from 13 to almost 150 taxes. It doesn’t make sense. But there is some sanity around it now and the law will be passed by the National Assembly. It is an amendment to the Tax Law of 1998.
What are you doing about those companies avoiding tax?
The whole world is looking at illicit financial flow outside the country. It’s a big challenge. That’s why America is saying to all that we should be able to provide them with information about their own businessmen and business in Nigeria. They want it for the purpose of taxation. Nigeria is also concerned. We are influenced by whatever directives that comes from them. Businesses that are coming into the country are in a way siphoning capital out of the country. They come in with $5000 and in a year or two; they are taking away $50,000,000 out of the country. We will be concerned. But what are we doing?
What we can do at our own level is adopt the transfer pricing regulation. It says before you can do any transaction, the tax authority needs to know. How do you do your cost transaction in Nigeria? It is not as if transfer pricing is a big problem. It is transfer mispricing that is the issue. You buy raw materials from UK and you say it cost almost 20 times the actual price. What it will do is to reduce your profit at the end of the day. And a lot of people are so smart. They will first route those raw materials from UK to Accra, or other countries where the price has gone up and then bring it to us in Nigeria. Those are the kinds of mispricing we are facing. If you are not up to date technologically, it will be difficult for you to challenge them because all expenses reasonably incurred for the purpose of the business must be treated as allowable.
But the backside transaction is unknown to us. What we have done is build up compatibility data that will enable us know that the price of this goods internationally should not be more than N10,000.
However, because we are a member of the multilateral convention and we signed that agreement that said we must exchange tax information, we will have no option but to abide by that. So, our companies that are doing business in Accra, Ghana, have the responsibility to give us information. Same with the tax authority there when we require information from them or they from us.
You initiated some reforms within the FIRS but there are some internal objections. Why the reforms and what is your take on the objections?
To be strategically positioned, we believe we can drive tax administration to the level that we can continuously invite foreigners and investors to do business in Nigeria. Our vision is improving taxpayers’ services in collaboration with all stakeholders in order to make taxation a pivot for national development. It means that we are recognising that without taxation, we won’t be able to develop. In doing this, the objective is not to cause economic dislocation. Rather, to make Nigeria a destination of choice. Why do you think people are rushing to Dubai? Everyone wants to be in the UK. They want to be in America. Why do they run there? It is the investment environment. It is very inviting. They encourage you to bring your money and do business there. Alhaji Dangote was telling us some time ago that the UK government told him to bring 250,000 pounds and he would be given citizenship straight away. He was telling Mr. President at one of the Council meetings but because he was loyal to this country, he refused, as he doesn’t need it.
Companies are leaving the shores of Nigeria and going to Cotonou. You think I’m happy as a taxman? Because they said it is the tax regime in Nigeria. For them, they are looking at the cost and effect on their business. I introduced reforms because I’ve looked at the system and know where to do some changes in order to be able to drive the system. Remember, the former chairman, who was here for over eight years, she came and turned the service round. What were we doing before she came? Our departments were structured around taxes and functions. Then we had VAT department, which was tax related. We had withholding tax unit, which was also tax related. We also had acceptance and collection.
So, we had a high volume of tax functions and taxes and products combined. She (former chairman) came and went to government and said the way it is being done in the international community was to integrate. It was shocking to all of us. So, we integrated the Nigerian tax administration system. Integration simply means that from one point you can sort out all your tax matters. We have been around there for over eight years. In fact, we are still running the Integrated Tax System today. The framework is still the same. But, in the last four years, even before she left, there was some waning effect noticed in some of those functions. The audit was no longer strong.
The independence of the auditor was being jeopardised. You now have a structure where the man who receives the acceptance is here. He is the one who will go and collect. If he is not able to collect it, he will pursue the ones who can pay. He is the one who will stand up and say let me go and look at the accounts of the people who submitted returns to me. He is the one who will go and audit them.
All those functions are performed at one spot. And lastly, you expect that same office to go round after taxpayers. You want to kill that man. That’s what we have been administering. This is not effective anymore. The world is changing. You go abroad, you see their system; you see the Canadian tax system, why is it celebrated? Why is the IRS of US being celebrated? We get a lot of technical assistance from IRS and from their treasury. I said, why don’t we let the tax offices do only returns and payment processes and go round and gather more taxpayers into the tax net.
While others their job in the tax office will be to focus on all the taxpayers in their jurisdiction, I will mandate and support them with all the resources they require to go after all of them. Even if it means going from door to door to go and register all of them. We will work with the banks and other third party agents to get us tax information as well as use the analysis of the web portal and bring in more companies that are running away from us.
So this will form part of their job to register, process the returns as they submit to you and go after taxpayers. I created other groups whose job it will be to manage our debtors and debts that have not been collected within 60 days of raising such assessments; they will manage that for me.
The group will be manned by senior level officers who are courageous and can walk up to the governor or the accountant general of any state and or go to any bank and say I have the authority of my chairman that this account must not be operated until the outstanding debts are liquidated. They don’t have to come to Abuja to get the approval. By phone and by email, I give them the approval. That’s the only job they will do because they are in charge of managing our debts and debtors.
I created another group of experts who know how to analyse accounts, whose jobs will be to carry out audits of different companies as the need may arise.
These will be made up of officers who understand taxation and law. Once returns are filed and keyed into our systems, their job will be to go and check the accounts very well.
So on the whole we will have groups, which will analyse returns, who will do registration and run after tax payers and who will key in information from the returns. Another group will go and do audit; others that will be overseeing debts for me. And at the regional office, I have another group and all they will be doing in FIRS is tax payers’ education. I challenge anybody to challenge me that this will not deliver my mandate.
I want to eliminate corruption. It is going to be tough but that’s the way to go about it. Why did I change the directors and deputy directors? They are the tax controllers of the whole places. They, as everybody knows, have become so powerful. Taxpayers are now at their mercy. If the top management officers are giving management problem, must I continue to protect them? No.
