By Osigbesan Sultan Luqman Osinowo
It is fitting to say that Executive Chairman, Federal Inland Revenue Service (EC-FIRS), Muhammad Nami, walked into the eye of a tornado following his appointment to head the FIRS by President Muhammadu Buhari in December 2019. This is because the presidential ink on Nami’s appointment letter could not have dried up before the economic, cataclysmic twister the FIRS chairman walked into – the COVID-19 pandemic – stuck and shut down the global economic system.
A man of weaker constitution would have wilted at the challenge posed by COVID-19 since the economy was virtually grounded. Well, not Nami. He simply decided to impose his will on COVID-19 and its disruption of the Nigerian economy. It was no walk in the park though as Nami himself stated:
“When I took over the mantle of leadership (at the FIRS), little did I expect that the global economy would experience disruptions as it did. But no sooner had I been appointed and my Management team constituted than I came into a daunting storm that was occasioned by the outbreak of COVID-19 and the subsequent lockdowns.
“The global economy was suddenly thrown into devastating throes. Things happened so fast that the business environment was left on the pedestal of dismal performance with many struggling to keep afloat Consequently, the disruptions to businesses and operations of the tax authorities globally made the task of revenue generation seem quite daunting. Twice the Nigerian economy plummet into recession, making it more exigent for us to rise to the challenge. The only option opened to us was to bravely take the bull by the horns to shore up the Nigerian economy.”
Stemming the economic hemorrhage caused by the COVID-19 also devolved on the members of the FIRS Board also appointed by President Buhari soon after Nami took office. These 13 board members are made up of six individuals from the six geo-political zones – Ehile Aigbangbee (South-South), Adewale Ogunyomade (South West), Ikeme Osakwe (South-East), Adam Baba Mohammed (North-East), James Yakwen Ayuba (North-Central) and Ado Danjuma (NorthWest) – and seven institutional members Folashodun Adebisi Shonubi (representing the Central Bank of Nigeria), Garba Abubakar (Corporate Affairs Commission), Maagbe Samuel Adaa (Revenue Mobilisation Allocation and Fiscal Commission), Umar Ajiya (Nigerian National Petroleum Commission), Fatima Z. Hayatu (representing the Minister of Finance), Ladidi Bara’atu Mohammed (representative of the Attorney-General of the Federation) and Talatu Mairo Isa (Nigerian Customs Service).
The task before Nami and the FIRS Board members (and the FIRS Management Team) is simple enough: To plug the gaping hole punched into the Nigerian economy by COVID-19, which threatened the flow of funds for all three tiers of government. It is worth recalling that at some point in the pandemic demand for crude oil – Nigeria’s main source of revenue – virtually hit nil and the country’s cargoes were left stranded on the high seas with no buyers in sight! In fact, at some point the oil price, briefly, went into the negative region, that is below $0 per barrel!
To weather this storm, Mr. Nami and his team went into overdrive mode in which they had to achieve a very delicate balance between generating enough tax revenue to keep the country afloat and yet demonstrate a much needed empathy for the tax-paying public which was also getting pummeled by COVID-19.
It is to Nami’s credit that he provided the leadership impetus to galvanise the FIRS to deliver under the economic emergency forced on Nigeria by COVID-19. Several initiatives and key activities did the magic. The Nami-led FIRS established an automated cross-checking process to verify information in tax declarations with third parties (data centric environment). It also provided a clear, complete, accurate and timely guidance to taxpayers to help them understand and meet their obligations under the tax laws. The FIRS also swiftly developed a programme for the effective recovery of tax arrears and enhance enforcement activities to boost compliance and arrears reduction. The Service also embarked on continuous taxpayer engagement and education to sustain and enhance taxpayer enlightenment with focus on voluntary compliance, and formalized Memorandum of Understanding (MOUs) with key FIRS strategic partners – NCS, CAC, NPC, CBN, NCC, NIPC, NBS, NIA, SEC, NPA, Federal Ministry of Industry, Trade and Investment, NFIU, etc.) – to facilitate the security, analysis and matching of bulk data.
Furthermore, Nami’s FIRS ensured compliance to organisational policies, procedures and processes; enhanced FIRS website with on-line services capabilities; improved Taxpayer Service Processes and established an effective customer care center. It also enhanced the capabilities of various e-platforms for tax returns filing, tax payments, receipting and application for Tax Clearance Certificates; recreated the Large Taxpayers Department in March, 2020; and concluded Nigeria’s first ever Exchange (Non-Reciprocal) of Automatic Exchange of Information- Common Reporting Standard (AEOI-CRS) Financial Accounts data with over 60 countries.
Clearly, these key initiatives served the country well as the FIRS was still able to collect a commendable N4.952 billion out of the collection target of N5.076 billion in 2020, despite the COVID-19. The collection for the year represented 98% achievement of the target. Non-oil tax collection was ₦3.44 trillion representing 69.37% of total collection, while the oil tax collection amounted to ₦1.52 trillion representing 30.63% of the total collection.
The total Value Added Tax (VAT) collected in 2020 stood at ₦1.53 trillion. This performance represents 69.89% achievement of the 2020 VAT annual target of ₦2.19 trillion and 44.57% of Non-oil Collection of ₦3.44 trillion. From the total VAT collected in 2020, non-import VAT accounted for ₦1.18 trillion or 72.03% while NCS-import VAT contributed ₦347.73 billion or 63.49%.
The year-on-year comparison in the total VAT pool performance indicated that year 2020 VAT collection was higher by ₦341.11 billion or 28.67% compared to the 2019 collection of ₦1.19 trillion. This increase can be attributed to the various initiatives adopted by the new Management such as the; Auto VAT collection in key sectors; the creation of a new VAT Department among others.
The collection trend for the period shows that the Service’s drive towards developing more sustainable sources of tax revenue by shifting the focus from oil to non-oil tax revenue achieved the desired results, and this was despite several tax incentives Nami and the FIRS gave to the tax-paying public to cushion the effects of COVID-19 on individuals and businesses nationwide.
One key mechanism which the Nami Management deployed to shore up the country’s tax revenue in his first year in office was to tweak the nation’s tax laws for optimal delivery. When Nami assumed office the Finance Bill 2019 was in the works but had only been passed by the House of Representatives. Through his concerted efforts, the Senate also passed the Bill on 11December and presidential assent was given on 13 January 2020 and the Finance Act 2019 came into effect, setting the tone for several other reform initiatives by the Nami-led FIRS.
The Finance Act 2019 was a wholesale amendment to seven different tax legislations namely the Companies Income Tax Act, Value Added Tax Act, Capital Gains Tax Act, Stamp Duties Act, Customs and Excise Tariff Act, Petroleum Profits Tax Act and Personal Income Tax Act.
Small and medium businesses (SMEs) were the biggest beneficiaries of the reforms introduced by the Companies Income Tax Act. Specifically, the amendment divides companies into three categories for the purpose of taxation. These are small, medium and big companies. Companies with annual turnover of less than N25 million were exempted from payment of corporate tax. Companies with annual turnover of between ₦25 million and ₦100 million (medium companies) were taxable at 20% of assessable profits. Companies with annual turnover of ₦100 million and above remained taxable at 30% of assessable profits. This reform intervention recognized that SMEs were the main drivers of job creation and economic growth. The reform is therefore aimed at reducing operational cost; encouraging recapitalization and business expansion by small and medium companies.
Another major reform launched by Nami was in the area of VAT. In addition to clarifying certain ambiguous provisions of the VAT Act, the amendment increased the rate of VAT from 5% to 7.5%. The concomitant reduction in corporate tax rates on one hand and an increase in the rate of VAT on the other was consistent with the National Tax Policy which aims at a gradual shift from direct to indirect taxes. The guiding principle behind this stipulation in the National Tax Policy is that indirect taxes potentially offer higher yield while remaining cheaper to administer than direct taxes.
Within the course of 2020, and as a follow up measure to strengthen the legal framework, Nami empaneled a committee to further review all relevant tax laws. As a result of the Committee’s work, Draft Bills on amendment to the Federal Inland Revenue Service Establishment Act, the Value Added Tax Act and the Finance Act 2019 were prepared and submitted to the National Assembly for further review.
In addition, 13 information circulars were also developed and released as follows: Taxation of Non-residents in Nigeria; taxation of seafarers onshore and offshore platform workers; taxation of companies involved in shipping, air transport and cable undertakings; taxation of Real Estate Investment companies; guidelines for filing income tax returns by foreign companies; circular of clarification for taxation of insurance companies; circular on clarification on commencement and cessation of business and business reorganization; circular on tax implication of the operation or regulated securities lending transaction; circular on stamp duties; circular on VAT; clarification on sundry provisions of the Finance Act 2019 as it related to CITA; guidelines on tax treatment of section 27(C) of Companies Income Tax Act (CITA) on deductibility of Foreign Tax; Framework for the implementation of country by country reporting in Nigeria.
Nami also tackled the much vexed matter of multiple taxation. To minimise the incidence of double taxation and to further facilitate international trade and investment between Nigeria and the rest of the world, the FIRS in collaboration with the Federal Ministry of Finance, Budget and National Planning engaged in bilateral or multilateral agreements.
In the course of the year 2020 and despite the disruption to global travels, Nami concluded the negotiated the Avoidance of Double Taxation Agreements (ADTA) with Turkey, Hong Kong, Saudi Arabia, Cyprus, Iran, Germany, Switzerland, India, Botswana, Japan, Greece, New Jersey and Russia, in addition to the active ADTA agreement with other nations like South Korea, Spain, Sweden, Singapore, France, Mauritius, UAE, Qatar, Kenya, Morocco, Ghana, Cameroon, Turkey, Sudan, Gambia and Denmark.
Another key tax policy issue which the Nami Management focused on was transfer pricing. The Management had, by way of follow up to the introduction of the Income Tax (Transfer Pricing) Regulations 2018, issued Demand Notes totaling ₦1.074 billion on 222 companies for failing to file their transfer pricing returns in line with the requirements of the regulations. Fifty-four companies paid penalties imposed on them and these amounted to ₦47.433 million. Currently, the Service is involved in several audits that have the potential for substantial revenue yield resulting from adjustments and additional assessments.
The Service also maintained the its relationship with ATAF, WATAF, CATA and the OECD, and organised a WATAF workshop on Risk Management in Bamako, Mali in June 2020
People – both the tax-paying public and members of staff at the FIRS – were at the heart of the Nami reforms in the Service right from when he assumed office. During the 2020 fiscal year, therefore FIRS continued the implementation of various administrative measures in order to enhance revenue collection and achieve its target. From the onset, Nami identified four cardinal pillars that would drive his reform interventions in the area of tax administration, which are rebuilding FIRS institutional framework; robust collaboration with stakeholders; building a taxpayer-centric FIRS; and creating a data-centric Service
To build and strengthen the capacity of the Departments and Units of FIRS to deliver their mandates on a long-term and sustainable basis, the FIRS Board approved a new structure for the Service on the 17 January, 2020. The new Organogram comprisessixGroups and 32 Departments including Internal Affairs Department that report directly to the Executive Chairman, FIRS.
Also, taxpayer segmentation was re-introduced even as the Audit and Investigation Departments were also reviewed for more effectiveness. The Annual Corporate Plan Retreat was reintroduced and it held between 7and 8February, 2020 with the theme “Repositioning FIRS for Efficient Service Delivery.” The 2020 Corporate Plan was also approved by the executive chairman and exposed to staff at the headquarters.
Nami’s objective in the area of collaboration with stakeholders is to foster cooperation between FIRS and key stakeholders in the Nigerian tax system in order to provide a unified view of the FIRS planning so as to eliminate critical bottlenecks. His reach and results in his first year in office were massive. Under Nami, the FIRS collaborated with theFederal Ministry of Finance (FMF) on the recovery of tax debt from contractors or tax debtors uploaded on the FMF (GIFMIS platform), yielding recoveries of about N500,705,883.11 in 2020 alone.
The FIRS also worked closely with the Corporate Affairs Commission (CAC) and achieved integration with the CAC’s information system for data reporting via the Application Programme Interface. Today, this enables the FIRS to track and bring new corporate taxpayers into the tax net; generate taxpayer identification numbers for new taxpayers at the point of incorporation and issuance of certificate of incorporation; and improve on efficiency in the administration of stamp duties.
Nami also collaborates with security agencies to strengthen the FIRS as an institution and bolster the Nigerian tax sector. Thus the FIRS under Nami has collaborated with the Economic and Financial Crimes Commission (EFCC); the Department of State Security (DSS) and the Nigeria Police and established a joint task team known as the Special Crimes Division. The Division is responsible for intelligence gathering, joint investigation and enforcement activities relating to tax evasion and tax fraud.
In addition to the above collaborative engagements, the new FIRS Board through the Technical Committee of the Board set up a Committee and tasked it with the following terms of reference: a review all existing memorandums of understanding between the Service and its stakeholders; preparation of new MOUs for consideration; and recommendation of other agencies/stakeholders the Service may enter into MOUs with to deepen stakeholder collaboration.
Moreover, the FIRS under Nami has continued to engage and sensitise many functionaries of federal and state Ministries, Department and Agencies (MDAs) to make them more aware of their tax obligations and ensure improved tax compliance.
In any country of the world the taxman is not an especially popular public persona and would certainly not win any popularity contest. The reason is not far-fetched: Not many people – corporate and individuals – love paying taxes willingly even when it is a civic duty backed by law. Nigerians are not exceptions to this.
Therefore, Nami has had to work hard at improving the culture of voluntary tax compliance in the country since his appointment to lead the nation’s tax drive at the FIRS through a number of taxpayers-friendly initiatives. He believes that making the FIRS “customer-centric” entails building an institution that is viable for ease of doing business by focusing on efficient service and providing a positive customer experience on all tax compliant processes.
In line with the above, the Nami administration has put measures in place to make tax filing customer-centric. These measures include approval for taxpayers facing challenges in sourcing for foreign exchange (FOREX) to offset their liabilities given the option of paying in Naira at the prevailing Investors & Exporters (I & E) FOREX window rate on the day of payment; palliative measures to remove penalty and interest on Self-Assessment filing, Tax Audit, Tax Investigation and Desk review assessments and Approved instalment payment plans under VAIDS. T were also enhanced, among others.
The Nami administration has also made the FIRS a data-centric Service through technological reforms. In this wise, the FIRS’ TaxPro-Max platform was developed and deployed. The TaxPro-Max system is an in-house tax administration solution, which covers the major processes of the tax administration system – Registration, Filing, Payment and Reporting – in accordance with the extant tax laws and IMF Tax Administration Diagnostic Assessment Tool (TADAT) standards. It became operational on 1June 2020 and is in use in all FIRS tax offices.
Mr. Nami also signed an MoU between FIRS and NIBSS on funds sweeping and settlement of all FIRS taxes to Federation Account at CBN is operational. The FIRS under Nami has also developed ‘My Bank Statement’ application for transmission of customers’ transactions as well as a portal for Deposit Money Banks (DMBs) to provide information of corporate customers transaction above ₦10 million and individuals above ₦5 million.
Nami: New Record Highs In Tax Revenue Collection
Stakeholders in the tax subsector of the Nigerian economy told The Dream Daily Newspaper that the holistic scale of reforms implemented in the first year of the Nami administration at the FIRS was unprecedented in the history of the Service. The dividends of that rounded rejig of the FIRS system were breathtaking in terms of the tax revenue generated for the country.
For the first time in the history of the FIRS, the Service surpassed the revenue target set for it by the Federal Government as it posted N6.405 trillion – against the 2021 target of N6.401. This impressive result is quite remarkable when considered against the backdrop of the FIRS issuing tax credits of N147.8 billion to private investors and the Nigerian National Petroleum Corporation (NNPC) for road infrastructure development under the Road Infrastructure Development Refurbishment Investment Tac Credit Service created by Executive Order No 007 of 2019, which the President Buhari Administration has been using to fix highways across the country.
Also, for the first time in a very long while, the FIRS recorded the highest yield collection in a single month – June 2021 in which the Service bagged N696 billion.
Apart from these record figures, the 2021 performance of the FIRS under Nami is also significant for putting Nigeria on the path of sustainable fiscal regime in which the country aims to wean itself off over-dependence on oil revenue to fund the three tiers of government. A breakdown of the N6.405 trillion tax revenue generated by the FIRS in 2021 shows a record contribution of 68.64% by the non-oil sector of the Nigerian economy. Crude oil only contributed N2.008 trillion, as against double of that figure from the non-oil sector which stood at N4.396 trillion.
Nami laid the foundation for these feats right from his first year when he steered the FIRS towards hitherto under-explored tax sources. For instance, Stamp Duty collection before the Nami era at the FIRS was never up to N50 billion. However, in his first year and despite COVID-19 and other challenges, the Service generated N202.9 billion in Stamp Duty-linked tax.
Other hitherto neglected tax revenue sources vigorously tapped by the FIRS under Nami include the VAT, which netted the Service N2.07 trillion in 2021 (It was the single tax type with the highest collection figure) and Electronic Money Transfer Levy, which brought in N114 billion in the same year. Further breakdown of the 2021 tax revenue generated by the FIRS indicated substantial uptick. Company Income Tax returned N1.896 trillion and Petroleum Profit Tax amounted to N2 trillion.
And Nami is determined to diversifying Nigeria’s tax revenue sources further from co-dependence tax revenue to non-oil tax revenue. “I am optimistic that this year’s (2022) collection performance would be far better than the previous year. I believe the collection statistics in the past two years is adequate to prove that we are on course in this regard. For example, the collection from oil revenue amounted to N2.008 trillion, while the non-oil collection was N4.396 trillion. This is a significant paradigm shift”.
Having strengthened the Finance Act 2020 with the Finance Act 2021, Nami is confident that the 2022 performance of the FIRS on his watch will surpass the 2021 record-breaking haul. Although the Federal Government gave him and the FIRS the collection target of N7.5 trillion for this fiscal year, Nami has set his sight on a higher mark. He said: “Our collection target for 2022 is N7.5 trillion but we have set a target of N10 trillion for ourselves and we are confident that we will achieve this target.”
Nami is a team player and he would not take all the credit for his superlative performance at the FIRS. He is grateful for the support he enjoys from President Buhari, the Honourable Minister of Finance, Mrs. Zainab Shamsuna Ahmed, her Minister of State, Prince Clement Agba, the leadership and members of the National Assembly, the FIRS Board Members and other critical stakeholders in the tax sector, including the tax-paying public.
Also, Nami appreciates the sacrifices the FIRS Management Team members continue to put in to achieve the set goals of the Service. The current management team is made up of Muhammad Lawal Abubakar, Coordinating Director, Executive Chairman’s Group (ECG); Dick Irri, Coordinating Director, Compliance Support Group (CSG), Faozat Ogunniyi, Group Lead, Enforcement Support Group (ESG); Mathew Gbonjubola, Group Lead, Special Tax Operations Group; Chiaka Ben-Obi, Group Lead, Digital and Innovation Support Group (DSG); Ahmed M. Muhammed, Group Lead, General Services Group (GSG); and Kabir Abba, Group Lead, General Tax Operations Group (TOG).
And Nami is even more effusive in praising the entire workforce of the Service for picking up the gauntlet to reboot the Service when he came in. Admitting the FIRS’ workers’ central role in his achievements at the FIRS thus far, he stated: “I know that this feat wouldn’t have been possible without the cooperation, resilience and devotion of the staff. We did it because you embraced the reform measures we introduced; we did it because of the effective way we blended both the human and the machine in the way we carry on with the operations of the Service.”
The Nigerian tax sector is challenging in its own unique way, including from certain interests who on one hand are direct beneficiaries of the great efforts of Mr. Nami and the FIRS in the past two years but are on the other are putting up very strong challenge to the Service’s statutory mandate to collect some tax types.
Nevertheless, Nigeria’s No. 1 Taxman, Mr. Muhammad Nami, remains focused on the task at hand at the FIRS. The country needs him to be if we are to have a prosperous Nigeria inured from the vagaries of the neo-liberal global economic system, which can send any developing country into a tailspin if the fundamentals of such nation’s economic wellbeing rest too much on it.