By John Abrahams
Africa’s financial sector comes under global spotlights this week as chief tax officers of all the countries on the continent converged on Kampala, Uganda under the auspices of African Tax Administration Forum (ATAF) for a week-long summit to review macro-economic indices for the year and make projections for the coming year.
Doubtless, this offers yet another opportunity for Nigeria, the continent’s main economic power, to share a remarkable testimony of her growing tax revenue in the past four years under a rather difficult climate – the continent’s most populous nation had by 2015 slipped into a debilitating recession regarded as the worst in a generation triggered by a steep crash in oil price.
From N3trillion when the Buhari administration took over in 2015, Nigeria’s tax revenue rose exponentially to N5.3trillion by the end of the 2018 financial year. The figure is expected to rise by the time the 2019 books are closed.
Given Nigeria’s 200 million population, that figure might appear a chicken’s feed. But it remains a positive development nonetheless. Nigeria’s National Bureau of Statistics (NBS) indicates the country has a taxable workforce of around 77 million, but government figures show only just 14 million pay income tax.
But with an aggressive initiative named Taxpayers Identification Number (TIN), 45 million individual and corporate citizens are projected to be captured in the tax net of the Federal Inland Revenue Service (FIRS) by the end of 2019. With that target, the country will surely be set to change the old narrative of a notoriety for poor tax compliance as evidenced in its abysmal 6 percent tax-to-GDP ratio, regarded the lowest of any nation in the world.
That stark picture is better appreciated viewed against the statistics of Nigeria’s closest economic rival, South Africa. The fabled “rainbow nation” has a population that is three times smaller than the West African giant, but has a tax-to-GDP ratio of 24.7 percent. Meaning that South Africa is able to gross over $57 billion in tax revenue, which is more than thrice Nigeria’s figure.
Interestingly, the man behind the great leap in Nigeria’s tax revenue in the last four years, Mr. Babatunde Fowler, also sits over ATAF as its continental chairman. In fact, Mr. Fowler was recently elected for a second term of office overwhelmingly by his colleagues from other African nations who view his scroll of personal accomplishments as a source of inspiration.
For instance, the recent reclassification of Nigeria among the most improved countries in terms of “ease of doing business” by the World Bank has been attributed partly to the bold reforms mounted by FIRS under Fowler in the past four years. It also explains why he was named among the world’s 50 most influential tax personalities and institutions by the globally respected International Tax Review.
Fowler’s Midas touch had similarly changed the tax fortunes of Lagos, Nigeria’s economic capital. At the return of democracy in 1999, the internally generated revenue (IGR) of Lagos was a paltry N600 million. Desirous of changing the story, the new Bola Tinubu administration head-hunted Fowler from the private sector to breathe life into the state tax board. Through sweeping reforms, Fowler helped grow the figure to a staggering N8 billion by 2007 when Tinubu’s second term ended.
His services were retained by the succeeding Babatunde Fashola administration. By the end of Fashola’s administration in 2015, Fowler had helped raise the gross tax revenue further to over N20 billion. The template he bequeathed ensures that Lagos now nets more than N30 billion monthly in tax income, securing it as one of the very few states in Nigeria than can survive without monthly allocation from Abuja.
In terms of GDP, Lagos is today ranked as the fifth largest economy on the African continent.
Today, overall, experts are agreed that the economic climate across the continent is still rather hazy. Growth figures in Africa’s three biggest economies namely Nigeria, South Africa and Angola remain largely stagnant. The little respite felt is only due to recovering commodity prices.
Indeed, for Nigeria as well as other African nations, the enduring challenge remains how to engineer a taxation template that is less vulnerable to the vagaries of the commodity prices.
This imperative will surely dominate discussions during the ATAF summit in Kampala this week as the tax chief scratch their heads in a difficult moment for new tactics and strategy to generate revenue for their countries to fund national budgets.
Conservative estimates project that the continent loses more than $50 billion yearly to illicit financial outflows, mostly through tax avoidance and evasion.
For the 2020 financial year, Nigeria is proposing a N10 trillion budget, out of which Fowler’s Federal Inland Revenue Service (FIRS) has been given a revenue target of N8.5 trillion. The target is contained in the Fiscal Strategy Paper of the Federal Government which had already been approved by the National Assembly.
The federal lawmakers have assured that the the 2020 appropriations bill will be passed before the end of November with a view to restoring the old January-December budget cycle in the nation’s public finance sector.
Already, to meet the rather high target, FIRS is seeking upward review of value added tax (VAT) to 7.5 percent. There is no indication yet that the federal lawmakers will spike the bill. If that becomes law, it is estimated that extra N2 trillion cash will be generated by FIRS next year. Out of the amount, Federal Government is statutorily entitled to a 15 percent share (translating to N300 billion). The remaining 85 percent goes to the state governments and local councils. That should be big boost to the two tiers of government already facing the daunting challenge of meeting the adjustment of the minimum wage to N30,000.
While N8.5 trillion revenue target given FIRS for 2020 (representing almost 85 percent of the national budget) will appear daunting, experts believe it is achievable if the bouquet of reforms initiated by Fowler is aggressively sustained.
To help foster a tax culture among the population, there is a new unit in FIRS called FEETTs (Federal Engagement Tax Teams) which travels round cities, towns and villages to constantly engage, sensitize the people and persuade them to register so that they can have a tax identity and, more importantly, take pride in voluntarily discharging their civic responsibility.
One remarkable development in the last four years is the deepening of non-oil returns in Nigeria. The figure has grown steadily from N2 trillion in 2016 to a record N2.852 trillion in 2018 (representing more than 54 percent) for the first time in the history of the tax board. To experts, this raises hope for a post-oil life for the nation. Why this is significant is because the rise came when the economy was assumed to be contracting on account of the withering effects of the recession. More than previous administrations, the Buhari administration has taken practical steps to diversify the economy by investing heavily in social infrastructure like roads and railways with a view to promoting agriculture.
The success recorded by FIRS in the past four years is partly attributed to the automation of the processes by the management under Fowler. By simplifying the process, additional incentive has been created for taxpayers. For instance, the Integrated Tax Administration System (ITAS) has eased all core tax administrative processes including registration, filing, audit and payment. It also reduces the possibility of corruption and abuse. Gone are the days when taxpayers literally went through hell to obtain payment receipt. A number of apps now deployed ensure payment proofs are generated upon payment.
But much more innovative is VAIDS and leveraging financial intelligence to track tax-evading billionaires as well as corporate buccaneers who hide fortune in property market without paying a kobo to the country as tax.
The Voluntary Assets and Income Declaration Scheme (VAIDS) was initiated in 2016. It marked the first time in the nation’s history when “amnesty” was given to tax evaders. Individuals and corporate entities were encouraged to regularize the titles on their property or assets under an understanding that the “past is forgiven”. The whole idea is to capture more number in the tax net. Ever since, the initiative has netted hundreds of billions in revenue.
Not a few “silent billionaires” are also being dragged into the tax net, of course against their will. Indeed, it is another case of “injustice”. Whereas workers in the public sector have no choice but pay tax through PAYEE (pay as you earn), the affluent people more or less evade taxation. But the picture will certainly change in no distant time if the Fowler’s approach is sustained. As a matter of fact, one study claims that only 214 people in all of Nigeria pay more than N20 million in tax, in country that ironically boast of a vast number of the “stingingly” rich.
Through the account substitution policy, thousands of bank account with balances of between N1 billion and N5 billion were identified without their owners having TIN nor proof of filing any tax returns. FIRS thereafter engaged such individuals or corporate bodies, employing the banks as tax collection agents. The strategy has started yielding fruits.
On the other hand, FIRS’ property valuation assessment programme has been quite revealing. Findings in Abuja and Lagos indicated that almost all big property owners held their assets under company names and often never filed any return nor pay any tax. What FIRS simply did in the circumstance is to used the property valuation as the basis for best judgment principle to determine their owners’ turnover and estimate profits at 20 percent of the turnover rate, and the profits can then be taxed at the rate of 30 percent.
The exercise has already been launched in Abuja, Lagos, Oyo, Osun and Kaduna. The plan is to eventually cover all the 36 states of the federation. In Abuja, for instance, FIRS issued assessments for over 2,000 of such property. The number assessed in Lagos is over 5,000.
With all these, there is surely a lot to learn from Fowler.