Nigeria can turn the Value Added Tax (VAT) into a goldmine if its administration is decentralised, says the Report on Non-Oil Revenue Generation: Policy and Implementation Programme. The document also seeks the creation of a ministry of Taxation to plug leakages in remittances from Ministries, Departments and Agencies (MDAs), and amendment of the Fiscal Responsibility Act, among others. It can be useful in steering the economy away from its dependence on oil, if adopted. Assistant Editor CHIKODI OKEREOCHA reports.
There is no gainsaying the impact of revenue drop from the Federation Account, caused by declining oil prices on the economy. This development has been giving the three tiers of government headache as they find it difficult to finance capital and recurrent expenditures.
Nigeria got to this pass because of its age-long dependence on oil revenue despite experts’ arguments that if the country gets its tax administration right, revenue from tax alone could sustain the economy.
Interestingly, even before the sustained decline in oil prices, which started mid-June 2014, a report exclusively obtained by The Nation foresaw the crisis, and had, in anticipation of the All Progressives Congress (APC) winning the 2015 general elections, came out with robust, far-reaching recommendations on how to reform the tax system and other sources of non-oil revenue.
The report, formulated from “Policy on Revenue Generation/Finance (Non-oil) 2008, is titled: Report on Non-Oil Revenue Generation: Policy and Implementation Programme. The report is emphatic that if its recommendations are adopted, the dependence on oil money will reduce, and a substantial part of government’s revenue will come from taxation.
For a start, the document, sponsored by APC National Leader Asiwaju Bola Ahmed Tinubu, proposes a structure that will allow 91.3 per cent of the nation’s revenue to come from the non-oil sector, leaving 8.5 per cent to oil. This is, no doubt, a radical departure from the current scale that leaves the bulk of revenue to come from oil.
The report, however, is emphatic that achieving the new revenue scale is not rocket science; what is required is to decentralise the administration of Value Added Tax (VAT) so state governments will be involved in the registration and collection of VAT in collaboration with the Federal Inland Revenue Service (FIRS).
If this is done, the report says Nigeria will generate over 10 times what she is getting under the current arrangement that gives FIRS sole authority to administer VAT. It specifically says, for instance, that Nigeria can realise N560 billion monthly, on the average, from VAT, up from the current N58 billion per month. This is an equivalent of N6.7 trillion per annum at the current five per cent VAT rate.
“What the Federal Government through FIRS, the sole administrator, is generating from VAT per month is an average of N60 billion to N64 billion. But from our research, which we can back up with data, we can generate about N560 billion per month if each of the state is allowed to administer VAT,” an Accountant and Chairman of the Ad Hoc Committee for the report, Mr. Ommoba Olumuyiwa Sosanya, said, noting the economy is driven by the informal sector, which, despite constituting about 85 per cent, is not in the VAT net.
Sosonya told The Nation in an interview that decentralising VAT administration would capture the informal sector. He said most of the businesses in the informal sector were not captured under VAT because it was in the hand of FIRS.
He, however, stated that if the various State Internal Revenue Services are allowed to administer it, not only will the arrangement create employment, as more hands will be needed, non-oil revenue generation from that source will grow about 10 times what the nation is generating now.
For ease of collection and remittance, the report, according to Sosonya, introduces an innovation that will eliminate leakages and wastages that have been the bane of tax collection in the country.
He said: “With the advent of technology we are suggesting that every chargeable person, which means those who register because we want to do it to the states; the state will go about and register the shops, the women in the market, the traders because we are traders in the country.
“They will be asked to have a VAT account. As you have your bank account for your business you also open a VAT account so every day or week, as you are paying your money into the bank, the VAT collected, which is also paid into the VAT account will hit the state’s account.”
The accountant said what obtained now is that at the end of the month the FIRS will demand from each of the chargeable persons to make a return of the VAT collected, which, in most cases, is under-stated while some are not even remitted at all.
“But with our projection there will not be leakages because as you are paying your state with your bank account the five per cent, which is the VAT on it, it is paid into the VAT account, which the trader or the company cannot touch. It belongs to the state and from the states it hits the federal account,” he said.
Sosonya argued that this arrangement has become necessary because while VAT has brought fortunes to most developed countries and some African countries, such as South Africa and Ghana, “the FIRS is overwhelmed and struggling to find its bearing to turn the administration of VAT into a goldmine for Nigerians.”
Indeed, while South African Revenue Service (SARS), according to the report, realised R813.8 billion, about N12.5 trillion in the 2012/2013 fiscal year, from the country’s 40 million population, Nigeria’s FIRS realised a meagre N861 billion for 2014 from a population of 170 million.
Also, while Britain’s economy depends mainly on revenue from taxes and customs duties, the Nigerian experience is that most revenue generated allegedly end up in the private pockets of the relevant officials instead of government coffer.
Ministry of Taxation as game-changer
As part of the tax reform, the report advocates the separation of tax and other revenue generation exercises from the Ministry of Finance and the creation of a Ministry of Taxation and Revenue to handle such matters.
The ministry with a substantive minister who will be in the mould of the United Kingdom (UK)’s Secretary for Treasury. The arrangement will make room for proper fiscal transformation and effective management of taxation and other revenue generation activities.
In creating a Ministry of Taxation and Revenue, the report is not re-inventing the wheel. It points out, for instance, that it was part of the recommendations of the Dr. Pius Okigbo’s Task Force on Tax Administration in 1978, which were implemented by the Alhaji Shehu Shagari administration in 1979.
So, for four years of the Shagari administration, Nigeria had a Ministry of Taxation headed by the late Mr. Ademola Thomas was the first Minister of Taxation. He was followed by Chief Abayomi Akintola, and later his sister, Dr. Akintola.
Besides, the report notes that the Lagos State Government has been benefiting from the quadrupled increase of its Internally Generated Revenue (IGR) since the appointment of a Special Adviser on Taxation and Revenue in 2007.
“The immediate past administration of Lagos State Governor Babatunde Fashola created a department with a special adviser on taxation and revenue. While Tinubu built the revenue from N600 million to about N6billion, Fashola moved it up to N25 billion because of specialisation of having someone taking care of taxation,” Sosonya said.
He dispelled fears over possible overlap of functions between the Ministry of Taxation to be so created and the Ministry of Finance. He said under the proposed arrangement, the Ministry of Taxation at the federal and state levels would take charge of fiscal policy, while the Ministry of Finance would oversee monetary policy.
“There won’t be any overlap of functions,” he maintained, adding that “in the UK where Nigeria derived her taxation, they don’t use minister; they use secretary of treasury who is in charge of taxation.”
Plugging leakages in MDAs’ remittances is imperative
The report observes that, over the years, Ministries, Departments and Agencies (MDAs) have been in breach of Section 22 of the Fiscal Responsibility Act 2007, which allows them to generate revenue and keep 20 per cent of it and pay the balance of 80 per cent into the Federation Account at the end of the year.
Indeed, the Fiscal Responsibility Act 2007 made provisions for the return of 80 per cent of MDAs’ operating surplus to the treasury and the remaining 20 per cent to a General Reserve Fund.
Section 22 of the Act says: “(1) Notwithstanding the provisions of any written law governing the corporation, each corporation shall establish a general reserve fund and shall allocate thereto at the end of each financial year, one-fifth of its operating surplus for the year.
“(2) The balance of the operating surplus shall be paid into the Consolidated Revenue Fund of the Federal Government not later than one month following the statutory deadline for publishing each corporation’s accounts.”
But the report accuses MDAs of being in violation of this provision. It, therefore, says if the proposed amendments to the offending provisions of the law are adopted, and all the loopholes and leakages plugged for effective collection and prompt remittance to the Consolidated Revenue Fund, Nigeria will realise a minimum of N8 trillion annually from this sector of non-oil revenue generation.
The report cites the Nigerian Ports Authority (NPA), for instance, which, according to investigations by the National Assembly, generated over N548 billion in five years, but remitted a paltry N11 million into the Federation Account.
“Some MDAs even go to the Federal Government and say they don’t make money; they need money; they want subvention,” Sosonya said, describing as unfortunate the recent discovery that over N3 trillion generated by MDAs was not remitted to the Federation Account.
He, however, expressed optimism that the advent of the Treasury Single Account (TSA) will eliminate wastages and fraud. “The TSA is a wonderful idea. It is a blessing to this country. It’s going to eliminate fraud entirely.
“Take the Nigerian Maritime Administration and Safety Agency (NIMASA), for instance, that collects dollars and then pay naira to the Federal Government. But, with the TSA, that money goes into the Central Bank account,” he said.
TSA is a public accounting system using a single account, or a set of linked accounts by government to ensure all revenue receipts and payments are done through a Consolidated Revenue Account (CRA) at the Central Bank of Nigeria (CBN).
The idea is to ensure adequate monitoring of government revenue receipts and expenditures and block leakages, as no MDA is allowed to keep any operational bank account. This will ultimately entrench a regime of accountability and transparency in public fund management.
But in implementing the TSA, Sosanya suggested that there should be a policy which allows MDAs to operate quarterly budget. The arrangement, he said, will allow MDAs have certain amount that they budgeted and they cannot exceed within that quarter or period.
His words: “For the smooth running of the MDAs, there should be what we call operational budget quarterly, because right now some of them are complaining that they cannot do things because they don’t have money; they prefer the money into the commercial banks and they can draw it the way they want.”
Sosanya recommended that if this arrangement is implemented, a penalty should be introduced where, if any of the parastatals pays money into commercial banks, those commercial banks that take the money will pay double of that as penalty, while the accounting officers of those parastatals will be liable to 10 years imprisonment.
For these to happen, the report recommended that the Fiscal Responsibility Act 2007 be amended to accommodate TSA because as it is any of the parastatals could go to court. “The Act is still there, it has not been amended. That Act must be amended to accommodate TSA,” Sosanya argued.
Apparently aware that the amendment process for the Act requires amending the constitution, which might be cumbersome, Sosanya said there could be a short term measure by way of an ‘Executive Order on Fiscal Regulation on VAT Administration’, which will authorise states to administer the registration and collection of VAT in collaboration with the FIRS.
According to him, such order or action will validate all legal impediments that may result from the constitutional infringements in the mean time.
Will the report’s recommendations hit the right chord in the ears of the authorities? Sosanya said he hoped so, “because this is the best time to do it now that money is not coming from oil.”
