GOING by the poor tax receipts in 2016, the Federal Government’s ability to execute key projects and programmes in the 2017 budget may run into a storm. This is because, out of the projected tax revenue of N5 trillion expected from the Federal Inland Revenue Service (FIRS) for last year, only N1.2trn was realised as at December 31, 2016. This is a shortfall of N3.8trn, a 12-year low. This figure is only marginally higher than that of 2004, when the FIRS raised N1.194trn.
In addition to the falling tax revenue, the Federal Government recently disclosed that it recorded only N398bn Internally Generated Revenue (IGR) last year, out of the projected N1.506 trn. This implies a shortfall of N1.1trn. Of the amount, oil revenue contributed only N167bn.
Although the FIRS Chairman, Babatunde Fowler, explained that the total collected revenue would be close to N3.3trn when other sources of revenue come in, figures from the Nigeria Customs Service (NCS) show that it generated N898bn (including Value Added Tax) in 2016, out of the N1trn projected. This has been blamed on smuggling at the nation’s points of entry and declining imports. This could threaten the agency’s N1.1trn target this year.
Highlights of the total revenue as at December last year show that N299.8bn was collected as Company Income Tax (CIT). This is a far cry from the N867bn projected in the budget. The ongoing recession has reportedly forced government to scale back CIT budget for 2017 to N808bn, which is a seven percent cut. Worse still, out of the N1.2trn tax revenue, N482bn reportedly went to tax consultants.
This comprised of N362.19 million and N120.73m, representing 15 percent for the collecting banks and 10 percent paid to InterSwitch, an integrated digital financial consulting firm. Though the slump in the tax revenues is partly due to the current recession, and fueled by the continuing fluctuations in the international oil market, government must seek new sources of revenue and renewed strategies to invigorate the tax system. Nigeria recorded the highest tax revenue of N5trn in 2012.
The sharp drop in tax revenue presents a fresh challenge to the FIRS, which plans to raise N5.2bn this year from 10 million new taxpayers. This is in addition to 700,000 firms the agency says it has identified to be tax dodgers and determined to bring into the tax net. Undoubtedly, the declining tax returns do not bode well for the economy. At the moment, Nigeria’s tax revenue ratio to Gross Domestic Product (GDP) is six percent, making it the poorest in Africa.
The statistics also show that the machinery for tax administration and collection is not functioning properly. For instance, Ghana and Cote d’Ivoire, two ECOWAS countries, have tax to GDP ratio of 20.8 percent and 15.3 percent respectively. Egypt and South Africa have 15.8 percent and 26.9 percent. At this time that government needs a lot of money for critical projects and programmes, tougher and more effective enforcement activities have become necessary, especially on the wealthy. A study commissioned a few years ago by the FIRS and the Joint Tax Board (JTB) revealed that only 40 percent the very wealthy in the country pay correct taxes on their income.
This implies a disturbing tax evasion and under-payment rate
among the group of “super-rich” Nigerians. The report also shows that among those in the informal sector, particularly small businesses, payment of tax is almost non-existent. A way forward is to broaden the tax net nationwide, tighten border security to check smuggling, enforce all relevant rules to check tax evasion, and plug all the ways in which importers evade payment of import duties. It is heartening, however, that Lagos State IGR is favourably competing with that of the Federal government.
With IGR of N268bn in 2016, Lagos generates more money than 32 states combined. This is the feat that Mr. Fowler performed in Lagos State. He increased the state’s monthly tax revenue by 70 percent within four years, and earned himself his present post as FIRS boss. He should repeat this feat at the federal level.
Tax officials need to be motivated and dutifully rewarded. This is necessary to discourage them from colluding with tax dodgers. Overall, Nigerians want to see the dividends of the taxes they pay to encourage them to stop tax evasion.