emerging issues in tax administration at unilag

8/3/2019 Emerging Issues in Tax Administration at Unilag

1/9

1

EMERGING ISSUES IN TAX ADMINISTRATION:THE WAY FORWARD FOR NIGERIA

BEING THE LEAD PAPER

BY

THE EXECUTIVE CHAIRMAN

FEDERAL INLAND REVENUE SERVICE &CHAIRMAN, JOINT TAX BOARD

IFUEKO OMOIGUI OKAURU, MFR

@

THE 4TH NATIONAL CONFERENCE OF THE DEPARTMENT OFFINANCE

FACULTY OF BUSINESS ADMINISTRATIONUNIVERSITY OF LAGOS

NIGERIA

12TH JULY, 2011


2/9

2

A PAPER DELIVERED BY THE EXECUTIVE CHAIRMAN FEDERAL INLANDREVENUE SERVICE (FIRS) IFUEKO OMOIGUI OKAURU ON EMERGINGISSUES IN TAX ADMI NISTRATION: THE WAY FORWARD DURING THE 4TH

NATIONAL CONFERENCE OF THE DEPT. OF FINANCE, FACULTY OFBUSINESS ADMINISTRATION, UNIVERSITY OF LAGOS ON JULY 12TH, 2011

Distinguished guests,

Ladies and Gentlemen

INTRODUCTIONIt is always with pleasure, a feeling of honour and a high sense responsibility that Ireceive invitations to speak in academic environments. This is because I believe thatthe task of Nation building can hardly be achieved if the individual is not well

equipped with a functional education that allows him or her develop the capacity toappreciate the issues involved in economic, financial and social development. Andwhat better place can there possibly be to stimulate discourse in this regard than theinstitutions of higher learning, which are the seat of knowledge and bedrock ofintellectual development? It is with that focus that I therefore approach this paper.

I have noted that the theme of this Conference is Global Economic and FinancialRecovery. While this provides a broader perspective, it may be more relevant andhelpful to our current situation, if our deliberations are focused more on Nigeria.Much as Nigeria cannot extricate itself from the global economy, I think charity

should begin at home. By that I mean that it is important that we as a Nationdevelop capacity, both human and otherwise, so that we will be better placed toaccess and utilize the benefits of being part of the global economy. Otherwise, wemay be unable to properly and effectively engage with the global economy if wehave not developed the structures and capacity that will aid in such engagement. Itis for this reason that I find the topic for this paper Emerg ing i s sues i n TaxAdm in i s t ra t i on : The w ay fo rw ard fo r N ige r i a quite relevant and timely.The stated mandate of the Department of Finance of the Faculty of Business

Administration is to promote the knowledge of and disseminate information on

banking and finance in particular and economic issues in general, as well as tocontribute to public discourse on the on-going economic and financial recovery. Itherefore believe, that this paper falls within the economic issues in general statedin the mandate. The question may however be asked as to the connection betweentax administration and economic recovery. How are these two seemingly diverseconcepts linked? I think the answer to that question is quite straight forward asthere is not only a direct, but in fact a vital connection between the economy andtaxation, whether in a stable state or in a state of recovery, especially for adeveloping nation, such as Nigerians.

The major economies of the world are built and supported by a sustainable systemof revenue generation. One major if not the major sustainable means of revenue


3/9

3

generation globally is taxation. No economy can grow without adequate resourcesfor infrastructural development and provision of power and public utilities andservices. The trend in Nigeria up till now has been an undue dependence on oilrevenue to the detriment of all other sectors including taxation. The unsustainablenature of this practice however came home very forcefully during the economic

downturn. Oil revenue accruing to the Federation was hit from two angles. Therewas the fall in international oil prices and then we had internal challenges with oilproduction, whereby our production fell below a certain level. This had had a verysignificant impact on federal revenue. For example total federally collected revenuefor the period before 2009 was as follows:

2005 2006 2007 2008

N5,619.30 trn N6,061.00 trn N5,715.50 trn N7,866.60 trn

However in 2009 when the downturn was at its peak, federally collected revenue

took a drastic fall to N4,844.6 trillion. The reason for this significant reduction infederal revenue was not farfetched. Oil prices had fallen, coupled with the fall in oilproduction. This was a painful and stark reminder that something drastic and quickhad to be done about our overdependence on oil revenue. Indeed this reduction inrevenue also spilled over to tax collection, which fell to N2,1972.6 trillion in 2009,down from a high ofN2,972.2 trillion in 2008. More significant was the decreasein petroleum profits tax (tax from oil operations) from N2,060.9 trillion in 2008 toN939 .4 tril l ion in 2009.

The above figures buttressed the absolute need for a shift from dependence on oil

revenue to other more sustainable sources of revenue, chief among which istaxation. It should be noted that even the fall in tax revenue between 2008 and2009 showed the inherent ability of the tax system to absorb such eventualities.While reduction in tax revenue in 2009 was 26.06% (N774.59 bil l ion) of 2008collection, reduction in overall federally collected revenue was 38.41% (N3.022trillion) from 2008 levels.

The conclusion is that while no source of revenue is constant, as far as our currentcircumstances dictate and the nature of our economy it is a safer bet to rely ontaxation as a source of revenue for growth and to stimulate development rather than

on revenue derived from exploitation of a resource over which we have little or nocontrol. As stated a proven alternative, such as taxation, over which we havegreater control and whose impact on our socio-economic development we candetermine, will serve better, both in the long and short run

EMERGING ISSUES IN TAX ADMINI STRATION

This brings me to crux of this paper, which is emerging issues in tax administrationin Nigeria. As a first step, let me correct the widely held but erroneous view that taxadministration is the concern of only tax authorities or those who are in one way orthe other connected with administering the tax system in Nigeria. Such a position is

borne out of the misconception that taxation is an imposition maintained only for thebenefit of Government or those who administer the taxes collected. This is wide off


4/9

4

the mark, as tax administration / tax system encompasses those persons, agencies,institutions (in the public and private sector) and the processes involved in:

tax legislation; administration / enforcement of tax laws; collection, allocation, distribution and expenditure of tax revenue; and other ancillary matters related to the effective and efficient performance of tax

functions and the tax system.

The very nature of taxation requires participation by several parties, including thosewho are being taxed (taxpayer), those collecting the tax (tax authorities), those whoutilize the tax (Government ministries department, agencies etc), those who createthe laws on the basis of which the tax is collected (legislature) and ultimately thoseon whose behalf the tax is collected and for whose benefit is it utilized (the entirecitizenry).

The pyramid below illustrates the all encompassing nature of the tax system

As can be seen from the pyramid, we have at the top the President and StateGovernors who are expected to give overall direction in the tax system, next are taxauthorities and support agencies who are involved in the day to day administrationof the tax system. After this, we have various other components, such as theMinistry of Finance, which oversees tax policy, the National Assembly which makes

and amends tax legislation, the Judiciary which interprets tax laws and resolves tax


5/9

5

disputes, down to education and academic institutions, tax consultants, taxpayers,the media and civil society.

What this illustrates is a tax system, which requires the participation andcontribution of all. In this light, it means that the emerging issues, which we shall

discuss are really emerging issues for all of us and which we all have a responsibilityto implement.

I will discuss these emerging issues under three broad headings namely:

Policy issues Legal issues; and Operational issuesPolicy Issues

The approval of the National Tax Policy by the Federal Executive Council and itsfurther ratification by the National Economic Council in 2010 introduced a newdimension to tax policy in Nigeria. Hitherto, there was no single document, whichlaid down a definite policy direction for taxation in Nigeria. The introduction of theNational Tax Policy has therefore created for the first time in the history on Nigeria apolicy direction, which tax authorities and other stakeholders in the tax system aresupposed to adhere to. Amongst the several policy directions set out in the NTP arethe following which impact tax administration in Nigeria:

(i) Taxation as a Tool for Wealth Creation and Employment - This entailsthe use of taxation as a tool to create wealth in the economy and provideemployment opportunities. As an emerging issue in tax administration ittherefore entails that taxation is utilized to provide conditions which willenable increased economic activities that will create wealth, jobs andultimately attract domestic and foreign investment in the economy. In thisregard, revenue from taxation should be applied in a manner that will ensurethat taxation is not an end in itself, but a means to achieving the various endswhich Government commits to provide and which taxpayers and the entirecitizenry expect from Government.

(ii) Shift from Direct to Indirect Taxation for Economic Growth Thisentails a deliberate shift from over reliance on direct (income) taxes, whichare usually imposed a small number of taxpayers to indirect taxes (valueadded tax and other transactional taxes), which are usually consumptionbased and affect a larger number and have a greater potential for bringingmore tax at a lower cost.

(iii) Use of Technology in Tax Administration This is a major issue in taxadministration and one which has the potential to change the face of taxadministration in Nigeria. Technology, the automation of tax systems,procedures and processes and the use of electronic platforms is the future of

tax administration in Nigeria. If properly used and utilized it not only has theability to significantly improve tax collection in Nigeria, it also has the ability to


6/9

6

minimize if not eradicate leakages of tax revenue and other unethicalpractices. In the FIRS several technology based initiatives have beenimplemented in the last six to seven years, which have yielded significantdividends in improved tax collection, increased taxpayer confidence in the taxsystem, increased efficiency in tax operations and reduction in leakages etc

(iv) Institutionalizing a Tax Culture in N igeria This is a necessity if we areto build a tax system which is the pivot of National Development in Nigeria.There is a need to create a tax culture in Nigeria, such that taxation resonatesin every sphere of life in Nigeria. There is a need to build system wheretaxation is central to everything we do and is placed on a pedestal. This willelevate the status of taxation and ensure that tax revenue becomes a majortax earner for the country and ultimately enable us move away from anunhealthy dependence on oil revenue.

(v) Accountability for Tax and Other Revenue collected This is the endstage of tax administration where taxes have been assessed, collected,disbursed and expended. There is a need to create a continuous value chainso that taxpayers can monitor the uses to which tax revenue has been put.Where taxpayers can see that tax revenue is used for their ultimate benefit itincreases compliance rates, improves taxpayer confidence and creates abetter relationship between tax authority and the taxpayer.

Legal IssuesWhile there are significant legal issues impacting tax administration in Nigeria today,

I will discuss only three major ones as follows:

(i) Need to strengthen Constitutional Provisions relating to taxationand the tax system The Nigerian Constitution sets out some basicprovisions relating to the tax system and tax administration in Nigeria. Thereare however several challenges in the tax system, which can be resolved bythe enactment of explicit Constitutional provisions on such matters. TheConstitution in some instances does not set out provisions, which are detailedor elaborate enough to deal with the dynamic and ever changingcircumstances that we face in our tax system. Accordingly it is a priority toensure relevant amendments to the Constitution, which will cater for thesematters and resolve issues, such as jurisdiction over certain taxes, legislativepowers over taxation and need to make tax compliance a major criterion forholding public office in Nigeria amongst others.

(ii) Resolution of tax disputes Nigerian tax laws provide various mechanismsfor the resolution of tax and other fiscal disputes or disagreements as theyarise. However, over the years, we have seen increasing tendency to resort toself help in the resolution of disputes and disagreements. This has led toprevalence of issues such as multiple taxation, use of unorthodox or illegalmethods for the collection of taxes, engagement and use of third parties in

core tax administration and the like. There is therefore an urgent need to putin place a system for the speedy and impartial resolution of all tax related


7/9

7

disputes arising in the system as a means of dealing with increasing resort toself help. This will help bring certainty to tax administration and improveconfidence in the tax system by all stakeholders.

(iii) Regular amendment of tax laws to strengthen tax administration Prior to 2007, when the wholesale review and amendment of several tax lawswere carried out, the last such exercise had occurred in 1993, nearly a decadeand a half ago. The 2007 review showed the necessity for carrying outregular reviews and amendment of tax laws to ensure that they areresponsive to changing circumstances and also to remove obsolete andoutdated provisions therein. Following from that there is now a new drive tonot only ensure regular review of tax laws but to move towards plain Englishin drafting them, so that they can be read and understood by all. This impactsthe ability of tax authorities to implement and administer tax laws and alsocreates certainty in the meaning and interpretation of tax laws.

Operational IssuesThere are several operational issues that impact tax administration, some of whichhave been covered above and which cut across policy, legal and operational fields.In the emerging system of tax administration which is being implemented, severalinitiatives are at various stages of consideration and implementation by the FIRS.These include:

(i) Modernization of tax administration this includes automation,introduction of electronic processes and tailored made projects to address

specified areas of the tax system such as: Project FACT (Factual Accurate Complete Timely) - an integrated

electronic system of tax registration, tax payment and accounting whichhas been concluded

U-TIN (Unique Taxpayer Identification Number) Project being overseenby the Joint Tax Board and funded by FG/ States, it is an electronicsystem of tax identification, involving the assignment of a uniqueidentifier to every taxable person in Nigeria and development of NationalTax Database linking all revenue authorities and major stakeholders

ITAS (Integrated System of Tax Administration) includes, BusinessProcess Reengineering, Systems Development, Change Management andautomation of Finance and Accounts Function

HR Reengineering and Automation Finance and Accounts Reengineering and Automation Reengineering of Facility Management and Procurement E Library and E Learning Tax clearance verification Tax Refund Application Software Contact Management Centre Electronic Platform for automatic tax payments Electronic Platform for Mobile Banking and Electronic Payments Several others


8/9

8

It should be noted that modernisation is cost intensive and there is a need forsustained funding of tax authorities if we are to have a truly modern taxsystem.

(ii) Taxpayer segmentation delineation of taxpayers into groups based onspecific criteria, such as small and medium taxpayers, large taxpayers, oil andgas etc for increased efficiency and to achieve greater specialization in taxadministration.

(iii) Diversification of revenue sources from oil to taxation as earlierdiscussed thus is a major initiative of the government and it implementationhas seen the FIRS bring down the percentage of oil taxes in relation to totaltax collection from a high of77.6% in 2005 to an all time low of42.7% in2009. Even though this figure climbed up to 52.14% in 2010, thecommitment and focus shown in addressing this issue provides significant

assurance that Government is moving in the right direction. This is also inline with the National Tax Policy and is no more a clich, but a major policyinitiative of Government. Let me state that there is nothing wrong withraising revenue from oil taxes; it should however be done in a balancedmanner to ensure that we do not focus on a depleting resource to the neglectof more sustainable revenue sources such as taxation.

(iv) Increased collaboration with Stakeholders as illustrated in thepyramid above, the tax system is a participatory one and therefore to achievesuccess there is need for increased horizontal and vertical collaboration with

stakeholders if tax authorities are to achieve the stated goals of the taxsystem. There has been focused co-operation with several stakeholder bodies,such as the Nigeria Governors Forum, NASS, Joint Tax Board and evenexternal bodies, such as the United Nations, IMF, OECD and regional andInternational tax organisations.

Some of the collaborative activities have been discussed above. Others whichare ongoing include: Government Integrated Financial Management system (GIFIMIS) with

Office of the Accountant General of the Federation Data Connectivity with

(a) Corporate Affairs Commission (CAC)(b) Nigeria Customs Service (NCS)

FIRS-Nigerian Information Technology Development Agency (NITDA)Collaboration

(v) Development of a comprehensive compliance and enforcementstrategy to support core tax adm inistration tax administration as weknow depends on compliance with laws. This is however not alwaysachievable for diverse reasons and when voluntary compliance is notachieved, there may be a need to employ enforced compliance. In this

regard the FIRS is currently engaged in the development of a comprehensivecompliance and enforcement strategy to aid ease of compliance. On the


9/9

9

other hand the enforcement strategy is to cater for failure of voluntarycompliance by taxpayers. Some of the ongoing initiatives in this regard,include the introduction of a comprehensive Self Assessment Regime and thedevelopment and implementation of an Enforcement Manual, which detailsenforcement processes and procedures.

THE WAY FORW ARD AND CONCLUSION

All the above initiatives, projects and other interventions in the tax system can onlyyield the desired results, where there is clear and stated support for tax authoritiesfrom the highest to the lowest levels of Government and also from a critical mass ofthe citizenry. As stated earlier, the tax system is owned by and operated for thebenefit of everyone; accordingly all hands must be on deck to enable tax authoritiessucceed in their duty of administering the tax system.

Therefore I ask you to consider what your part is in the grand scheme. Theminimum that is required of you is to pay your taxes promptly and correctly. Whena taxpayer voluntarily steps out to pay his/her taxes in fulfillment of his legal andcivic obligations and responsibility he/she, as a patriot is making a contribution tonational development. More than a mere act of physical compliance, it is a portrayalof an attitude, a much needed mindset that shows a willingness to voluntarilycontribute to the development of the country. This type of spirit should beencouraged and replicated within the relevant sectors of the economy as it can serveas the foundation of a silent revolution to create a disciplined, patriotic citizenry,which puts country first and is first willing to do for the country, before asking

what the country can do. There can be no greater vehicle for the achievement ofthe much needed economic and financial wellbeing than persons who are willing tovoluntarily make the required sacrifice for the achievement of that vision even if thatwill entail standing alone.There is no gainsaying the fact that if our economy will develop we absolutely musthave a vibrant tax regime. We simply cannot eat our (national) cake and have it; theeconomies we look to as examples of where we want to be did not get there withoutthe often sacrificial co-operation of its populace specifically in paying their taxes.Why do we hope to get to where they are without doing what they did? In thewords of the philosopher Herman Von Helmholtz, he cannot hope to arrive at theend whom did not begin at the beginning.

Overall, my point is that tax payers should see themselves as part and parcel of theNigerian tax system and not outsiders and therefore carry out their constitutionaland civic roles through payment of the right taxes, as their contribution to nationaldevelopment and growth. This in essence is the path to economic and financialrecovery which if we follow with sincerity and passion, will enable us look forward tothe future with hope.

Thank you all for listening. God bless Nigeria.

emerging issues in tax administration at unilag

Documents