Strengthening the Nigerian tax system through

Through Amaechi Ogbonna

Despite Being the largest economy in mainland Africa, Nigeria still carries the unpleasant label of being one of the countries with the lowest tax to GDP ratio.

The tax-to-GDP ratio, which is the ratio of a country’s tax revenue to its gross domestic product (GDP), is indeed a measure of the quality with which a government manages its national economic resources at any given time for the good of its citizens.

According to the World Bank standard, tax revenue above 15% of a country’s Gross Domestic Product (GDP) is a key ingredient for economic growth and poverty reduction, hence the need for governments to ensure its consistent development.

Therefore, this implies that a nation with higher tax revenues will be able to spend more on improving infrastructure, health and education, which are essential elements of long-term development prospects for the economy and his population.

It is in this context that the Executive Chairman of the Inland Revenue Service (FIRS), Mr. Mohammad Nami, has pleaded for an improvement in the processes adopted in the calculation of Nigeria’s tax-to-gross domestic product (GDP) ratio, currently estimated at around 6% in order to capture not only federal government taxes, but also those paid in state and local governments across the country.

At a recent symposium on “Taxation and Challenges of External Shocks: Lessons and Policy Options for Nigeria”, organized by FIRS in collaboration with Usmanu Danfodiyo University, Sokoto (UDUS), the head of FIRS underlined the need for aggregation of all income. generated at the national and sub-national levels so that the country can have more money to fund its obligations to the citizens.

According to him, a meager 6% annual tax on GDP will certainly not guarantee the adequate resources required by the government to meet the basic needs of its people.

For the Nigerian state which must muster all the necessary financial resources to tackle its huge gas infrastructure, increasing its tax revenue to the base of GDP could not have been more appropriate than now that the pandemic of COVID-19 has rendered the operations of various organizations already in place. the country’s tax net is more prostrate and with varying degrees of depreciation of critical assets.

These deteriorations were largely caused by the multiple global shutdowns and in some cases national shutdowns coupled with the decline in consumer purchasing power following the various waves of the pandemic.

Speaking earlier at the “Public Presentation and Breakdown of Highlights of the Appropriation Bill 2022”, Nami, lamented that Nigeria has only 41 million tax payers among its 200 million population, and hence earns less than its counterparts across Africa thanks to the personal income tax (PIT).

“If you also compare that with South Africa, which has a total population of around 60 million, with only four million taxpayers, the total personal income tax paid in South Africa last year was about 13 trillion naira, you can see these things are not adding up.

So if we don’t pay these taxes, there is no way for our government to provide the social amenities and critical infrastructure necessary for the well-being of the country,” he said.

But still undeterred by these challenges, the Federal Inland Revenue Service (FIRS) continued to pursue initiatives that would help achieve its mandate of raising revenue from various sources to ensure they are available for the government federal government performs its obligations to Nigerian citizens. . It does this through deliberate efforts to widen the tax net to accommodate more taxpayers.

For example, the agency has remained relentless in its drive to improve processes and procedures, including tax education, compliance enforcement, legislation and enlightenment, among others, which have recently begun to have an impact on its results.

Despite an ongoing legal struggle with some sub-nationals over VAT collection, there are strong indications to suggest that the various FIRS clarification initiatives have begun to create better business process improvements that support faster resolution of disputes. disputes between its stakeholders.

Last year, for example, the country’s premier revenue collection agency raked in a whopping N6.4 trillion naira in revenue.

The year’s revenue collection surpassed the 5.3 trillion naira it raised in 2019, described as the highest in its history amid the collateral consequences of a global pandemic.

However, when last June, the Minister of Finance, Budget and National Planning, Mrs. Zainab Shamsuna Ahmed, approved the Tax Appeals Tribunal (TAT) Rules (Procedure) 2021 under her powers in under section 61 of the Federal Inland Revenue Service (Establishment Act 2007 (as amended),

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the rules, to replace the old TAT (procedure) rules of 2010, should enable the Tribunal to deal fairly, equitably and expeditiously with appeals which encourage and promote the resolution of disputes between the parties.

Other sections of the rule require taxpayers to post 50% of any disputed amount to a designated TAT account as security to pursue an appeal, before appeals begin.

It also involves the modification of certain old definitions and the interpretation of additional terms such as “appeal”, “notice of appeal”, “decision of the Court”, recognition of the service of documents or proceedings carried out by electronic mail or any other electronic means as the court may permit; and recognition of virtual/remote hearing of motions and delivery of decisions by the Tribunal.

It also included the introduction of a six-month time limit from the start date of the trial for the TAT to conclude and render a decision; and provisions relating to the hearing of ex parte and non-contentious motions before the chambers as well as the summary appeal procedure for liquidated claims for money.

Although the 2010 TAT (procedure) rules are effectively superseded, they allow “anything done” under the old 2010 rules to remain valid, so long as it complies with the provisions of the new rules, thus taking preeminence over existing rules. important and ensure a smooth transition.

The law was approved in line with the government’s efforts to help the country’s tax authorities and other stakeholders conduct their business in accordance with the modern global tax system to ensure a fair and transparent tax dispute resolution mechanism.

Indeed, these rules which effectively replaced the 2010 rules are intended to guide the practice and procedure of Tax Appeals Tribunal (TAT) proceedings.

Part of these measures were intended to enable the Tribunal to deal fairly, equitably and expeditiously with appeals that promote the resolution of disputes between the parties.

Also highlighted in the document include include; acknowledgment of service of documents or proceedings effected by electronic mail or any other electronic means authorized by the Court; recognition of virtual/remote hearing of motions and delivery of Tribunal decisions; introduction of a six-month time limit from the start date of the trial for the TAT to conclude and render a decision and Provisions for the hearing of ex parte and non-contentious applications in the chambers as well as the summary appeal procedure for settled payment requests.

Stakeholder reactions

However, since that enactment, various stakeholders have continued to comment on the implications of the new tax rule and provisions with KPMG Partner and Head, Tax and Personnel Regulation, Wole Obayomi, arguing that the implementation of the new rules emphasizes the federal government’s commitment to improving Nigeria’s fiscal landscape, which began with the enactment of the Finance Acts 2019 and 2020.

According to him, the amendments to the rules of the TAT (procedure), which is the initial forum for formal tax arbitration in Nigeria, align with the changes in the global systems of tax administration and ensure that the procedures of the TAT are at to give taxpayers greater confidence in the system.

The role of tax commissioners is not that of “judges” in the constitutional sense and therefore, rather than becoming part of the judiciary, the TAT should be preparatory and complementary to the formal judicial system. Therefore, the changes could reignite challenges over the legality of the TAT and its encroachment on the constitutional domain of the Federal High Court on tax and tax matters.

For their part, PwC analysts noted that: “The new procedures came into effect on June 10, 2021, but taxpayers generally became aware of them at the end of September 2021. The rules are intended to make the TAT more efficient in the dispensation of Justice.

“They also reflect current realities given the widespread adoption of technology in the administration of justice. With the power to order costs, the TAT now has the power to penalize offending parties for lack of professionalism and unnecessary delays.

Also commenting on the ongoing scenario, Ernst & Young Nigeria, argued that the enactment of the rules by the Federal Government is commendable as it seeks to amend some old definitions to clarify certain terms and processes, and further introduce certain provisions, such such as electronic applications, virtual hearings, delivery of decisions, among others, to align with current realities.

However, he argued that certain provisions of the Rules, in particular the payment of 50% of the disputed amount before lodging an appeal, may discourage aggrieved persons who would normally have wanted to bring an appeal against a decision or an assessment, in particular when these people are not financially able to pay this amount.

Therefore, he urged the Minister to review the rules to ensure his objectives are met.

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