Tax harmonization and prospects for the Nigerian Economy

By Kelechi Okoronkwo

To harmonize means to produce a pleasing combination; the way it happens in music production. Different sounds and notes are blended to produce harmony; and that is when a musical piece is pleasing. For taxation to be pleasing, there is need to harmonise the tax system.

The above analogy was the opening note of Mrs. Ifueko Omoigui Okauru, a former Executive Chairman of the Federal Inland Revenue Service (FIRS) as she moderated a panel discussion on the theme, Tax Harmonisation for Enhanced Revenue Generation during the second National Tax Dialogue at the Presidential Villa, Abuja recently.The panel discussion threw the reality on our faces—despite the level of one’s optimism, the fact remains that taxation in Nigeria is not pleasing, currently.

A single country which has 774 Local Government tax committees, 38 tax authorities and multiple tax laws is far from having a pleasing tax system. The good news is that the Second National Tax Dialogue, hosted by the Federal Inland Revenue Service, began leading on a national scale, discussions with critical stakeholders at various levels to ensure that soon, Nigeria’s tax system would be properly harmonised and ultimately become pleasing.

The FIRS used the huge platform provided by the tax dialogue held on March 29, 2022 to draw attention to the need for tax harmonisation in Nigeria. It is also gratifying to note that key stakeholders at the event were in tune with the reality and pointed the way forward for tax harmonization in Nigeria.

President Muhammadu Buhari, who declared the dialogue open noted that Nigeria’s current tax system is characterised by fragmented administration, and multiple (and sometimes, overlapping) taxes, saying that most tax-efficient nations, tax administrative processes and practices are harmonised within a single system. He stated that one key deliverable of this year’s tax dialogue is to promote synergy in tax administration among the different tiers of government.

Hear him: “Harmonising taxpayer identification across the country is a good start; but we must do more to promote ease of doing business (including ease of tax compliance) in Nigeria. On our part, we have started by clarifying in the 2021 Finance Act that FIRS is the sole authority to administer tax for the Federal Government. This clarification became necessary in order to avoid taxpayers being burdened with multiple tax compliance obligations towards different agencies of the same government.

Multiplicity of tax administration is as undesirable as multiplicity of taxes; it creates uncertainty and instability; and above all, it is inefficient”.Making reference to the 2021 Revenue Statistics in Africa, a report by the Organisation for Economic Cooperation and Development (OECD), President Buhari noted that the average ratio of Tax-to-GDP of 30 selected African countries in 2019 was 16.6% while Nigeria recorded a mere 6.0%.“It is obvious that much needs to be done in the area of tax revenue mobilisation. It is my expectation that the discussions at this 2022 National Tax Dialogue will be focused on what we must do to maximise legitimate revenue collection and massively improve the Tax-to-GDP ratio. We all know that good intentions are not enough as they simply cannot pay for infrastructure, security or social amenities. We must therefore improve tax revenue without necessarily raising new taxes. Revenue from commodities, including crude oil, are too volatile and unreliable.

Therefore, I pledge government’s support for any viable initiative for improving tax revenue that should emanate from this dialogue”, the President said.The Minister of Finance, Budget and National Planning noted that for the Federal Government to achieve its tax objectives it needs to rethink the current tax system. “We must rethink the current fragmented tax system and harmonise same. The tax policy, legislation and administrative practices at all levels must function as one indivisible whole.

For example, a harmonised taxpayer registration will ensure that no taxpayer can hide from the relevant tax authority. We have observed that countries having lower economy and fewer tax base but streamlined tax administration has fared much better than Nigeria in terms of tax revenue collection; and ratio of tax-to-GDP.

The goal for this year’s National Tax Dialogue is, therefore, to kick-start the discussion for the harmonisation of the fragmented tax systems into a coherent whole for improved tax revenue collection for all the governments in the Federation”, she said.For the Executive Chairman of FIRS, Muhammad Nami, harmonisation of the Nigeria’s tax system is long overdue. He noted that fragmented tax system provided loopholes in the system, causing the country to lose trillions of tax revenue.

“This discussion is imperative in view of the fact that despite our 38 tax authorities, several tax laws and numerous taxes or levies, majority of the taxpaying public still remain outside the tax net. The tax-dodgers found it convenient to meander among the competing revenue agencies escaping their tax obligations.

The result is suboptimal revenue generation at all tiers of government. It is our expectation that this second edition of the Tax Dialogue will achieve a lot more for tax administration in Nigeria. We thank the President for his continued support towards making taxation the pivot of development and economic growth in Nigeria. We equally thank the Honourable Minister of Finance, Budget and National Planning, Mrs. Zainab Shamsuna Ahmed and her team, the legislators, ministries, departments and agencies of government, who have been of great support to the Service”, Nami said.

Other distinguished speakers at the dialogue who threw weight behind harmonisation of Nigeria’s tax system included the Minister of State, Finance, Budget and National Planning, Prince Clement Agba, the Governor, Central Bank of Nigeria (CBN), Godwin Emefiele and the Ooni of Ife, Oba Adeyeye Enitan Ogunwusi.Other knowledgeable personalities who led the discussion from the panel were a member of FIRS Board, Mrs. Adetola Aigbangbe, PwC Africa Tax leader and thematic lead, National Economic Summit Group Taxation and Public Finance Policy Commission, Taiwo Oyedele, Commissioner for Finance and Coordinating Economy, Imo State, Dr. (Mrs) Doris Uzoka-Anite, the Executive Chairman, Kaduna State Internal Revenue Service, Dr. Zaid Abubarkar and the FIRS Group Lead, Special Tax Operations Group, Matthew Gbonjubola. The success of the first National Tax Dialogue in 2021 on the theme, Taxation in a Post-COVID Economy, which highlighted the importance of tax automation in Nigeria, brought about massive improvement in automation in Nigeria’s tax system. The result was evident on the revenue performance of the FIRS in 2021.

Testifying to this, Nami said: “2021 was a year that the whole world continued to battle a devastating global pandemic which affected economic growth and disrupted business; yet, the FIRS was able to record an unprecedented feat in tax revenue generation. The Service surpassed its target and collected N6.4 trillion, the highest collection ever in the history of the FIRS.

This feat was largely made possible by the cooperation of all stakeholders and use of technology which anchored our operations. Our tax system can do much more provided policies, laws, administrative processes and practices are harmonised to function as one”, he said.The FIRS boss, recalled that FIRS alone contributed 59.45 percent of revenues shared among the three tiers of government by the Federation Accounts Allocation Committee (FAAC) in March, 2022.“Permit me to quickly illustrate this with statistics from March 2022 FAAC meeting: Total revenue from all revenue agencies stood at N803.072 billion. Of that amount, tax revenue contributed by FIRS alone stood at N513.522 billion (63.94%); Non-tax revenue (from all other agencies) stood at N289.55 billion (36.06%). Mr. President may note that average tax or FIRS contribution to FAAC in 2021 was 59.45%. Mr President, this trend is set to continue for some time to come.

As such, all hands must be on deck to support the tax system and make it function efficiently”, Nami said. The success of the second National Tax Dialogue signals an era of tax harmonisation in Nigeria; an era with promises of economic prosperity for Nigeria. The FIRS hopes to meet and possibly surpass its N10.1trilion revenue target by the end of 2022.Kelechi Okoronkwo is a technical staff to the FIRS Executive Chairman.