CHALLENGES OF TAX ADMINISTRATION IN NIGERIA
Iember Margaret Tivlumun ACA, NIM (chartered)
Finance/Tax Analyst/Social worker
07061283168, iembertivlumun@gmail.com
The impact of information and communication technology on sectors such as transportation, communication, entertainment, education, banking, hospitality and health care, etc, is undeniable. The upsides of yielding to automation, leveraging ever small innovative gadgets and more efficient applications in the above areas far outweigh the attendant social ills. We are indeed in a privileged era where technology keeps simplifying hitherto grueling tasks or making near impossible assignments possible. In the area of tax administration, most developed countries have recorded significant mileage in tax collection by automation and leveraging appropriate applications to; Non availability of tax statistics, inability to prioritize tax effort, Poor Tax Administration, Regulatory Challenges, Identify tax payers, Obtain financial information and , Ensure taxes are paid to the treasury, Corruption.
Non availability of Tax Statistics: Taxation has been the oldest government activity since the country’s unification in 1914, so one would expect tax statistics to be readily available. This expectation, however, is misplaced. With the exception of Lagos and to some extent Kaduna and the Nigeria Customs Services, agencies of the states and relevant federal tax offices have serious failures in data management. Moreover, there are no efforts to have the limited data that are available collated or analyzed on a routine basis, not to mention, having it stored, or made more easily assessable or retrievable. This situation does not provide much input to policy process.
Inability to Prioritize Tax Effort: The political economy of revenue allocation in Nigeria does not prioritize tax efforts. It is, instead, anchored on such factors as equality of states (40 percent), pollution (30percent) landmass and terrain (10percent), social development needs (10 percent), and internal revenue effort (10percent). The approach, discourages a proactive revenue drive, particularly for internally generated revenue, makes all government tiers heavily reliant on unstable oil revenues which are affected by the volatility of the international oil markets. Aside from the national syndrome of ‘national cake sharing’, the instability and volatility of oil revenue should have created an opportunity for improved tax efforts within the provisions on taxation ratified in the Constitution of the Federal Republic of Nigeria 1999 as amended and other legislations of tax administration in Nigeria like the Companies Income Tax Act, CapC21, LFN , 2004 as amended, Value Added Tax Cap, VI ,LFN, 2004, Personal Income Tax Act, Cap P8 , LFN, 2004 as amended, Stamp Duties Act, Cap, S8, LFN,2004 etc . Although some state governments have initiated measures to enhance their tax generation attempts, the outcome has not reflected any level of serious effort.
Poor Tax Administrators: Tax administration and individual agencies suffer from limitations in manpower, money, tools and machinery such as necessary Information and Communication Technology Manpower to meet the ever increasing challenges. In fact, the negative attitude of most tax collectors toward taxpayers can be linked to poor remuneration and motivation. This paucity administrative capacity is a major barrier to the government in its attempts to raise revenue in Nigeria. As of March 2003, the federal Inland Revenue service (FIRS) had 7,643 staff members throughout the country; of these a mere 12.6 percent, or 645 employees, were tax professionals/officers. The predominance of support staff in a professionally inclined agency like the FIRS does not augur well for the country. The situation at the local government level is more precarious. Reliable evidence shows that staffs are not provided with regular training to keep them abreast of developments in tax related matters. This makes the administration of taxes in terms of total coverage and accurate assessment very weak.
Regulatory Challenges: Political risk and exchange controls pose by far some of the greatest business and regulatory challenges for companies doing business in Nigeria. Also company law, protection of intellectual property is challenging areas for companies. Protecting your investment and workforce, being able to extract profits and freely move the workface are often taken for granted when investing in first world countries. Not so in Africa and Nigeria in particular, where the possibility of forfeiture of businesses is eminent.
Corruption: Corruption is prevalent in the administration of taxes and duties. Until very recently, it was common place to collect tax payments partly on behalf of one’s self and partly for the government. Evaders prefer to bribe officials rather than pay taxes. Tax assessors collude with taxpayers, particularly with regard to the Personal Income Tax (PIT), or in some cases, in connection with the assessment. The multiple processes of clearing imports are not only a source of administrative delay, but also an avenue for entrenching corruption. This is further compounded by the pilferage of goods at Port as CITN notes, ‘governments in Nigeria are perceived as a corrupt and selfish lot, to whom money should not ever be voluntarily given, taxes paid are expect to end in private pocket, not in public utilities’. This attitude has eroded tax consciousness on the part of Nigerians. Although some progress has been made by the present administration, there is still room for improvement. Nevertheless, with the introduction of the Treasury Single Account, the situation has improved. However, even with the TSA in operation, a few private individuals fortunate to the corridors of power are still syphoning these monies through contracts.
It is important to note that in Nigeria the administration of taxes has been beset with problems, namely:
(i) Tax evasion and avoidance
(ii) Inadequate funding for the revenue services
(iii) Limited or lack of independence of revenue services
(iv) The lack of the VAT tribunal, as recommended under VAT Act Decree No. 102 of 1993
(v) Proposals by some state governments (e.g. Lagos) to re-introduce sale tax
(vi) Practical problems related to the implementation of VAT’s dual elements (input and output)
The failure of the three tiers of government to provide social amenities affects tax compliance. Some local governments are having difficulties in paying salaries, not to mention funding development projects. To many taxpayers, the fundamental principle of government and the moral obligation to pay taxes have been defeated
There is an urgent need to make a bold play and raise the anté in the process of fast tracking the transition or migration of the systemic processes of tax authorities to appropriate application platforms that will deliver solutions in identifying and capturing all taxable persons outside the tax net. No doubt, tax authorities especially the FIRS have taken certain steps to automate and engage technology and its applications in the tax administrative process. Nevertheless, more needs to be done.
