Paper 4 Arishe

THE NIGERIAN TAX SYSTEM: ITS FORM AND IMPORTANCE

ABSTRACT

Taxation is hailed as the most important sinew of a nation’s economy. This is because it is a tool that can be put to multiple uses. What is also a known fact is that without a well structured tax system that takes into cognisance the peculiarity of the state, achieving the foregoing is akin to chasing a mirage and putting in place a system with a high nuisance value. The prevention of the foregoing is the foundation of the changes taking place in the Nigerian tax system. Currently, the Nigerian tax system is being re – engineered to bring about a virile instrument which is capable of driving development in the state.

1. INTRODUCTION

Nigeria is a federation and its government is multi – tiered. This means that there is a division of

power between the tiers.1 This division is evident in the Nigerian tax system. The CFRN 1999 vests

in the different tiers of government the power to tax within their scope of influence. Second

Schedule, Part I, CFRN 1999 vests in the Federal Government (FG), to the exclusion of the other

tiers of government, the power to control/ regulate via legislation, activities relating to mines and

minerals as well as stamp duties and the taxation of incomes, profits and capital gains.2 Part II vests

in both the FG and State Governments (SGs) the power to legislate as regards any item contained

therein. With reference to taxation and the Nigerian tax system, the consequence of this is that there

is concurrent power of taxation vested in both the FG and the SGs.3 In addition to the foregoing, the

ANIYIE IFEANYICHUKWU AZUKA, LLM, BL; Officer, Federal Inland Revenue Service (FIRS), Nigeria. This is an enlarged version of the paper title: The Nigerian Tax System presented at the technical session of the Technical Unit, Office of the Executive Chairman FIRS on 25 March 2011. The comments/ questions of members of the Unit is acknowledged as they contributed to shaping this paper. The editorial efforts of Abumzhe Anna Embuka and Juliet Ogbonmwan is also acknowledged. The opinions expressed here do not reflect that of FIRS or its Board and the usual caveats apply

1 The federalist structure is a creation of the Constitution of the Federal Republic of Nigeria, 1999 (hereafter referred to as CFRN 1999) except otherwise stated

2 See paragraphs 39, 58 and 59 3 With reference to taxation, see paragraph 7, Part II, Second Schedule. This throws up the question: what happens

where there exist two laws on an issue; one made by a State Assembly and the other by the National Assembly? That is, where both the FG and a SG enact a law that touches on an item on the Concurrent Legislative List. It is submitted that once there is inconsistency between both, the latter is void to the extent of its inconsistency. This assertion finds support in the decisions in Dahiru Cheranci v. Alkali Cheranci (1960) NRNLR 24, 20; Chiroma Giremabe v. Bornu Native Authority (1961) All NLR 469 and particularly Sule A. Balogun & Ors v. Attorney-General of Lagos State (1981) 2 NCLR 589, 645 where the court, held vis – a – vis section 4(5) of the Constitution of the Federal Republic of Nigeria, 1979 which is pari materia with section 4 (5) CFRN 1999 that:

The purpose of section 4 (5) of the Constitution is to ensure that whenever a valid and operative federal law and state law, each taken as a whole or in particular provisions, are found to be inconsistent with one another, the state law become inoperative to the extent of the inconsistency. Inconsistency because it is impossible to obey both the federal law and the state law, or because the federal law permits what the state law prohibits (or vice versa), or because the federal law covers a field on which the state law

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Residual Legislative List, vests in both the SGs and Local Government Areas (LGAs) the concurrent

power to legislate on items not contained in any of the aforementioned legislative list.

From the foregoing, the conclusion is that Nigeria is made up of a multiplicity of tax systems and

jurisdictions. A consequence of this is the existence of multiple taxation within the system.4 Another

is the existence of cases of incursion/ intrusion into each other’s tax jurisdiction by agencies of the

different tiers of government siesed with the responsibility of taxation.

On the up side, a feature of the Nigerian tax system is that it is metamorphosing and changing. It was

not structured in the manner it is today a decade ago. It is reforming. The reasons for this can be

theorised to range from the need to entrench a system that is in tune with globally accepted practices

to the fact that government as well as those at the helm of the agencies administering the system

recognise the need for a system with little or no nuisance value and where the taxpayer is king. This

paper has as its scope the Nigerian tax system. It is divided into two. Part I is gives the gist of the

system without embarking on an analysis of the mechanics of its components. Part II focuses on

some of the changes in the system that has contributed to giving it its present form. It concludes with

some remarks on what is considered to be the relationship between the reforms in the Nigerian tax

system and a sustained development of the polity.

2. NIGERIAN TAX SYSTEM

The Nigerian tax system is made up of the following:

1. Tax policy

2. Tax law

trespasses 4 Multiple taxation occurs when the same income is charged to tax more than once. It manifests in different forms. Not

losing sight of the entity principle and viewing multiple taxation through the lens of the doctrine of lifting the veil, it is submitted that the collection of company income tax from a company and withholding tax on the dividend paid shareholders of the same company amount to collecting tax more than once on the profit/ income of an investor and this is also a form of multiple taxation. Another example of multiple taxation is the non – set off of input VAT against output VAT in the course of the commutation of VAT by revenue authorities in Nigeria. This has the effect of raising the rate of tax to as much as 10%. Multiple taxation is a disincentive to investments and does the polity no good as per its development. It is also the reason for strategic tax behaviours like corporate re – organisation/ re – structuring, patronage of tax havens/ inversion, financial intermediation, transfer pricing, etc as well as tax evasion manoeuvres

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3. Tax administration

2.1 Tax Policy

It is a statement of government’s approach to taxation, both from the practical and normative point of

view. The latter manifests in the body of laws constituting Nigeria’s tax law, while the former

pertains to the administration. It is a potent fiscal tool as it can be put to a myriad of use amongst

which is the correction of severe budgetary pressure and economic restructuring. Also, it mirrors the

aspirations and input of the generality of stakeholders within the tax system as it is a formulation

which, ceteris paribus, is a product of the participation of the general public through its

representatives. Furthermore, it is an undertaking by government.

Prior to 2010, Nigeria lacked a definite tax policy. Tax administration was basically unsystematic

and a relic of the colonial era. The fact that it was being administered and superintended by

Nigerians did not bring in any variation. Like was the case with the colonial era, it was basically put

to use as a tool for the sourcing and collection of funds for state expenditure without a thought to

other use which taxation can be put.5 However, today the tale is different. There is currently in

existence a National Tax Policy (NTP) document that awaits official presentation to the public and

the following are its high points.

i. It documents the advancement of economic growth and development as the current objective

of the system

ii. It states that in the system taxes shall be few in number, broad-based and high revenue-

yielding

iii. It states that equity and fairness shall guide the system, so that similar cases are treated

similarly and different cases are handled according to the dictates of their respective

peculiarity

5 In addition to being a tool that can be put to correcting severe budgetary pressure and economic restructuring, taxation can also be used to catalyse economic growth and development

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iv. It also documents that there shall be a shift in the focus of the tax system from direct taxation

to indirect taxation to be manifested in a reduction in Companies Income Tax and Personal

Income Tax rates and an increase in the Value Added Tax (VAT) rate6

The coming into being of the NTP is attributable to a collection of factors. Prominent amongst these

is the internationalisation of the economic activities of the state; an endeavour which in the comity of

nations is not without conditionality7 as well as the realisation that taxation is the only source of

government expenditure, that is capable of bringing about a development that meets the needs of the

present without compromising the ability of future generations to meet their own needs.

2.2 Nigerian Tax Law

The power to make laws for Nigeria is vested in the National Assembly.8 The body of Nigeria’s tax

laws is for the purpose of guiding the administration of taxes within the jurisdictions of the various

levels of government in Nigeria. By virtue of the provisions of the Second Schedule to the CFRN

1999, there is a plethora of tax laws of which the following are examples:

6 See National Tax Policy. Available online at http://www.citn.org/others/Nationaltax.pdf7 Amongst scholars there is a division as to the use of conditionality in shaping and directing the economic orientation of

independent states in view of the fact that it undermines their sovereignty. Those in support theorise that conditionality are technical economic prescriptions that can be used to create a system that can be put to use in alleviating balance of payments maladjustments and ensuring that there is distributive justice. This argument ought to be unassailable but for the fact that the argument against it is also true. This is that the imposition of conditionality is most often determined by economic, socio - political and ideological orientations cum dispositions which oftentimes turn out to be deleterious to the citizens and economy of the receipient state. Conditionality are usually tied to aids, grants, loans, etc from nations of the industrialised world or donor agencies like the International Monetary Fund (IMF) to those in the third world. Conditionality take the form of demand for the removal/ reduction of tariffs, taxes, import quotas and other protectionist strictures and/ or disincentives to the entrance of foreign investment into the economy of the recipient/ beneficiary state; the release of funds/ assistance in instalments and requesting/ requiring beneficiaries to meet performance criteria for each instalment, etc. See Qureshi, AH & Ziegler, AR, International Economic Law (2nd ed) (London: Sweet & Maxwell, 2007) 223 et seq for a discourse on the legal characterisations and nature of IMF conditionality

8 Section 4, CFRN 19994

1. CFRN 1999

2. Federal Inland Revenue Service (Establishment) Act 20079

3. Petroleum Profits Tax Act10

4. Companies Income Tax (Amendment) Act 200711

5. Capital Gains Tax Act12

6. Education Tax Act13

7. Personal Income Tax Act14

8. Stamp Duties Act 15

9. Value Added Tax (Amendment) Act 200716

10. National Information Technology Development Agency Act 200717

11. Deep Offshore and Inland Basin Production Sharing Contracts Act18

12. Nigeria LNG (Fiscal Incentives, Guarantees & Assurances) Act19

9 Gazette No. 64, Vol. 94 of 18th June 2007 10 Cap. P8 Laws of the Federation of Nigeria 2004. It is the principal legislation regimenting the taxation of profits from

petroleum operations in Nigeria. See FIRS Tax Information Guide (Nigeria: Lagos Island Region, 2010) 39 - 41 11Gazette No. 62, Vol. 94 of 13th June 2007. Ibid, 6 - 1912 Cap. C1 Laws of the Federation of Nigeria 2004. It creates a regime that makes chargeable to tax gains accruing on the

disposal of asset by an organisation or individual who ordinarily does not have such asset as a stock in trade. It is a 10% charge on gain accruing to any person in the year of assessment after making such deductions as may be allowed from the disposal of chargeable assets. Ibid, 20 - 22

13 Cap. E4 Laws of the Federation of Nigeria 2004. Pursuant to it, 2% of the profits of companies incorporated in Nigeria are deducted as education tax. Ibid, 23

14 Cap. P8 Laws of the Federation of Nigeria 2004. Hereafter referred to as PITA. It is the basis of the Personal Income Tax regime on the income of taxable persons such as individuals, communities, executors and trustees Ibid, 28 - 31

15 Cap. S8 Laws of the Federation of Nigeria 2004. It was introduced as a medium of regularisation of instruments. The position of the law is that any document that by law is subject to stamping and is not stamped is not admissible in evidence. Ibid, 35 - 38

16Gazette No. 63, Vol. 94 of 15th June 2007. This is a consumption tax levied on the sale of goods and services to the final consumer of a product on which the tax is applicable. It is 5 % of the cost of goods or service. Ibid, 24 - 27

17 It introduced into the Nigerian tax system, the National Information Technology Development Levy. Section 16 of the Act empowers FIRS to collect the levy and remit same to the Fund established pursuant to the Act. It is usually 1% of the company’s profit before tax. It is levied on any company with annual turnover of N100 million and above and by virtue of this, the following companies are liable under the Act:a. Banks and other financial institutions, including capital markets operatorsb. Pension Fund Administrators, Pensions Managers and Pension related companiesc. Internet Service Providersd. Insurance companiese. Telecommunications services providersIbid, 32 - 34

18 Cap. D3 Laws of the Federation of Nigeria 200419 Cap. N87 Laws of the Federation of Nigeria 2004

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13. Industrial Development (Income Tax Relief) Act20

14. Industrial Inspectorate Act21

2.3 Tax Administration

The administration of tax in Nigeria involves the assessment, collection and accounting for all forms

of taxes in Nigeria as well as the implementation of the various tax laws and policy guidelines of

government. The following is responsible for the foregoing in Nigeria:

2.3.1 Federal Inland Revenue Service (FIRS)

Established pursuant to the Federal Inland Revenue Service (Establishment) Act 2007 (FIRSEA), its

objective is the control and administration of the different taxes specified in the First Schedule to the

Act or other laws made or to be made, from time to time, by the National Assembly or other

regulations made thereunder by the government of the Federation and to account for all taxes

collected.22 This means that the core function of the FIRS is the assessment, collection of as well as

accounting for taxes collected. Consequently, the FIRS is empowered, notwithstanding anything

contained in the CFRN 1999 or any other enactment or law, to administer the aforementioned

legislation as well as those referred to in the First Schedule of the FIRSEA.

With reference to the overlapping jurisdiction of the tiers of government in relation to taxation, FIRS

jurisdiction is limited to the taxes listed in Part I, Schedule 1 of the Taxes and Levies (Approved List

for Collection) Act.23 They include:

a. Companies Income Tax

20 Cap. I..... Laws of the Federation of Nigeria 2004. It grants tax holidays to companies that meet the requirements set by the government. To qualify for the relief, the applicant must show that:a. The product(s) it desires to produce is not being produced in Nigeria on a scale suitable to the economic

development and requirements of Nigeria, or that there is favourable prospect for further developments in Nigeria of such industry

b. That it is of public interest to encourage a given industry by declaring it a pioneer industryc. The industry must be listed as one eligible to be granted the statusSee FIRS Tax Information Guide, 46 - 47

21 Cap. I8 Laws of the Federation of Nigeria 2004. This is an Act that establishes the Industrial Inspectorate Division in the Federal Ministry of Industries for the purpose of investigating and following the undertakings of industries including investments and other related matters

22 See section 1 & 2, FIRSEA23 Cap. T2 Laws of the Federation of Nigeria 2004

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b. Withholding Tax on companies, residents of the Federal Capital Territory, Abuja and non –

resident individuals

c. Petroleum Profits Tax

d. Value Added Tax

e. Education Tax

f. Capital Gains Tax on residents of Federal Capital Territory, Abuja, bodies corporate and non –

resident individuals

g. Stamp duties on bodies corporate and residents of the Federal Capital Territory, Abuja

h. Personal Income Tax in respect of:

i. Members of the armed forces of the Federation

ii. Members of the Nigeria Police Force

iii. Residents of the Federal Capital Territory, Abuja

iv. Staff of the Ministry of Foreign Affairs and non – resident individuals

2.3.2 State Boards of Internal Revenue (SBIRs)

These administer tax at the various state levels. They are established pursuant to section 85, PITA.

They are responsible for the effective collection of all taxes, levies ejusdem generis due to the

government of the State through an operational arm oftentimes referred to as State Internal Revenue

Service. Consequently, there are 36 SBIRs in the Federation. Part II, Schedule 1, Taxes and Levies

(Approved List for Collection) Act limits their tax jurisdiction to the following taxes and levies:

a. Personal Income Tax in respect of

i. Pay – As – You Earn (PAYE)

ii. Direct taxation (Self Assessment)

b. Withholding Tax (individuals only)

c. Capital Gains Tax (individuals only)

d. Stamp Duties on instruments executed by individual

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e. Pool’s betting and lotteries, gaming and casino tax

f. Road Taxes

g. Business premises registration fee in respect of

i. urban area as defined by each State, maximum of N10,000 for registration, and N5,000

per annum for renewal of registration; and

ii. rural areas N2,000 for registration, and N1,000 per annum for renewal of registration

h. Development levy (individuals only) not more than N100 per annum on all taxable individual

i. Naming of Street Registration Fees in the State Capital

j. Right of Occupancy Fees on land owned by the State Government in urban areas of the State

k. Market Taxes and Levies where State finance is involved

It should be noted that until quite recently, most States of the Federation did not have SBIR. This

gave rise to the utilisation of tax consultants/ contractors in the assessment and collection of taxes.

This had negative effects on the revenue base of the States and the Federation as well as their

development and has met with reactions from diverse quarters which have the similitude of odium.24

2.3.3. Local Government Committee on Revenue Collection

This is to be established for each Local Government Area of a State within the federation pursuant to

the provisions of section 85 PITA. The Revenue Committee shall comprise of:

a. The Supervisor for Finance as Chairman

b. Three Local Government Councillors as members

24 In numerous fora, tax authorities have reiterated that the use of tax consultants to perform the task of tax administration is illegal. See ‘Use of Tax Consultants by States Illegal – FIRS’, ThisDay, 29 August 2007; ‘Use of Tax Consultants: FIRS flays Governor Sheriff’, ThisDay, 5 September 2007, 23; ‘CITN Backs Calls Against Use of Consultants’, ThisDay, 12 September 2007, 25; ‘Use of Tax Consultants Unlawful, says Board’, The Guardian, 10 December, 2007; ‘Questionable Use of Tax Consultants’, The Guardian, 14 September, 2007. See also Communiqués Issued After the 107th and 117th Meeting of the JTB in JTB, Communiqués Issued (Revised Up to October 2009) (Nigeria: JTB, 2009) 57, 75 (hereafter referred to as JTB Communiqués). In support of the continued retention of the service of tax consultants, see Kiabel, BD & Nwokah, GN, ‘Boosting Revenue Generation by State Governments in Nigeria: The Tax Consultants Option Revisited’, (2009) Vol. 8 (4) European Journal of Social Sciences, 532. Available online at http://www.eurojournals.com/ejss_8_4_02.pdf (Last accessed February 19, 2011)

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c. Two persons experienced in revenue matters to be nominated by the Chairman of the Local

Governments on their personal merits25

The tax jurisdiction of the Revenue Committees by the provisions of the Part III, Schedule 1, Taxes

and Levies (Approved List for Collection) Act is limited to:

a. Shops and Kiosks rates

b. Tenement rates

c. On and Off Liquor Licence fees

d. Slaughter slab fees

e. Marriage, birth and death registration fees

f. Naming of street registration fee, excluding any street in the State Capital

g. Right of Occupancy fees on lands in rural areas, excluding those collectable by the Federal and

State Governments

h. Market taxes and levies excluding market where State finance is involved

i. Merriment and road closure levy

j. Radio and Television Licence Fees (other than radio and television transmitter)

k. Vehicle Radio Licence Fees (to be imposed by the Local Government of the State in which the

car is registered)

l. Wrong Parking Charges

m. Public convenience, sewage and refuse disposal fees

n. Customary Burial Ground Permit Fees

o. Religious Places Establishment Permit Fees

p. Signboard and Advertisement Permit Fees

25 See section 85(g) PITA9

2.3.4. Joint Tax Board (JTB)

Today, the JTB is deemed established pursuant to section 85(1), PITA. It was initially established

pursuant to the provisions of the Income Tax Management Act 1961 (ITMA),26 and was vested with

the burden of advising government when so asked on all matters in connection with taxation under

the ITMA regime. This however changed sequel to the Interim Report of the Task Force on Tax

Administration 1979 which recommended that the JTB should assume the status of a standing

advisory body. Its primary mandate, amongst others is to promote uniformity in the application of

PITA throughout Nigeria.27 Also, the JTB was accorded authority to issue guidelines on all matters

of taxation to the States of the Federation with the Federal Minister of Finance (FMoF) exercising

oversight responsibility. Here lies the difference between JTB and the other agencies involved in tax

administration in Nigeria. It does not have as its core function the assessment, collection and

accounting of revenue. It is instead burdened with regulatory and advisory responsibilities.

It is constituted by:

a. The Executive Chairman, FIRS as Chairman, JTB

b. One member from each state, being a person experienced in income tax matters nominated either

by name or office by the commissioner charged with responsibility for matters relating to

income tax in the state in question

c. A person appointed by the Federal Civil Service Commission (FCSC) who is experienced in

income tax matters to be Secretary to the Board

d. Such other official that the JTB may deem necessary from time to time appointed by FCSC or

secondment or transfer from any public service in Nigeria

The functions of the JTB are as specifically contained in section 86 (9) PITA. It provides that the

JTB shall:

26 Section 27 ITMA. It should be noted that the ITMA was repealed by the PITA27 See Communiqués issued after the 105th, 106th, 107th, 108th and 114th Meeting of the JTB in JTB Communiqués where

the JTB made pronouncements which have influenced and are still influencing the application of the PITA in Nigeria 10

a. Exercise the powers or duties conferred upon it by any express provision of the PITA, and any

other powers and duties arising under the PITA as may be agreed by the Government of each

territory to be exercised by the Board;

b. Exercise any powers and perform duties conferred on it by any enactment of the Federal

Government imposing tax on the income or profits of companies or which may be agreed by the

FMoF to be exercised by it under the enactment in place of the Federal Board of Inland

Revenue28

c. Advise the Federal Government, on request in respect of double taxation arrangement concluded

or under consideration with any other taxation matters having effect throughout Nigeria in

respect of any proposed amendment to the PITA;

d. Use its best endeavours to promote uniformity both in the application of the Act and in the

incidence of tax on individuals throughout Nigeria; and impose its decisions on matters of

procedure and interpretation of the PITA on any State for purposes of conforming with agreed

procedure or interpretation

2.3.5. Nigeria Customs Service

The Nigeria Customs Service (NCS) is a paramilitary organisation. Its origin is traceable to a little

over a century ago when it started as a department in the Royal Niger Company and since then it has

metamorphosised tremendously.29 It is currently under the superintendence of the Federal Ministry of

Finance (FMF).30

28 By virtue of this provision, the opinion is held that the JTB can perform the functions of the FIRS in place of the latter 29 For an account of these changes and the forms it took, see Brief History of NCS. Available online at

http://www.customs.gov.ng/About/historical_information.php (Last accessed May 15, 2011) 30 As a revenue collection agency, it was initially placed in the FMF, subsequently moved to the Ministry of Internal

Affairs under the Customs, Immigration and Prisons Services Board sequel to the acceptance of the recommendations of the Study Group. Its return to the FMF was via the President’s Budget Speech of 1991, an act that was regularised retrospectively by Decree No. 45 of June 1992. The latter also created the modern day NCS as the operational arm of the Board of Customs and Excise Management which has as its Chairman, the FMoF. See sections 3 - 5, Customs and Excise Management Act (CEMA) Cap. C45 Law of the Federation of Nigeria 2004 which pertains to the administration of Board of the NCS

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The affairs and activities of the NCS is regimented by the CEMA31 which established, empowered it

as an autonomous entity as well as spells out its powers and functions.32 It is vested with the

responsibility of assessing, collecting and accounting for revenues collected for the FG. It is

statutorily empowered to collect customs duty,33 excise duty34 under the supervision of the Board.

The main functions of the latter include appointment, promotion and discipline of officers of the

NCS. The Boards also administers the CEMA and is the policy making organ for the NCS. The NCS

Board is composed of the following members:

a. The Minister of Finance (Chairman)

b. The Comptroller General of Customs (Vice Chairman)

c. A representative from Federal Ministry of Commerce

d. A representative of Ministry of Transport

e. A representative of Ministry of Industries

f. A representative of Ministry of Finance

g. A representative of National Universities Commission

h. Chairman Federal Inland Revenue Board

i. Serving Deputy Comptroller Generals of Customs

j. The Legal Adviser of NCS

k. Secretary to the Board (Secretary)

3. REFORMS IN THE SYSTEM

31It vests legal authority in the NCS to act on behalf of the FG in all customs matters32 See Statutory Functions, available online at http://www.customs.gov.ng/Statutory/functions.php (last accessed March

30, 2011) where some of the statutory functions of the NCS are listed33 Customs duties in Nigeria are the oldest form of modern taxation. Their introduction dates back to 1860 and they

existed in the form of import duties – a form of taxes on imports into Nigeria, charged either as a percentage of the value of imports or as a fixed amount contingent on quantity

34Excise duties are ad valorem taxes on the output of manufactured goods considered to be dangerous so as discourage their consumption. Currently, it is levied on products like bleaching creams, tobacco, alcohol and spirits. For information on excise, see Excise. Available online at http://www.customs.gov.ng/Guidelines/Excise/index.php

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The reasons for tax reforms may range from the need for additional revenue to economic growth 35 or

it might be part of a broader economic and financial reform agenda36 or sequel to an identified need

to strengthen the system in view of the role played by taxation in the micro –economic management

of the economy.37 Tax reforms are also embarked upon to enhance efficiency in the tax system.

The history of the Nigerian tax system is replete with numerous epochs of reforms.38 This has given

birth to a myriad of developments in Nigeria that has cascaded into reforms in the Nigerian tax

system. These reforms in turn, currently manifests in systems, structures, procedures and process that

did not exist prior to the reforms. The highlighting of these systems et al is the focus hereafter.

35Somorin, T, Tax Reform - Efforts of Nigeria, 3, being a presentation at a seminar on the Reform of Fiscal Policies Based on Innovation and Modernisation of Institutions in Charge of Collection and Management of Public Resources at the Intercontinental Hotel – Tangier (Morocco) from November 29 – December 1, 2010. Available online at http://www.citn.org/others/Dr_somorin.pdf (Last accessed April 21, 2011)

36 Thiam, I, Tax Policy and Administration Reform and Lessons for Nigeria, being a paper presentation at the JTB and Lagos State Retreat on Tax Reform in Democracy, Lagos, Nigeria, August 23, 2005

37 These include:a. The regulation of income and wealth among different types and classes of citizensb. The regulation of the activities of particular areas of the private sector which are more or less desirable to national

interestc. The regulation of the private sector of the economy so as to maintain the desired level of employment and to

control/ put an end to the ‘booms and bursts’ in the economyd. Increasing the revenue to finance public outlays in the most efficient way(s)e. Raising sufficient revenue to discourage excessive borrowing by governmentSee Nnanna, JO, ‘Macro – economic Outlook of Nigeria and Its Effects on Taxation’ 7, being a paper presented at the Enlarged Management Meeting of the Federal Inland Revenue Service on February 21, 2005

38 There was a 1978 Task Force on Tax Administration headed by Alhaji Shehu Musa. It achieved the following:a. Introduction of withholding tax regime b. Imposition of 10% special levy on the excess profits of banks c. Imposition of 2.5% turnover tax on building and construction companiesThis was followed by the 1991/92 Study Group on the Nigerian Tax System and Administration headed by Prof. Emmanuel Edozien and the 1992 Study Group on Indirect Taxation headed by Dr. Sylvester Ugoh. They former achieved the following: a. The establishment of the FIRS as the operational arm of the Federal Board of Inland Revenue (FBIR)b. The establishment of the Internal Revenue Service (IRS) as the operational arm of the State Internal Revenue

Board (SBIR) of each State as well as the Joint Tax Board (JTB) c. The enactment of the Value Added Tax (VAT) and significantly moved the country into the regime of indirect and

consumption tax by the repeal of the Sales Tax Act 1986d. The enactment of the Education Tax Act 1993 which introduced a special tax on corporate income specifically to

fund the upgrading of infrastructure and facilities in the education sectorSee Federal Government of Nigeria White Paper on the Report of the Study Group on the Nigerian Tax System and Administration, paragraph 30 et seq

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3.1. The National Tax Policy

The formulation of the NTP was heralded by the inauguration on August 6, 2002 of a Study Group

(StG) by the then Minister of Finance.39 The StG was amongst other things, charged with the

responsibility of reviewing all aspect of the Nigerian tax system and recommending reforms

pertaining thereto.40 It submitted its report in July 2003.

The StG Report proposed radical shifts in policy. This propelled the FG to set up a Working Group

(WG) to review the Report in January 2004. Though the WG did not agree with all the suggestions

of the StG, the adoption of a NTP was one area in which both groups were in agreement. The

recommendation of the StG vis – s – vis the NTP was that the latter should contain the under-listed

key elements:41

a. Tax shall be regarded as a citizen’s obligation42 to the Nigerian state for which he expects in

return, good governance, the provision of security, clean water, schools, healthcare and other

amenities

b. Development shall be the overriding purpose of taxation in Nigeria. The tax system must

stimulate economic growth on a sustainable basis. Exceptionally, taxation may be used to

regulate social conduct, for example, to reduce the consumption of harmful products

c. Tax revenue shall be treated as the citizens’ compulsory contribution in trust for the funding

of the business of government, with the expectation that the money would be utilised for the

benefit of the people, in accordance with the relevant laws

39Mallam Adamu Ciroma. He was Minister of Finance from June 1999 - May 200340StG Report, 1 41SG Report, 23 - 2542Tax payment is a constitutional issue which establishes a link between the effective discharge of civic responsibilities

of the citizens and the corporate survival, unity and growth of the country. This assertion is premised on section 24 (d) CFRN, 1999, which stipulates that it shall be the duty of every citizen to make positive and useful contributions to the advancement, progress and well being of the community where he resides and section 24 (f) where specific mention is made of prompt payment of tax. Okoh, S, ‘Political and Economic Imperatives of the New Tax Reform’ Leadership, March 5, 2006, 39

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d. Tax shall be collected only by career tax administrators, who are civil servants, and not by ad

hoc consultants/agents.43 Similarly, only self-assessments or assessments by tax

administrators shall be allowed in Nigeria

e. There shall be an emphatic movement towards a low tax regime which reduces individual tax

burden, and thereby encourages savings, investments and voluntary compliance

The formulation and drafting process of the NTP commenced with the set - up a Presidential

Committee on the National Tax Policy under the chairmanship of the then Minister of Finance, Dr.

Ngozi Okonjo - Iweala in June, 2005.44 The Committee was charged with the responsibility of

developing a policy document on tax law and administration in Nigeria. The terms of reference

handed the Committee include:

a. Employing taxation as an instrument of diversifying the economy and improving economic

development

b. Using taxation to create a system that ensures greater accountability for tax revenue, both on

the part of government and revenue authorities

c. Limiting the granting of excessive tax incentives, particularly in the oil and gas sector

d. Creating a modern tax system which is capable of responding to the dynamics of international

socio-economic changes from time to time

The Committee in the course of its assignment carried out stakeholder’s sensitisation workshops

across the country, from which inputs, ideas, and contributions where generated for inclusion in the

draft document.45 Thus, it is apposite to state that the NTP is an expression of Nigeria’s desire to

have a defined set of guidelines, rules and modus operandi that would regulate her tax system and

43This reiterates the position under the Taxes and Levies (Approved List for Collection) Act, Cap. T2 LFN 200444Dr. Ngozi Okonjo - Iweala was Minister of Finance from 2003 – 2006. Other members of the Committee were the

Ministers of Agriculture and Water Resources, Commerce, the Federal Capital Territory (FCT); Special Assistants to the President on Petroleum Matters, Export Expansion Programme; Chief Executive, Nigeria Export Promotion Council; Economic Adviser to the President and the Executive Chairman, FIRS

45A series of regional sensitisation workshops on the NTP was held across the six (6) geo-political regions of Nigeria, in Lagos, Kano, Abuja, Enugu, Bauchi and Jos

15

provide a basis for tax legislation and administration. Therefore, it can be called the product of the

effort of many. The contributors cut across all tiers of government and the organised private sector

(OPS) and their contributions in no small way shaped the NTP. The Chartered Institute of Taxation

of Nigeria (CITN)46 was one of such stakeholder whose contribution cannot go unmentioned. CITN

painstakingly brought to the limelight a plethora of defect in the formulation and drafting of the

NTP.47 This and other feedback from workshops were taken cognisance of in the course of finalising

the document which was presented to the FEC for its consideration and approval 48 in January 2010.49

This has been gotten. Presently, the polity awaits its presentation and implementation.

3.2. Tax Administration Reforms

3.2.1. FIRS Reform

In addition to what has been said herebefore of the FIRSEA, it is the basis for a number of unique

reforms in the Nigerian tax system which touches on the activities of the FIRS. They include:

i. Establishment and Autonomy of FIRS

The antecedent of FIRS can be traced to 1943 when an agency to be in charge of revenue collection

within the protectorate of Nigeria was carved out of the then extant Inland Revenue Department,

whose tax administration jurisdiction covered what was then the Anglo-phone West Africa. It

metamorphosed into the Board of Inland Revenue established pursuant to the Income Tax Ordinance

46CITN started in 1982 as the Association of Tax Administrators and Practitioners. Thereafter, it transformed into Nigeria Institute of Taxation, which was formally launched on February 21, 1982 and statutorily recognised on May 6, 1987 as company Limited by Guarantee. The Institute was chartered by the Federal Government of Nigeria by the enabling Act No. 76 of 1992 (now CITN Act, Cap C10, Laws of the Federation of Nigeria, 2004) and is charged with the responsibility, among others, of determining what standards of knowledge and skills are to be attained by persons seeking to become a professional Tax Practitioner or Administrator. See Brief History of the Institute. Available online at http://www.citn.org/institute.php (Last accessed April 25, 2011)

47See CITN Position Paper on the Draft National Tax Policy (09/08/0005). Available online at http://www.citn.org/others/citnnewdntp.pdf (Last accessed October 26, 2010)

48A copy of the National Tax Policy for Nigeria (Final Draft) submitted to the Federal Executive Council (with input from the exposure of the original draft document to stakeholders) is available online at http://www.citn.org/others/Nationaltax.pdf (Last accessed October 26, 2010)

49The FEC approved the NTP on January 20, 2010 and its implementation is still being awaited. See “FEC Approves Tax Policy”, The Nation, January 21, 2010, 34 for more information on the approval of the NTP

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of 1958. It was later renamed Federal Board of Inland Revenue (FBIR)50 and it operated as a

Department in the Federal Ministry of Finance.

In 1993, further reform was witnessed. The Finance (Miscellaneous Taxation Provision) Act 1993

established the Federal Inland Revenue Service as the operational arm of FBIR and created the office

of the Executive Chairman for the Board. This was the position until 2007 when FIRS and a board

known as the Federal Inland Revenue Service Board which is vested with the task of supervising

FIRS as specified in the FIRSEA were both established by the FIRSEA.51

The FIRSEA also gave FIRS autonomy. In substance, the autonomy granted FIRS is chiefly in the

areas of funding and human resource management. With reference to funding, the Act stipulates that

FIRS is to be, amongst other sources, funded through a cost of collection mechanism. Section 165,

CFRN 199952 and section 15 FIRSEA provides legal backing for the FIRS cost of collection

mechanism. The latter states inter alia that:

The Service shall establish and maintain a fund which shall consist of and to which shall be credited:

(a) A percentage as determined by the National Assembly of all non – oil and gas revenue collected by the Service which may be appropriated by the National Assembly for the capital and recurrent expenditures of the Service

It should be noted that this arrangement is expected to secure an improved and sustainable funding

mechanism. In addition, it is also worthy of mention that the belief and/ or fear that this arrangement

would remove FIRS from the oversight of the National Assembly is erroneous; this is not the

position. The FIRSEA mandates the FIRS to prepare its estimates and submit to the National

Assembly for appropriation from year to year.53

50This was achieved through the provisions of section 4, Companies Income Tax Act 196151Section 3, FIRSEA52 The effect of the provision is that every tier of government should proportionately be responsible for the cost of

generating its share of revenue. Worthy of mention here is the Supreme Court decision in the case of A.G. of the Federation v A.G. of Abia State (No.2) [2002] 14 NWLR (Pt 778) 46; popularly referred to as the Resource Control case, which used to be a basis for impugning the legality of the cost of collection mechanism. In that case, the court voided first line allocation to non - revenue generating agencies. FIRS is a revenue generating agency and its activities as well as the deduction of cost of collection does not offended the spirit of the law in the aforementioned case

53 See section 17, FIRSEA17

The FIRSEA also gives the FIRS power over its human capital. Section 7(1) state inter alia:

The Board shall:(d) employ and determine the terms and conditions of service including

disciplinary measures of the employees of the Service

At the core of this is the power to recruit, reward, discipline and develop its own personnel. This

translates into the fact that FIRS human capital matters are outside the superintendence of the FCSC.

Thus in 2010, staff of the erstwhile FBIR/FIRS who were mostly employed through FCSC where

given the option of transferring their service to the FIRS created by FIRSEA.54 Also, in 2010 the

FIRS for the first time recruited its own personnel.

ii. Power to Distrain

The FIRSEA also vests in the FIRS the power to distrain. It is a veritable tool for enforcement of

payment of tax due from taxpayers. However it can only be made use of when an assessment 55 has

become final and conclusive and a demand notice in accordance with the provisions of the relevant

tax legislation has been served on the defaulting taxpayer. The power of distrain is provided for and

regimented by the provisions of section 33 and 36 of the FIRSEA and section 96, PITA. In the

exercise of the power, the FIRSEA also empowers the FIRS to co – opt the assistance and co –

operation of law enforcement agencies in the discharge of its duties.56

54 To facilitate a smooth transition/ transition of staff to the new FIRS, section 63(1) FIRSEA guarantees that no one shall be offered a place in the new FIRS on terms less favourable than (s)he had in the old Service

55 An assessment is an amount of tax or other levied special payment due to a governmental municipality or association. See Reddy, RJ, Dictionary of Accounting (New Delhi: APH Publishing Corp., 2010)

56 See section 36(1) and (2), FIRSEA18

iii. Tax Refund

Tax refund is the repayment of tax overpaid or wrongly paid by a taxpayer.57 Tax refund could arise

where there has been amongst others over assessment of taxes by FIRS or where there has been

multiple taxation or where tax is paid on exempted items or where there has been error in the tax

computation.58 It encompasses also, the return to taxpayers, the difference between what was paid as

withholding tax and their actual tax liability. The FIRSEA provides for refund by FIRS to taxpayers.

It further provides the modalities for the sourcing of funds for the refund as well as the process of the

payment.59 The payment of refund is administered by the FIRS subject to the approval of the

National Assembly.60 The FIRSEA further provides that approved refunds are to be made within 90

days from the date of the decision to repay.61 It should be noted that persons entitled to refund are

those who are subject to the tax jurisdiction of the FIRS.62

iv. Establishment of the Tax Appeal Tribunal

The Tax Appeal Tribunal (TAT)63 was established pursuant to the FIRSEA. This development

brought about the abrogation of the Value Added Tax (VAT) Tribunal and Board of Appeal

Commissioners (BAC). The rationale behind the establishment of the TAT is to ensure that all forms

of tax related dispute is handled by a specialised adjudicating institution acting as court of first

instance from where appeal lies to the conventional court system. With it, investors are provided

57 See FIRS Tax Information Guide, 48 58 Ibid59See section 23 (6), ibid provides that the dedicate account opened pursuant to this section shall be funded from the

Federation Account60 This assertion is premised on the fact that the FIRSEA mandates the FIRS to prepare an annual budget for tax refund to

be funded from the Federation Account as may be approved by the National Assembly. Ibid61 The decision of who is eligible for tax refund is the preserve of FIRS subject to the rules and conditions as may be

approved by the FIRS Board. See section 23 (2) & (3), ibid. Tax refund is a veritable tool for encouraging self assessment and voluntary compliance. The existence of an efficient refund mechanism where claims are processed within 21 days has been linked to the high level of compliance in South Africa. See Edgal, F, ‘Report on Study Tour to South African Revenue Service (SARS)’, ( Jan – March 2007) Vol. 1 No. 2 JTB NEWS, 4

62 The first batch of tax refund claimants totalling seventeen corporate taxpayers have been paid while another nine is awaiting payment. See Omilabu, A, ‘FIRS Introduces Tax Refunds – Returns over N450m overpaid taxes’, October – December 2010 Gauge, 3. Gauge is a quarterly publication of FIRS

63See section 59, ibid. The TAT was inaugurated on February 5, 201019

with an avenue for dispute resolution whose nuances are different from that of the conventional court

system in Nigeria.64

v. Deduction of Unremitted Taxes

The issue of the non – remittance of tax is one that has taken centre stage in tax administration

discourse in Nigeria.65 The FIRSEA provides a tool for combating this malady facing the Nigerian

tax system. Pursuant to it, the Accountant General of the Federation is obligated to deduct from the

budgetary allocation due any MDA in the federation all unremitted taxes due.66 The effect of this is

that it is capable of reducing the level of tax arrears owed the government; make more funds

available to the economy and reduce the cost of collecting revenue in the polity.

vi. Generation and Issuance of Taxpayer Identification Number

The Tax Identification Number (TIN) is a unique sequential number, generated electronically by

FIRS as part of the registration process and assigned to a taxpayer – real or artificial – for

identification.67 Section 8 (1) (q), FIRSEA is the legal basis for the generation and issuance of TIN. It

provides that:

The service shall:

Issue taxpayer identification number to every taxable person in Nigeria in collaboration with States Boards of Internal Revenue and Local Government Councils

vii. Administration of Tax Laws

It empowers the FIRS to administer all laws and regulations pertaining to the assessment, collection

and accounting of revenue accruable to the government of the federation as may be made by the

National Assembly from time to time. This also empowers the former to administer enactments

regarding oil and gas revenue in Nigeria and collect on behalf of the FG all taxes, fees, levies, 64 The most notorious is the scandalous delay in the system. See Friday Aiguoreghian & Anor. v The State [2004] 3

NWLR (Pt.860) 421 – 422 where Niki – Tobi, JSC decried the delay in Nigeria’s justice system65 See ‘FIRS Decries Non – remittance of Taxes by MDAs’ BusinessWorld, March 19, 2007, 5; ‘MDAs owe N143b Tax

Arrears, says Reps’ The Nation, January 25, 2010, 22; ‘FIRS: States, MDAs owe N190bn Tax Arrears’, ThisDay, February 5, 2010, 7

66See section 24, FIRSEA67See Gbadamosi, W & Onoja, V, ‘TIN’, April – June 2009 Gauge, 8

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royalties, rents, signature bonuses, penalties for gas flaring, depot fees, including fees for Oil

Prospecting License (OPL), Oil Mining License (OML) etc as well as enactments imposing taxes,

fees and levies to be collected by other government agencies and companies.68 This has the effect of

ensuring that funds accruable to the government of the federation is efficiently collected and

accounted for as well as reduce the amount of revenue lost or that leaks out of the tax system into

private hands.

viii.Business Process Re - engineering

Business Process Re - engineering (BPR) involves the fundamental rethinking and radical redesign

by management of business processes to achieve dramatic improvements in critical contemporary

measures of performance such as cost, quality, service and speed.69 It is used to bring about

improvement within the system by increasing efficiency and effectiveness.70 The incorporation of

BPR into FIRS processes is one of the reforms witnessed by the system and it has manifested in the

processes and structures which currently constitute FIRS operations and the Nigerian tax system.

These processes and structures include:

a. Business Process Automation (BPA)

This is characterised by a streamlining, optimisation and automation of the key processes that drive

value for an organisation and its customers. The reason for the incorporation of BPA into FIRS

processes and structures is a product of the 3Cs71 driving the incorporation of BPR in any

68See sections 2, 25 & 68 of the FIRSEA 69 See Business Process Re – engineering. Available online at http://unpan1.un.org/intradoc/groups/public/documents/un-

dpadm/unpan041436.pdf (Last accessed April 19, 2011)70Ibid. See also, Tirthankar, R, Business Process Re-engineering – An Effective Management Tool. Available online at

http://ssrn.com/abstract=717343 (Last accessed April 26, 2011)71 They are Customer, Competition and Change. The effect of the 3 Cs is profound. The customer in any tax system is

either the state or the taxpayer. It is the latter with regards to the collection of tax in the system. As a customer, the state demand better services. Consequently, service below expectation is usually detrimental to the state as it has an inverse relationship with the amount of funds available for use/ development. Tax Clearance Certificate (TCC) forgery syndicates, tax consultants/ advisers and other such groups are the competition in the Nigerian tax system as they compete with the tax administrators for the revenue which ought to go to the state. As a result of the foregoing, tax administrators are duty bound to be innovative if they are to capture and retain the taxpayers within the tax net as well as grow and sustain the revenue base of the nation and by extension meet the demands of the customer. With reference to change, that is a constant in life. The cycle of life and the passage of time heralds change. Tax administrators are duty bound to keep up with the changes in their milieu and time if they are to leave up to their billing. Tirthankar, R, ibid

21

organisation and it manifests in the automation of a number of processes. Notwithstanding the fact

that an exposé of these processes is not part of the scope of this paper, a brief mention of them will

however be made hereafter.

Integrated Tax Administration System (ITAS)

ITAS is a commercially available solution that incorporates modern integrated business processes

relating to core tax administration areas (such as registration, accounting and assessment) with the

specific peculiarity of the system where it is to be used. The decision of FIRS to adopt ITAS was

sequel to the reports of visiting teams and missions of the Fiscal Affairs Division (FAD) of the IMF

who strongly recommended its implementation.

ITAS is a tool that is used for re - engineering and automating core tax processes. Successful

implementation of ITAS into the Nigerian tax system will provide numerous benefits to all who

interface within the system. These benefits include:

i. The existence of streamlined, efficient processes that make it easier and convenient for all to

interact within the system and in turn make it easier for FIRS to be more responsive to

taxpayers’ needs

ii. The creation of a comprehensive repository of taxpayer information that can easily be managed

and monitored by the FIRS as well as provide industry and market information on taxpayers

iii. The availability of a more professional workforce and the entrenchment of a means of

providing consistent and quality service to taxpayers across FIRS offices nationwide

iv. The establishment and maintenance of links with external organisations - like the CAC, NIS,

CBN etc - that complements FIRS operations

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Unique Taxpayer Identification Number (UTIN) Project

This is a project that is being driven by the JTB with the support of FIRS. It is basically an electronic

system for the identification and registration of every taxpayer. It involves creating a harmonised

nation - wide taxpayer database and giving every taxpayer a distinct identification number with

which it is to be identified for taxation purposes nation - wide for life. 72 In addition to this, another

objective is the development of database linked to all relevant stakeholders in the Nigerian tax

system in order to bring tax practice and administration in Nigeria to par with global best practice.

The benefits derivable from the UTIN project73 becoming operational include:

i. It will replace the manual system of registration and its attendant problems, the errors and

mistakes associated with manual registration as well as other challenges that has bedevilled tax

administration in Nigeria

ii. Increase in revenue as the implementation of the project is capable of plugging existing

loopholes in the tax system as well as bringing revenue leakages to the minimum and reducing

the cost of tax compliance and administration

iii. The enhancement of taxpayer identification and registration as well as the bringing /capturing

of more taxpayers into the tax net

iv. The project is capable of putting in the hands of tax administrators a tool with which they can

better access, collate, analyse and retrieve data as well as enhance co – operation and

information sharing among agencies in Nigeria whose mandate touch on the well being of the

populace or coalesce74

v. It will provide a national platform for the registration and identification of taxpayers with

priority based on persons and not nature of transactions

72 See ‘Unique Taxpayer Identification Number (UTIN) Project: A Step in the Right Direction: Frequently Asked Questions (FAQs) on Unique Taxpayer Identification Number’ (January 2011) Vol. 2 No. 2 JTB NEWS, 9, 45 - 49

73Section 86 PITA and section 8 (1)q, FIRSEA are the legal basis for the UTIN project74 These agencies include the Central Bank of Nigeria (CBN), Economic and Financial Crimes Commission (EFCC),

National Bureau of Statistics, Corporate Affairs Commission (CAC), National Population Commission, Nigeria Custom Service, etc

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vi. It also serve as a source of data/ information for utilisation in national planning, budgeting and

allocation of resources75

Project FACT (Friendly Accurate Complete and Timely)

Project FACT was conceived and designed as a response to the need to reform FIRS Bank Collection

System. This need has become one of the 7+3 strategic flanks of FIRS reforms: Re-engineer and

Automate Collections/ Tax Administration System76 to combats the maladies facing tax collection.77

The operationalisation of Project FACT has given birth to a system that ensures that funds collected

cannot be delayed, converted or diverted by anyone on the collection chain. Without doubt, this is

the most successful BPA of FIRS and it has improved the process of interaction between the latter

and taxpayers. On the part of taxpayers, it has provides them with several channels through which

they can meet their civic obligation in ways that are both convenient, user – friendly and devoid of

encumbrances. With regards to the FIRS, it has made it possible for:

i. An automation of manual fraud – prone procedures like the generation of receipts, credit

advices

ii. FIRS to receive real time notification and information as per taxes paid as well as keep track

of bank’s collection and its movement from the collecting bank to the CBN

In actual terms it is comprised of a set of banks interfacing with FIRS and CBN online. To drive the

system, four banks78 were appointed lead banks and the others save Spring Bank Plc and Wema Bank

Plc were appointed collecting banks. The collecting banks collect the various taxes and remit to the

lead banks who credit FIRS accounts at CBN with the value of the remitted collection.

75 See ‘Unique Taxpayer Identification Number (UTIN) Project: A Step in the Right Direction: Frequently Asked Questions (FAQs) on Unique Taxpayer Identification Number’ ibid

76 The others include Re-engineer and automate human resources, finance and procurement functions; Aggressive anti - corruption campaign/ entrench code of ethics; Taxpayer /arrears database development; Performance management /result orientation; Build capacity – structure, staffing, specialisation; Provide taxpayer education and services; Strengthen investigation/ enforcement; Audit oil, gas and large taxpayers, Fund FIRS/ autonomy

77 These maladies include non – remittance of funds collected, diversion of funds collected, wrong classification of the collections and delayed posting of funds collected

78 These are Union Bank of Nigeria Plc, Zenith Bank Plc, UBA Plc and First Bank of Nigeria Plc24

b. FIRS Tax Operation Re- structuring

The operations of the FIRS was initially was structured along tax – type line and so was the

administration. Other than the office of the Executive Chairman there existed 7 Directorates, 8 Zonal

Offices, 35 Area Offices, 158 Local VAT Offices and 6 Specialised Branches to wit: Withholding

Tax Branch, Special Investigation, Tax Audit, Intelligence, Inspection and PAYE. This led to an

operation that was weak and exacerbated by an outdated organisational structure, characterised by

cumbersome and fraud prone procedures, processes and structures as well as a mismatch of staff.

This structure and administration was the product of a misapprehension that taxpayers are

homogenous.

FIRS operations witnessed a paradigm change post the activities of the SG and WG and this led to a

restructuring of FIRS into a function – based organisation as well as a segmentation of taxpayers79 so

as to be better positioned for service delivery according to the needs of taxpayers. Today FIRS is

structured into Departments, Regional offices, ITOs, LTOs and Stamp Duty Offices.

3.3. Autonomy of SBIRs

Section 88(2) PITA stipulates that SBIRs shall be autonomous in the day to day running as it relates

to their technical, professional and administrative affairs. This provision is currently being complied

with by SGs in the federation. To move tax administration forward, there have been calls for SGs to

79 FIRS moved away from a one-size fit all approach and developed organisational and operational structures on the basis of two taxpayer segments: the large tax payer and the non – large tax payer. The former is comprised of companies operating in the oil and gas, aviation, telecommunications industries as well as any other company whose annual turnover amounts N1billion, while the latter is comprised of any company who does not fall into the class of a large tax payer as well as individual taxpayers and they can also all be referred to as Small and medium taxpayers. Under the new arrangement, Large Taxpayers are to interface with FIRS via the Large Taxpayers Offices (LTOs) and they are under the Large Tax Department (LTD). Small and medium taxpayers interface with the FIRS via Integrated Tax Offices (ITOs) and they are under the supervision of the Small and Medium Taxpayer Departments (SMTD I and II). LTOs and ITOs are one - stop - shops which deliver all tax services. Segmentation as an approach to tax administration is a recommendation of IMF. It has been employed by Malawi and Tanzania. See East AFRITAC Annual Report for Year 2009. Available online at http://www.eastafritac.org/images/uploads/documents_storage/EastAfritac_AnnualReport_2009.pdf (last accessed May 3, 2011)

25

comply with this provision80 and states like Lagos and Adamawa have complied by granting

autonomy to their respective state revenue services.

4. CONCLUDING REMARKS

The intention from the beginning was to highlight as much as possible the cornerstones of the

Nigerian tax system without any conjecture touching on their form. This was done from two

perspectives: an examination of the planks on which the system stands and the reforms in the system.

What remains to be done is to attempt to highlight the relationship between the reforms in the system

and a sustained development of the polity. According to the World Commission on Environment and

Development (WCED),81 sustainable development is development that meets the needs of the present

without compromising the ability of future generations to meet their own needs. Put differently, it is

a conglomeration of thoughts that has as part of its baseline, intergenerational and intra - generational

equities and the orientation that ‘the earth belongs in usufruct to the living’.82

The proposition that the reforms in the system as well as the use to which the revenue collected is put

flies in the face of sustainable development is suspect. The foregoing is the product of a

misunderstanding of the ramifications of the Nigerian tax system, the reforms therein – and taxation -

and development. There is a positive relationship between the system and development in Nigeria;

the same is the case with reform of the system and a sustainable development of the polity. This is

because one of the goals of the reform as it relates to tax administration at the federal level – which is

under the superintendence of FIRS – is to ensure a maintained increase in the non – oil Gross

Domestic Product (GDP) ratio of the nation’s income. With the attainment of this, there is bound to

80 See Communiqués issued after the 114th and 115th JTB Meetings held at Gateway Hotels, Abeokuta, Ogun State between 19th – 21st June 2006 and at Benue Hotels Ltd, Makurdi between 4th – 6th September 2006 respectively

81Otherwise referred to as the Brundtland Commission, after its chair, Norwegian Prime Minister Gro Harlem Brundtland82At common law, the doctrine of usufruct is linked with the doctrine prohibiting waste, which has been defined to mean

‘a spoil or destruction in houses, gardens, trees, or other corporeal hereditaments, to the disheison of him that hath the remainder or reversion’. This means that each generation has a title to the earth and all therein that is akin to a life tenancy. This means that that each ‘living generation’ is entitled to use and profit from the earth’s resources (human and otherwise) with no generation having a superior claim to the earth or her bounties. See Frischmann, BM, ‘Thoughts on Shortsightedness and Intergenerational Equity’ (2005) Vol. 36 Loyola University Chicago Law Journal, 457, 460 et seq

26

be a reduction in the dependence on oil revenue. The consequence of this also includes the fact that

the Nigerian environment will be spared further degradation now and in the future. The reform in the

system is capable of achieving processes and structures that will guarantee the entrenchment of

intergenerational and intra - generational equities founded on the principle of distributive justice,83

rooted in equality and utilitarianism.

In more precise terms, the reforms as it relates the NTP has succeeded in making it – as earlier stated

– a product of the participation and input of a great majority of the populace84 and it reflects a bottom

– up approach to the formulation of policies. As a result of this, there is bound to be a feeling of

collective ownership and responsibility as it relates to the NTP and its successful implementation.

With reference to the gamut of tax laws, the reforms amongst other things is putting in place a

superstructure via which better socio – engineering cum sustained development of the polity can be

achieved.85 And by reforming the administration of the system, efficient and more taxpayer - oriented

organisations that are better placed to help in increasing the state’s revenue are created. And with the

achievement of these, there is bound to be development within the polity. Sustain these reforms,

there is bound to be as a corollary, sustained funding for the development of the polity.86

Furthermore, without prevaricating, the conclusion is that taxation is the only clean and sustainable

source of revenue for government expenditure. Its other virtues include the fact that it has the

83 Distributive justice is a normative principle which posits that the benefits and burdens of the wealth of a community should be shared on the basis of equality. The principle underscores the fact that everyone should have the same level of material goods and services. In relation to the environment, it portends that it is only fair that every generation is exposed to the same quality of wealth/ resources of the environment notwithstanding its place in the continuum of time

84Internationally, public participation has been accepted as a criterion for sustainable development. Agenda 21 - a global action plan for all states on development and the environment and a product of the United Nations Conference on Environment and Development (UNCED)1992 - provides that:

One of the fundamental prerequisites for the achievement of sustainable development is broad participation in decision making

See Paragraph 23.2, UNCED, Agenda 21. UN Doc. A/CONF. 151/26/Rev.1, 31 ILM 874 (1992)85 For example by virtue of the refund mechanism in the FIRSEA and its operationalisation, there is a likelihood of

taxpayers gravitating towards voluntary tax compliance. With this, the cost of collecting the revenue will be reduced and more funds will be retained for developmental purposes

86See Okello, A, Tax Administration Reforms – Recent Trends and Developments, being a presentation at the Compliance Management in Tax Administration Workshop, Nairobi, Kenya, November 3 - 7, 2008; available online at http://www.eastafritac.org/images/uploads/documents_storage/TaxAdminComplianceStrategies_Presentations.pdf (last accessed May 4, 2011), where the presenter made a similar assertion vis – a – vis tax administration in East Africa

27

capability of stimulating economic growth and development; it serves as a link between the citizens

and government; it strengthens democracy and accountability, and it can be used to promote equity

within the society as well as ensure that every individual has access to a minimum set of services.

With reference to the system as a unit, the verdict is that albeit the foregoing, there is still room for

improvement. It is yet to achieve the status of a system that is ideal, efficient and capable of

generating sufficient revenue for the state and obviate the need and/ or dependence on oil revenue or

on funding from abroad. The system is yet to achieve its full potential. What it is today is not the best

it can be although it is a far cry from what it was some ten years ago. The improvement of the system

as well as ensuring that it reaches its apogee is possible only by a collective effort. Every taxpayer

has a stake in its improvement cum advancement. The foregoing conclusion is as product of the

recognition of the fact that we are stakeholders in the system, either as employees of entities whose

responsibility is tax administration or as tax payers or as citizens of Nigeria. Thus it has to be stated

that the on – going reforms programmes in the system is the right step in the direction of

improvement, advancement and sustainable development

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