SMES TO PROVIDE 20% OF TAX BASE

Nigeria 2019 | ECONOMY | VIP INTERVIEW

TBY talks to Babatunde Fowler, Executive Chairman of Federal Inland Revenue Service (FIRS), on increasing tax revenue, SMEs, and expectations for 2019.

The Federal Government managed to increase tax revenue by 42% in 1H2018. To what do you attribute this success?

This success is the result of certain measures. First, we implemented changes within our staff, ensuring we had the right people in the right positions. Second, we increased our level of education for both tax administrators and taxpayers. Finally, we deployed technology that makes filing taxes more convenient and transparent for taxpayers. FIRS signed an MoU with the state revenue boards so that we are able to exchange taxpayer information. We added 800,000 new corporate taxpayers in 2016. Due to these efforts, -FIRS and states have over 19 million taxpayers nationwide by 2018. We focused on technology. We have made it extremely easy for any corporate organization to pay tax, download receipts, and go through the refund process. Therefore, taxpayers are willing to pay without worrying about making a mistake, which would mean not getting their credit back. On top of that, we have effective monitoring to regulate compliance. Taxpayers realize that they will not be left alone; even if we are not knocking on their doors in six months, we will be knocking in 12 months. The tax administration at both state and federal levels has changed, and they are starting to see this. To date, no Nigerian has ever been sent to jail for tax evasion. However, now there are consequences, and the Economic and Financial Crimes Commission (EFCC) can question people or meet them to discuss their situation. We may have been lenient, but now we are bringing the consequences into light.

What is the reason for huge disparity between tax collection from different states?

In line with the constitution, every state has the opportunity to share from the Federation Account on a monthly basis. Many states do not look inward but wait once a month to get money and then run their budgets. With dropping oil prices and falling revenue in the Federation accounts, the allocation to each state has also automatically dropped; over a period of three months, the allocations dropped more than 30%. As a result, the states that depended on the federal allocation found that there was not enough money. Some states, particularly, Lagos state, had to look inward and make sure they could financially fulfill their obligations without the federal allocation—that is why Lagos is a leading example today. About five or six states began this process before the others, with some states bringing in 40% of their budgets from internal revenue. The remaining states have now realized they have to change this approach and tax their residents, whether it is a popular policy or not. Some worry that taxation will make them unpopular for upcoming election. But once people start to see the benefits of what the government is doing with the tax revenue, they will begin to appreciate it more.

How hard is it for you to raise awareness about the importance of paying taxes and its benefits?

We are engaging with our primary stakeholders. For the first time, the FIRS has reached out to meet all its stakeholders in hospitality, entertainment, business, and politics. Members of the House of Representatives and Senate are sitting with us to discuss their current year's budget and strategies for improving the revenue drive. They give us ideas based on our limitations; we are bringing every stakeholder into the picture so they can see the benefits of working together.

Which sectors seem the most promising for increasing tax revenue?

In terms of number of taxpayers, we are looking to add more SMEs. They currently contribute less than 5%, and if you look at their contribution to GDP, they should be contributing nothing less than 35% of the total tax revenue. We have met with them and engaged with them, while taking other measures based on information that we have to ensure that none of them are left out of the tax net, whether they run an enterprise, a small-business, or a limited-liability company.

What is your vision for achieving these goals in Nigeria?

I believe that if we continue with the same pace, we can reach 20% of the tax mix comprised of revenue from SMEs by 2019. The government fully supports us. Some projects may take a year or more to develop, but citizens' believe in the tax system is uplifted even when they see work in progress.

What is your outlook for 2019?

Just like some of the other oil-rich countries, we never imagined that taxation would be the main way to generate revenue. Now we appreciate the fact that oil is a resource with a price determined by more developed countries, and with that, we are disadvantaged. There is a 2026 agenda for African countries to be able to fund their budgets internally without grants or aid. It is something we can do right now. Nigeria can show the rest of the world that it can transform within a short time and fund its own budget with taxation as a primary source of revenue.