By Michael Chibuzo
In the first part of this piece, I did a synopsis of the Nigeria Tax Bill, one of the four historic tax reform bills sent to the national assembly by President Bola Tinubu in October and in my opinion, the most important. The Nigeria Tax Bill basically compressed all the taxes payable in Nigeria into one piece of legislation and as a result will lead to the repeal of 11 laws that contain provisions on imposition and collection of some major taxes.
In this second part, I will delve into the other three bills, highlighting some of their key features. These bills include: the Nigeria Tax Administration Bill, 2024; the Nigeria Revenue Service Establishment Bill; and the Joint Revenue Board Establishment Bill.
THE NIGERIA TAX ADMINISTRATION BILL
While the Nigeria Tax Bill is a compendium of taxes payable in Nigeria, the Nigeria Tax Administration Bill (NTAB) outlines the framework for the administration of the provisions contained in the Nigeria Tax Bill. The NTAB basically provides for assessment, collection of, and accounting for revenue accruing to federation, which comprise the federal, states and local governments. It also outlines the powers and functions of tax authorities and other related matters.
NTAB clearly shares tax collection responsibilities to federal and subnational tax authorities
In the preliminary provisions of the bill, specifically section 3, the NTAB clearly delineated the jurisdiction of tax authorities and the categories of tax payers the various tax authorities are authorised to collect tax from. Specifically, in section 3(1)a, the Nigeria Revenue Service (or FIRS) is mandated to exclusively administer taxes:
i. on Companies (both resident and non-resident);
ii. on Personnel of the Nigerian Army, Navy, Air force, and Police;
iii. on Personnel in Nigeria’s foreign missions;
iv. on Non-resident persons who derive profit or income from Nigeria;
v. contained in specific chapters/parts of the Nigeria tax bill – these include: development levy, relevant taxes on export processing and free trade zone entities, insurance companies, lottery and gaming firms, mutual funds, mining operations, petroleum operations (royalty and profit tax), value added tax, and excise duties.
Section 3(1)b of the NTAB further gives the National Revenue Service power to administer other taxes in which state or FCT tax authorities also have powers to administer. Section 3(2)a conferred on the tax authority in a state or the FCT powers to be responsible for the administration of taxes:
i. on Personal income arising from many sources including salaries, business profit, dividends, disposal of assets etc.
ii. on resident persons’ income
iii. on dutiable instruments (stamp duties)
The NTAB is also carefully drafted to help Nigeria become a nation with a progressive tax system. Currently, those with low income pay more taxes than the rich by proportion. In fact many rich people and businesses do not pay income/profit tax because of the many loopholes in our various tax laws and the poor institutional framework to ensure tax compliance. All these will change with the new Nigeria tax administration act (once it is passed by the national assembly).
NTAB draws the rich into the tax net
The tax administration bill in section 28 mandates every bank, insurance company, stock broking firm or any other financial institutions to give a quarterly report to the relevant tax authority specifying the names and addresses of new and existing individual customers whose cumulative transactions in a month amount to N25 million or more as well new and existing corporate customers whose cumulative transactions in a month amount to N100 million or more. This is obviously for the purpose of sifting out richer individuals and larger businesses to enable the tax authorities at the federal and state levels go after them to pay their fair share of tax.
Section 50 of this bills also goes on to provide for deductions at source in the case of dividends, rent, royalty, Director’s fee and payment to entertainers and sports persons. This means, those making these categories of payments would have to deduct the relevant taxes from the amounts before they pay the recipients. For example, a footballer or musician who earns an amount above the tax exemption threshold, would have the relevant taxes on those income deducted by the employer of the footballer or music firm before paying the rest of the money to the footballer or music artiste respectively. This ensures that less rich persons successfully evade tax.
Recall that in the Nigeria Tax Bill, individuals who earn income of N800,000 and below are totally exempt from paying income tax unlike what is currently obtainable. Those earning up to N3.0 million also would pay lower income taxes (15%) compared to what they are currently meant to pay (21%). This simply means, minimum wage earners are basically exempt from paying income tax while individuals who earn higher will progressively pay taxes in line with the rate applicable to where their income falls into in the income. The maximum rate of course is 25%, which is still one of the lowest in the world. At 25% income tax rate, only 47 countries out of 155 countries have a lower rate than Nigeria.
The anticipated increase in revenue from this greater enforcement of income tax on the rich would benefit the states more because they are the incomes that collect income taxes from all residents within their states while the national tax authority (NRS or FIRS) collects corporate income tax. So, either way, the faithful implementation of section 28 of this bill when passed into law would increase revenues available to both the federal and subnational governments.
Payment of taxes and royalties in Naira
Section 38 of this bill contained a crucial provision that will tremendously help stabilise the Naira by potentially reducing pressure on our forex market. This sections provides that tax, including royalty assessed in a currency other than the Nigerian Naira, maybe paid in that currency, or in Nigerian Naira at the prevailing exchange rate in the official exchange rate market. This basically allows taxable persons or entities to pay in Naira even when their taxes or royalties are assessed in foreign currencies.
Increasing Efficiency of Enforcement of Regulatory Bodies
As we saw in the Nigeria Tax Bill, NRS (or FIRS) is the tax authority empowered to collect the taxes, dues or levies that regulatory agencies like Nigeria Ports Authority (NPA), Nigeria Customs Service, Nigeria Upstream Petroleum Regulatory Commission (NUPRC), Nigerian Maritime Administration and Safety Agency (NIMASA), and many others hitherto collected, allowing these bodies to focus on their regulatory functions. The Nigeria Tax Administration Bill on its part has made provisions that ensures synergy between the NRS and some regulatory agencies (that it inherited their revenue collection functions), have power to issue or revoke licences when it comes to enforcement against companies or individuals who default in paying their due taxes or levies to the NRS.
Section 62 in particular provides that NRS shall notify the Nigeria Upstream Petroleum Regulatory Commission or relevant regulatory authority in the petroleum or mining sector that a company engaged in petroleum or mining operations has not paid royalty or tax due even after a demand notice had been issued to the company. The essence of the notification is to enable the regulatory body to revoke the defaulting company’s license or lease under the relevant act.
Tax Investigation, penalty, tax recovery and reward for tax fraud whistle blowing
Section 63 of NTAB empowers NRS or other subnational tax authorities to investigate any suspected case of tax evasion whether it was reported to it or not. In fact, in carrying out such an investigation, section 63(3) gives the tax authority to look into the properties owned by a taxable individual especially when it appears that the lifestyle of the person and the extent of properties are not justified by his source of income or in line with the tax declaration or compliance. Section 64 of the bill goes ahead to specify penalties for non-payment of tax while section 66 outlines steps to be taken by a tax authority to recover tax. Section 67 empowers tax authorities to reward whistle blowers whose information helped the tax authority in the performance of its duties of tax collection and ensuring tax compliance.
Deployment of Technology to automate tax collection
The tax administration bill, in section 69, is also making provisions for tax authorities to deploy technology to automate tax administration processes such as tax assessment, collection, accounting and information gathering. This section also specifically permits the revenue authority to use third party payment processing platforms or computer software to collect or remit taxes due on the supply of digital services to any person in Nigeria, whether or not such supply of digital services originates from within or outside Nigeria.
What this provision basically implies is that NRS for instance can use the same payment platform that digital service companies (such as Facebook, X, Netflix, YouTube, Spotify etc) use to receive payments from its subscribers in Nigeria who subscribe to their paid services/content for the purpose of collecting and remitting relevant taxes imposed on such digital services like VAT. This potentially means efficient collection of taxes and massive boost to government revenues.
Deduction of unremitted revenues by MDAs from their budgetary allocations
Section 76 of the NTAB empowers the Accountant-General of the Federation to deduct all unremitted revenue due from any ministry, department, agency or government from its budgetary allocation or such other money accruing to it, and he shall immediately remit such deductions to the relevant tax authority. What this means in essence is that if for example, an agency of government collects VAT, stamp duties etc as a registered agent of the NRS but fails to remit all or some of the collected revenue to the NRS, the NRS chief executive officer would issue a warrant to the Accountant-General who will deduct within 30 days of receiving the warrant, the unremitted amount from the budgetary allocation that is due to that agency or government. This will improve revenue remittance by government MDAs and curb leakages and corruption.
VAT Revenue Distribution and Derivation Reforms
Section 77 of NTAB is what is generating controversy between the states and the federal government. This section provides for the distribution of the VAT collected by virtue of the operation of chapter six of the NTB in the following manner:
1. 10% to the federal government
2. 55% to the state governments and the FCTA and
3. 35% to the local governments.
From the above provision, it can be readily seen that the federal government’s share of VAT has shrunk from 15% to 10%. However, the contentious part is the provision for distribution of 60% of the VAT revenue standing to the credit of the states and local govts on the basis of derivation. This proposed derivation model is not stated in this section 77 of the NTAB but in section 22(12) of the bill. That section 22(12) provides thus: “for the purpose of attribution, any returns under this section shall provide details of derivation of taxable supplies by location in a manner prescribed by the service.”
So, what would count in the computation of VAT derivation is the place of supply and consumption and not the place of remittance of the collected VAT (except the location of collection of the VAT and remittance are the same). Meanwhile, 20% out of the remaining 40% would be shared on the basis of population size while the remaining 20% would be shared equally.
In the current VAT Act which is in force, 20% of the amount standing to the credit of the states and local govts is distributed based on derivation. Although it is also not stated in the Act, however the other 30% of the amount is distributed on the basis of population while 50% is shared equally among the states and FCT. The derivation model for this one is however based on the place of remittance, which attributes to Lagos and Rivers State a sizeable portion of the VAT revenue because of the prevalence of company headquarters in Lagos and Rivers (mostly oil companies).
But in 2021 Rivers State government went to a federal high court in Port Harcourt and got a judgement that empowers it to collect VAT and personal income tax in Rivers State. The state assembly immediately passed a legislation assented to by then Gov. Nyesom Wike, which authorised the state to collect VAT exclusively in the state. Lagos followed suit. However, the federal government through the FIRS swiftly appealed the judgement at the appeal court and got a stay of execution of the Federal High Court judgment. Rivers state government and Lagos state who later joined the appeal as interested party appealed the ruling of the Appeal Court on stay of execution before the Supreme Court. The appeals have since stalled while the federal government and the two states sought a political solution.
Apparently the new derivation model contained in the NTAB before the national assembly is an attempt to reach a compromise on the VAT issue. The bill, by clearly stipulating attribution of VAT to location of supply (and not remittance), effectively removes the artificial advantage of Lagos and Rivers that it has in this current model of headquarter remittance. The federal government as a mark of goodwill is also sacrificing 5% of its share, which will serve to equalise the VAT revenue share of other states that may see their revenue reduced in the short term under this proposed model. It is instructive to emphasise that no state will receive less VAT revenue than it currently receives. Instead, they now have opportunity to increase VAT inflows by encouraging economic activities in their states that yields VAT, so that it would attributed to them during derivation calculations.
Instalmental Tax Payment and Funding of Tax Refund Account(s)
The Nigeria Tax Administration Bill in Section 48(1) made provision giving individual tax payers the option to make payment of tax due on or before the due date of filing either in one lump sum or in instalments, provided that the final instalment shall be paid on or before the due date of filing. Apart from this, taxpayer-friendly provision, the NTAB in Section 54(4) mandated the Accountant General of the Federation and those of states to create dedicated Tax Refund Accounts for each type of tax. It further provided that a percentage of money collected by the tax authority be set aside in the corresponding tax refund account for the sole purpose of settling tax refunds.
It should be noted that the FIRS Act 2007 provided for tax refunds and the Finance Act 2020 introduced the requirement for the Accountant-General of the Federation to set up a dedicated tax refund account managed by the FIRS to be funded by budgetary provisions. Unfortunately, this tax refund account have always been allocated a fixed budgetary provision of N25 billion while tax refund applications far exceed this amount leading to many unpaid legitimate refund claims.
Thankfully, what the Nigeria Tax Administration Bill proposed is first, the creation of separate tax refund accounts for each tax type (such as VAT, withholding tax, income tax etc) and more importantly in Section 78(2) of the bill provides that before the distribution of tax revenue, an amount equal to the total tax refund claims compiled by the relevant tax authority is deducted from the gross revenue realised and remitted to the particular tax refund account. So, tax refund accounts will no longer be funded by fixed budgetary provisions but by factual deductions from collected tax revenue before it is distributed. This is a huge relief for both individual taxpayers and businesses.
Establishment of Local Government Revenue Committee
One of the important features of this Nigeria Tax Administration Bill as far as the local government system is concerned is the provisions in Section 88 that effectively strengthens the financial autonomy and survival of the local governments in Nigeria when combined with the administrative autonomy of the local governments affirmed by the Supreme Court. This section, just like Section 90 of the Personal Income Tax Act, established for each local government area of a state, a Committee to be known as the Local Government Revenue Committee (Revenue Committee).
The LG Revenue Committee is to be made up of the Local Government Supervisor for Finance, who will serve as Chairman; three local government councillors as members; and two other persons experienced in revenue matters to be nominated by the chairman of the local government area. Section 89 of the bill foists upon the Revenue Committee the responsibility of assessment and collection of all taxes, fines and rates under its jurisdiction.
It also mandates the committee to account for the amounts collected in a manner to be prescribed by the local government. Also, section 89(2) declares that the Revenue Committee shall be autonomous of the local government treasury and shall be responsible for the day-to-day administration of the Department, which forms its operational arm. These provisions imported from the Personal Income Tax Act are basically aimed at giving further boost to the newfound administrative and financial autonomy affirmed by the Supreme Court in its landmark judgement four months ago.
Establishment of State Joint Revenue Committee
Section 90 of the NTAB provides for the establishment of the State Joint Revenue Committee in each state of the Federation and which shall comprise the Chairman of the State Internal Revenue Service, who shall serve as the chairman; all the Chairmen of the Local Government Revenue Committees; a representative of the agency responsible for local government affairs; state sector commander of the FRSC (an observer); the legal adviser of the State Revenue Service; and a secretary of the committee who shall be a staff of the State Internal Revenue Service.
One of the important functions donated to the committee by the NTAB in Section 91(c) is the harmonisation of tax administration in the state. This crucial function is necessary to help put a stop to multiple taxations seen in many of the states and local government areas.
Offences and penalties
The tax administration bill in chapter four brought under one umbrella all offences related to tax and penalties to be meted out against tax offenders by the relevant tax authority. These offences were extracted from all current tax legislations, most of which would be repealed if the Nigeria Tax Bill 2024 is passed as currently constituted. The penalties for many of these offences were revised upwards and made stiffer in many cases. In addition, new offences not captured in any tax law previously were also included to enhance enforcement and prosecution. This chapter also contained other miscellaneous provisions relevant to the effective administration of tax in Nigeria.
THE NIGERIA REVENUE SERVICE ESTABLISHMENT BILL
This bill basically seeks to rename the Federal Inland Revenue Service (FIRS) to the National Revenue Service. This is to better reflect the national revenue collection functions of the FIRS. The name FIRS makes it appear like just a revenue service for the federal government despite the fact that it currently collects revenue on behalf of the Federation, which are eventually distributed to the three tiers of government by the federation account allocation committee.
So, the NRS establishment bill essentially transfers most of the provisions contained in the existing Federal Inland Revenue Service Establishment Act, 2007 into this new bill and repeals the FIRSEA 2007. This new NRS bill however contains few new provisions that empowers the service to administer all taxes including the other taxes hitherto collected by some federal agencies like Nigeria Customs Service, NUPRC, NPA, NIMASA etc. The five paragraphs in the second schedule of the bill lists all the legislations to be administered by NRS. The bill in section 5 also empowers the service to assist any state or local government, which seeks its assistance to collect and administer taxes they are statutorily empowered to collect and administer.
THE JOINT REVENUE BOARD ESTABLISHMENT BILL
This last bill provides for the establishment of three separate bodies namely: the Joint Revenue Board of Nigeria; the Tax Appeal Tribunal; and the Office of the Tax Ombudsman. The main objectives of this bill is to provide a legal and institutional framework for the harmonisation and coordination of revenue administration in Nigeria as well as to provide a mechanism for efficient dispute resolution on tax matters. The Tax Ombudsman is meant to promote the right of tax payers.
The Joint Revenue Board of Nigeria shall consist of the Chairman of the NRS; the Chairman of each of the State Internal Revenue Service, and the FCT Internal Revenue Service; a representative of the Minister of Finance; DG of NIMC; Chairman of RMAFC; Comptroller-General of Nigeria Immigration Service; Corps Marshall of FRSC; Comptroller-General of Nigeria Customs Service; and any other person, body or agency that the board may co-opt on a need basis but not exceeding two persons.
Section 5 of the bill lists the functions of this proposed Joint Revenue Board. One of the most important functions of this board is however to integrate and maintain database of Taxpayer Identification Numbers for every taxable person in Nigeria in collaboration with NRS, State Internal Revenue Service, Local Government Revenue Committee and other relevant government agencies. Another critical role of the board is to resolve disputes between various tax authorities on the issue of determination of residency. This particular role is very important when it comes to income tax and VAT. The combined activities of this Joint Revenue Board would eventually lead to the eradication of double taxation.
Tax Appeal Tribunal
Section 23 of the Joint Revenue Board of Nigeria (Establishment) Bill provides for the establishment of a Tax Appeal Tribunal, which will exercise the jurisdiction and powers to settle any tax dispute and controversy arising from the administration of the provisions of the Nigeria Tax Bill (if passed into law) and the Nigeria Tax Administration Bill (if passed into law) or any other tax law the national assembly may make. This tribunal consist of five members that will be known as Tax Appeal Commissioners to be appointed by the Minister of Finance.
Section 26 of the bill sets out the term of office for the Tax Appeal Commissioners at three years renewable for another term of three years and no more. The age limit for the Commissioners was set as 70 years. The bill also provides for the appointment of Secretary for each zone whose term is four years, which is renewable for another four years. The age limit for the office of Secretary is 60 years.
Office of the Tax Ombud
Section 35 of the bill established a body to be known as the Office of the Tax Ombud. The Tax Ombudsman shall be appointed by the President on the recommendation of the Minister of Finance and he shall be the Chief Executive and Accounting Officer of the Office of the Tax Ombud. Section 40 of the bill specified the functions and powers of the office of the Tax Ombud. Among other functions, the Tax Ombud has powers to receive and investigate complaints lodged by taxpayers regarding the actions or decisions of tax authorities, agencies or their officials.
The Tax Ombud can also institute legal proceedings on behalf of the taxpayer. Most importantly, Section 40(2) of the bill provides that in the exercise of its functions, the Office of the Tax Ombud shall not charge a fee. This means taxpayers who feel short-changed or aggrieved can approach the office of the Tax Ombud and lodge their complaints without paying any service charge.
CONCLUSION
A critical analysis of the four bills dissected in this series would definitely lead an unbiased analyst to conclude that these bills together represents the most holistic reforms our tax system has ever seen since independence. These bills will modernise tax administration in Nigeria, laying the foundation for a systematic improvement in revenue generation in Nigeria for the three tiers of government. This would shore up the fiscal capacity of these three tiers of government to better fund critical developmental needs of the people with lesser borrowings.
It is also obvious that the tax reform bills were never meant to increase the tax burden on the poor and vulnerable individuals or small businesses in Nigeria. As a matter of fact, by virtue of these bills, low income earners are now exempt from income tax, small businesses are exempt from profit tax, tech start-ups employees are exempt from filing employment tax, there is greater clarity and simplicity in the administration of corporate taxes, specialised taxes on company profits have been collapsed into a single lower development levy, states have the potential to earn more tax revenues and so many other benefits.
For these and other reasons, Nigerians need to impress it upon their elected representatives in the national assembly to do the work they were elected to carry out – make LAWS for the benefit of the majority of the people. These bills must not be used to play political games or flex partisan muscles. Ignorant rhetoric must not be allowed to derail the passage of these bills. Nigeria cannot afford to be dancing around one spot for decades with archaic tax laws and bottlenecks . We must launch ourselves into the future and at this point in time, the Senators and Members of the House.