2020 budget: The imperative of sustaining tax reforms
With the volatility of the oil price in the international market in recent times, it is high time we realised the future lies not in crude but a sustainable tax system based on production. With a single attack on Saudi’s oil installations in the Middle East by suspected terrorists last month, oil price shot to $75 within few days from an average of $60 throughout the year.
But just when oil-dependent countries like us started salivating that another boom might be here again after the meltdown of 2016/2017 that saw the liquid gold tanked at $30, the price came back to less than $60 before the end of October.
The Buhari administration is proposing a N10trillion budget for 2020 with $57 fixed as benchmark for oil. Good enough, after President Muhammadu Buhari laid the budget proposal few days ago, the federal lawmakers expressed readiness to work on the document and pass it in good time with a view to restoring the old January-December budget cycle in 2020.
However, as they say, budgeting is only a declaration of intent to spend. The real challenge is generating revenue to finance it. To this end, the burden will inevitably fall on the nation’s traditional “cash cows” – the Customs and the Federal Inland Revenue Service (FIRS).
Indeed, there is no gainsaying the fact that taxation remains the most sustainable tool to mobilize funds as against the nation’s present over-dependence on oil, moreso considering the volatility of the price of the commodity in the international market. In any case, on account of the less than bullish forecast in the commodity prices in the years ahead, growth projection for most mineral-dependent countries in the nearest future is understandably only marginal.
Apparently aware of this, the Nigerian Customs has recently embarked on some aggressive measures to generate more revenue. Many who initially scoffed at the reports of the closing of Nigerian borders for upward of a month now must have had a change of heart following disclosure by the Customs boss, Colonel Hammed Ali (Rtd), that their takings have improved significantly as those who hitherto exploited our “open door” policy have had to pay due charges and rates to the coffers of the service. So much that the Customs boss reported that on one single day, the Customs netted a whopping N9billion, representing more than one hundred percent rise in revenue.
Added to this are the raids being conducted by the Customs on the dealers of luxury automobiles with a view to ensuring that due levies are paid by the well-heeled on such high-end vehicles.
If this new policy is sustained, hopefully, we should be expecting a better contribution by the Customs to the funding of the 2020 budget. Ali-led Customs had made history in 2017 by posting revenue in excess of N1 trillion. The figure for 2018 was also in excess of N1 trillion. A far cry from the figures recorded in the past. In 2011, 2012, 2013, and 2015, Customs had generated N741.8billion, N850.8 billion, N833.4billion and N904 billion respectively.
To meet up with its own revenue target for the year ahead, the FIRS has proposed upward increase of the Value Added Tax (VAT) to 7.5 percent. If the National Assembly acceded to amending the law, it is estimated that additional N3 trillion will be generated, out of which states and local government will pocket 85 percent, while the Federal Government retains fifteen percent.
But far more is expected to flow into the national coffers if a number of innovative measures already initiated by the FIRS is sustained. The current management under a Tunde Fowler has in the last three years deployed technology and ICT solutions to widen the tax net appreciably. Today, 20 million taxpayers have been captured by FIRS, from the 10 million three years ago.
This was partly achieved through the launching of the consolidated National Tax Data Base to ease access to taxpayers’ information across all tiers and agencies of government.
This perhaps explains the significant growth of FIRS collections by 54 percent from N3.30 trillion in 2016 when Fowler took over to N5.32 trillion recorded in 2018, the highest in the history of the service. What makes it even more significant is that 54 percent of the figure (N2.85 trillion) represents non-oil revenue, indicating the potentials of the nation’s economy beyond oil receipts.
Already, the sweeping reforms championed by FIRS have rebounded in the increased fortune at the state level. The IGR (internally generated revenue) by states grew from N800 billion in 2016 to N1.16 trillion in 2018, representing a growth of 46 percent.
Indeed, tax authorities in the states will attest that they have never had it this good. For the first time in the history of Nigeria, the Federal Government paid all outstanding PAYE tax liabilities owed by federal MDAs from 2002 to 2016, totaling about N135 billion to various state governments.
The reason why the figures have grown is also because FIRS introduced deliberate incentives to make tax administration more efficient and user-friendly. Unlike the past when the process was manual and cumbersome, the burden has been lightened through automation solutions like e-Stamping, e-Registration, e-Filing, e-Payment, e-Receipt and e-TCC.
Little wonder then that in the tax administration section of the World Bank report in 2018 on the “Ease of Doing Business”, Nigeria moved up positively by 25 points. It is expected that the country will move up further when the review for 2019 is published.
Again, Fowler’s introduction of VAIDS has also been beneficial. This refers to Voluntary Assets and Income Declaration Scheme. This has enabled those who were evading tax in the past to take advantage of a unique official window which not only grants them “amnesty” but also enable them to regularize the titles or the names on assets hitherto disguised. To enforce compliance, the service is working closely with financial institutions like banks. So, there is no more hiding place for the rich trying to dodge taxes.
With the renewed efforts to register more through the Tax Identification Number (TIN) campaign, the service is hoping to widen the tax net to 45 million within the shortest possible time, thereby helping the nation achieve a durable fountain for sustainable growth and development.
Indeed, a sustainable taxation system offers the best guarantee for optimum budget performance.
- Solarin, a public affairs commentator, is based in Lagos.