TOWARDS THE DIGITIZATION OF THE NIGERIAN TAX ADMINISTRATION: CHALLENGES AND PROSPECTS
Hossein Saheed (Hosseinsaheed2004@gmail.com); Bashir Safiya Dawaki (firstname.lastname@example.org), and Adeyemi Aishat Wuraola (email@example.com)
Final year Law Students, Faculty of Law, Al-Hikmah University, Ilorin.
Tax is a compulsory payment made by individuals and corporate organizations to the government in accordance with laid down rules from which no direct or specific benefit is received by the taxpayer. Taxpayers receive no direct or specific benefit from paying tax. Hence, regardless of the bulky amount of tax a taxpayer pays, he receives no special benefit from the government. One of the sources of revenue generation in Nigeria is a tax. It is a source that all the three tiers of government used to generate revenue in the country. According to s1 of the Federal Inland Revenue Service (Establishment) Act, 2007 (FIRSA) which took over from the erstwhile Federal Board of Inland Revenue, taxes payable to the Federal Government are administered by the Federal Inland Revenue Service (FIRS). Notwithstanding, however, with the provision of s87(1) of the Personal Income Tax Act , 2004 (PITA) the taxes payable to the State Governments are administered by the State Boards of Internal Revenue (SBIR) of each states. Local Government also, pursuant to s90 of the PITA, administered by the Local Government Revenue Committee. In the light of the foregoing, this paper focuses on the digitization of taxation in Nigeria, its challenges and possible practicable solutions to aid its efficiency. The writers take doctrinal approach in doing justice to the subject matter. Facts and figures were given where appropriate. Thus, the paper appraises the adoption of digital mode of administering tax administration in both developed countries and developing countries like Nigeria. It also discusses the problems associated with the introduction of digital tax administration system and the possible way out.
Nigeria is a country whose economy is yet to be sufficient and stabled. Thus, due to manual tax payments system, taxpayers are evading and avoiding tax. These, among other reasons, called for digitization of tax administration to curb the persistence problems associate with the payment of tax in the country. On this note, Mr. Muhammad Nami, the Executive Chairman of the FIRS at a workshop in Abuja on Effective Audit of Multinational Corporations for Domestic Revenue Mobilization, states that between 2007 and 2017 Nigeria reportedly lost over $178 billion to tax evasion.
Howbeit, the major source of revenue generation in the country is crude oil. Regrettably, however, according to NNPC in its September 2020 Monthly Finance and Operations Report (MFOR), the global outbreak of Covid-19 infections and restrictions on the movements of citizens as a result of lockdown to curb further spread of the pandemic caused falling of the crude oil prices with Nigerian earning $84.63 million in July 2020 compared to $335.7 million earned in September 2019. With the loss of billions to tax evasion and falling of crude oil prices relied upon as a major source of revenue generation, there is need for the country to ponder on digitization of tax administration as an alternative means of declining oil revenue and curb incessant tax evasion.
In putting a lasting solution to this on the side of the companies, s10 of the Company Income Tax Act, 2004 (CITA) is to the effect that once a company is incorporated by the Corporate Affairs Commission (CAC), it gets what is known as Tax Identification Number (TIN) otherwise known as ‘Incorporation Number’ on the certificate of incorporation which should be displayed by the company on all its business transactions with other companies and individuals and on documents, statements, returns et cetera. The number is used by the Federal Government to identify the number of companies in the country, for tax reporting and to track down the activities of the companies.
In addition to the foregoing, Mr. Yomi Olugbenro, in a conversation on ‘Tax Administration and Economic Development in Nigeria’, made a submission that National Identification Number (NIN), National ID Card and Permanent Voter’s Card (PVC) should be linked to the Tax Identification Number (TIN) to track down the number of taxpayers in the country and improve compliance in payment of tax. However, the submission of Mr. Yomi Olugbenro and the provision of s10 of the CITA, 2004 will not just go a long way in preventing tax evasion and other associating problems but will provide an alternative means of declining oil revenue in the country, identify the number of companies and link individuals to their bank accounts and or incomes.
DIGITIZATION OF THE NIGERIAN TAX ADMINISTRATION
Taking instance from the developed countries of the world, Indian Finance Act, 2018 brought new digital rules to address the challenges that arise from taxation of the digital economy. In March 2018, European Commission did the same thing by introducing new rules under which digital business activities would be taxed.
In conformity with the system adopted by the developed countries of the world in the digitization of tax administration, the Nigerian Finance Act, 2017 made provisions for utilization of technology to improve tax administration. This fall in line with the six key electronic solutions (e-Services) introduced by the Federal Inland Revenue Service (FIRS) to enhance convenient, transparent and smooth round clock processing and payment of taxes in Nigeria. The solutions, which could now be accessed online in the actualization of digitization of the Nigerian tax administration are e-Registration, e-Stamp Duty, e-Tax Payment, e-Receipt, e-Filing and e-TCC. This initiative by FIRS is deployed towards ensuring that the key tax processes are automated in order to improve transparency, ease and speed of tax administration for both taxpayers and tax administrators.
CHALLENGES OF THE DIGITIZATION OF THE NIGERIAN TAX ADMINISTRATION
Digitization of tax administration in Nigeria is important to enhance transparency in tax administration, to improve administrative efficiency and inter alia, reduce the compliance burden. This does not connote that there is no challenges befalling the electronic tax system. The challenges are numerous, some of which are discussed below:
• Lack of readiness in people to pay tax: it can be stated that digitization of the Nigerian tax administration is a step towards simplifying and automating tax administration in the country. Notwithstanding, many Nigerians are not ready or willing to pay tax at all and limited number of them know and understand it is an offence punishable under the law to avoid paying tax without any due course.
• Illiteracy: the figures of literacy rate in Nigeria is very low compared to the developed countries of the world. According to the United Nations Development Programme (UNDP), 69. 1% of Adults are literate in Nigeria. This is the percentage of adults in Nigeria that can read and write. However, the National Commission for Mass Literacy, Adult and Non-formal Education (NMEC) stated that 35% of the nation’s adult population was illiterate. This is an indication that almost half of Nigerians are illiterate. Hence, the fact that 35% of adults in the country cannot read or write is a clear problem to digitization of tax administration. Language of the tax laws are confusing even to the tax authorities and professionals not to talk of illiterates that can neither read nor write.
• Difficulties in understanding the language of computer: electronic tax systems are provided in English language. This language is quite not understandable to the illiterates and therefore, forms a problem to tax digitization in the country. That as it may, many among the literates are comfortable in transacting business in their mother tongue such as Yoruba, Hausa, Igbo et cetera. Thus, this is an era that internet providers such as Google and BBC are providing services in the aforementioned languages to ease understanding of the users.
• Lack of using electronic tax system in tax administration: digitization of tax administration in Nigeria is facing the problem of electronic tax system in tax administration. It is getting to over four years now that the FIRS introduced six keys electronic solutions to tax administration. Notwithstanding, however, only the body has fully automated its taxing process. Manual tax system, as at the time of writing this article, is still in use by many tax authorities in different states of the country except Lagos state and AkwaIbom state. In fact, some companies in the country are still using manual tax system as some of them still use parallel paper-filling process.
• Internet Fraud: this has to do with using internet services or software with internet access to defraud victims. Advancement of technology in this century has given the fraudsters an opportunity to abuse the privilege of ICT. In Nigeria, the so called yahoo boys are not left out from this. They illegally gain access to devices and websites to steal personal information of another person with intention to carry out their fraud activities. This cyber security breaches has made some people unwilling to unfold their personal financial information not to talk of sharing it to another person, and therefore constitutes a problem to the digitization of the tax administration in Nigeria.
PROSPECTS OF THE DIGITIZATION OF THE NIGERIAN TAX ADMINISTRATION
The digitalization of the Nigerian tax administration is not a fresh issue to be addressed. In fact, steps have been taken towards this idea by the Federal Inland Revenue Service (FIRS) in 2017 and other improvements by the state taxing authority in Lagos State. The need for further and efficient digitalization of the Nigerian tax administration has been necessitated by the recent COVID-19 pandemic and other reasons such as the budgetary pressure on the Nigerian economy.
The challenges that faced the implementation of the electronic services introduced by the FIRS range from the requirements to physical action items, the inactivity of online portals, the insecurity of logging in the portal which uses a simple password system et cetera. In the writers’ opinion, however, the originating challenge of this system would be the lack of a predetermined planned and holistic view in approaching this “new territory” especially in a country like ours. The tax system in Nigeria ordinarily have some challenges which could be resolved by its digitalization which emphasizes that this idea is not merely a trend but a necessity. However, some of these problems cannot be resolved by this new idea.
A tax reform needs to have a proposed system that will address the present challenges. It must also consider all aspects that will be affected by the digitalization which make up the tax administration such as taxpayers, tax laws and tax personnel et cetera.
However, to have a justifiable submission on the prospects of the digitization of the Nigerian tax administration, the following principles need to be considered:
• Simplicity: this includes simplicity in tax laws and the procedure of collecting tax. This ensures a system prone to less tax evasion or avoidance by encouraging voluntary compliance e.g. the payment process, the legislation which defines the amount to pay and so on.
• Compliance cost: the reduction of compliance costs in time and money on the path of the taxpayers and tax administrators
• Effectiveness: the tax laws and procedures should be able to address situations and be adaptable to change e.g. laws which addresses the impact of the system on the Rights of people.
In essence, the tax administration should be organized in line with elements of taxation otherwise known as the canons or principles of taxation proposed by Adams smith in his book, The Wealth of Nations. Other considerations to be put in place is the smart use of data analysis and information management system, effective integration of tax database with existing tax database management system, sensitization on the need to pay tax and an in-depth study on the problems facing tax administration.
It is imperative, therefore, to submit that digitization of the Nigerian tax administration will curb tax evasion and enhance tax audit. This will contribute also in helping the government to have the data of individuals and corporate organizations liable to pay tax, perhaps individuals have Tax Identification Number (TIN) linked to their bank accounts and their incomes respectively.
Important to note is the provision of s l10 of the Company Income Tax (Establishment) Act, 2007 which, to the writers, is a step towards the right direction in the country. With the provision of the section, every company now have Tax Identification Number (TIN) which should be displayed by them in all business transactions. This will contribute immensely in aiding the Federal government to keep companies’ data and to track activities of the companies in the country.
In a nutshell, however, before digitalization, diagnosis of the problems of the current tax administration, a proposal of a digitalized tax system and a comparison of both of them inline with the view of resolving those challenges should be done. Also, technological renewal and organizational renewal measures should be also put in place. In case of advancement, and the system of creating procedures before legislation is checked. The possibility of the success of this new administration is feasible but will need a lot of effort.