More specifically, the current selling crude price is below the cost of production for Nigerian crude producers. The prices of Nigeria’s benchmark crude oil grade, Bonny Light, have simply crashed. According to a Bloomberg report, it traded at $12 and $13 per barrel between Monday and Friday last week. The report relied on data gathered from traders monitoring the West African market.
It also falls short of the revised budgetary benchmark of $30 per barrel. Notwithstanding the supply cut by the Organisation of Petroleum Exporting Countries (OPEC) and its allies (OPEC+), lockdowns in most cities of the world have led to a drop in demand for crude oil. Factories, industries and machines have ground to a halt in several countries and airlines have also had to shut down operations.
More, with a tax to gross domestic product (GDP) ratio of about 6 per cent, which is one of the lowest in the world, the Federal Government, more than ever before, needs to take concerted steps towards aggressively raising non-oil revenue in the country.
These have been the focsus of the executive chairman of the Federal Inland Revenue Service (FIRS), Mr. Muhammad Nami, since he assumed office in December 2019. Nami is pushing enhanced revenue generation through efficient and accountable processes and templates.
The new tax chief is a certified tax, accounting and management professional with privileged credentials. He navigates with top-tier professional practicing licenses and about 30 years of practical working experience in auditing, management and tax advisory and management services to clients in the banking, manufacturing, services and public sector as well as non-profit organisations.
Hear him: “Nigeria’s economy has been in dire straits, with attendant socio-economic challenges. It is as a result of these challenges that the present administration of President Muhammadu Buhari has been making strident efforts towards putting the economy back on the track.
“Part of these efforts is the administration’s attempt towards making tax revenue generation and collection the cornerstone of its economic recovery efforts. This task, as enormous as it is, requires masterstroke measures, resilience in policy implementation and foresight to evolve novel ideas.”
Nami spoke to Nigerians following his appointed.
According to analysts at Mckinsey, a global management consulting company, in a recent report, for Nigeria and other developing countries to unlock their tax revenue collection and achieve their higher revenue targets, reforms are imperative.
The report further observed that, while auditing would not only detect and penalise evasion attempts, it would also signal a tax administration’s intention to prioritise more aggressive enforcement.
It correctly noted that, “Most rapidly developing economies lack the advanced analytic tools and databases necessary to flag and follow up on suspicious taxpayer behaviour automatically. Nonetheless, simply segmenting taxpayers according to attributes such as size, sector, and past behaviour can help tax authorities quickly perform a risk analysis identifying discrepancies between an individual taxpayer’s behaviour or payments and that of his or her cohort.
Going forward, from empirical developments at FIRS, under the leadership of Nami, the new tax boss seems to have bought unstintingly into the essence of the Mckinsey insight and instigated innovative reforms in the service. Nami has emplaced a regime of policy reforms anchored on deployment of information communication technology (ICT) to block leakages. Other measures were also taken to motivate members of staff to positively change their attitude to work.
From the final performance result in revenue collection in Q1 by FIRS, it was revealed that the service posted a new collection record of 15 per cent increase, compared to the Q1 2019. This clearly had linkages with the widespread policy reforms and institutional re-organisation he initiated.
According to Abdullahi Ismaila Ahmad, director, communications and liaison department, FIRS, in a recent press statement, it is a “new record in revenue collection.”
“Traditionally, Q1 collection results have been notoriously low as a result of limited economic activities within the period, which business analysts trace to the festive hangover of the New Year celebrations, delay in budget presentation, which was a New Year ritual in the country for decades under the military, limited clarity about government policy directions after the budget had been presented and consumer spending caution and limited liquidity following lavish festivities of preceding December month and January 1 New Year celebrations,” he said.
Ahmad, however, noted the historic final performance in Q1 2020 was particularly remarkable as the period coincided with two adverse global developments on individuals, businesses, and nations, a global fall in the price of crude oil price, which is the country’s foremost cash cow, and the shutdown of the global economy by the COVID-19 pandemic.
In the final computation of the Q1 2020 results, a comparative analysis of the two periods shows that the Q1 2020 collection of N1,203,310,372,900.34 is over N156 billion higher than its corresponding Q1 2019 collection of N1,046,889,787,060.27. This translates to 15% increase over the previous year’s first quarter collection.
The Q1 2020 performance result shows an astronomical increase in collection trends. Capital gains tax recorded 568% increase to N643,935,849.06, from N96,408,740.90. Gas income tax rose by 420% from N2,977,345,332.31 in Q1 2019 to N15,489,264,736.92 in Q1 2020. Even petroleum income tax increased by 9%.
Other taxes such as companies income tax increased by 152%, N102,610,369,777.73 in Q1 2020, compared to N40,696,980,658.52 for the Q1 2019; NITDEF rose by 522%, Q1 2020, N691,206,855.85, to N111,037,797.16 for the Q1 2019; and stamp duty increased by 40% from N3,386,648,663.85 in Q1 2019 to N4,750,893,578.48 in Q1 2020.
Value added tax increased by 27% at the customs level and 13% at the non-import level.
It is worth noting that the passage of Finance Act 2019 led to a drop in withholding tax rate from 5% to 2.5% in some sectors. The act also tinkered with pre-operational levy (levy paid by taxpayers to obtain TCC) thereby resulting in a 5% collection in Q1 2020, a drop from 7% in Q1 2019. With the full take-over of Pay As You Earn (PAYE) and Personal Income Tax (PIT) in the FCT by FCT-IRS, the FIRS lost all FCT collection, which led to the fall in both PAYE and PIT for Q1 2020.
Despite the significant grounds FIRS has covered, the expectation is that the agency will build on its positives and achieve more. Here, Mckinsey’s additional advisory is important: “Effective communication promotes voluntary compliance. By communicating specific tax initiatives even to residents who weren’t necessarily affected by them, one country more than doubled their impact because the general population felt obliged to comply with broader tax rules.”