September 29, (THEWILL) – The adoption of strong technology-driven reforms by the Federal Inland Revenue Service (FIRS) shows evidence of guaranteeing the growth trajectory of the nation’s tax revenue seen in the last five years.
This must have spiked the confidence underlying the FIRS leadership’s position that the agency would amass a record N20 trillion in tax revenue in 2024.
The FIRS chairman, Zacch Adedeji, recently stated that the federal government was on track to achieve its N19.4 trillion revenue target for 2024 as it pursues the technology-driven initiatives aimed at addressing tax collection deficiencies.
Adedeji noted that increased crude oil production this year, along with a stronger focus on tax compliance, was helping to reverse the previous downward trend. However, industry experts stress the importance of maintaining the tempo of the technology-driven reforms for easy tax collection and compliance which are germane to expanding the tax net and boosting tax revenue.
According to the FIRS chairman, the agency plans to boost tax efficiency by overhauling outdated tax laws, such as the Stamp Duty Act, which was established in 1939, before the existence of internet connectivity or any modern societal features.
“We set a target of 19.4 trillion naira for ourselves this year. We are almost in the third quarter of the year and with the figures we are seeing so far, I can say we are on the path of achieving our target,” he said.
Industry experts who spoke to THEWILL noted that the focus on the use of technology by the revenue agency is the surest way of achieving the needed tax compliance and expanding tax net necessary for attaining the almost N20 trillion revenue target of the FIRS.
“The world is moving towards technology. Tax payers are willing to show compliance and support the government’s tax revenue expansion when they are motivated to adopt technology in the process,” said Desmond Omojola, a tax expert.
He noted that this was the major reason the federal government constituted the fiscal and tax policy reform committee in 2023. The committee which is headed by Taiwo Oyedele, a renowned tax expert, has rolled out some fiscal measures which include tax exemptions for manufacturers, farmers and those who earned below a certain monetary benchmark.
The committee had submitted its all-inclusive reports to the president, which cover efficiency in tax collection, reduction of the number of taxes from about 60 to single digit and also the digitization of tax collection across multiple industries.
In the first quarter of 2024, the FIRS announced that the country recorded N3.94 trillion in tax revenue, a 56.7 per cent increase from what was recorded in the same period the previous year.
Omojola stated that the Taiwo Oyedele Committee focused on technology-driven reforms towards achieving its target because, according to him,, “in this era of technology, you cannot make progress by operating the old way”.
The FIRS in October 2022 has issued a Public Notice announcing its intention to deploy the Sentinal National Payment Gateway (“Sentinal” or “the Gateway”) developed by e-Technologies Global, a UK-based Fintech company. Sentinal is a technology system that would provide the FIRS with the ability to collect taxes on gaming transactions in real time; thereby improving tax compliance with respect to companies providing online gaming services.
According to reports, Sentinal will allow integrated payment service providers to deduct taxes at transaction-points and remit the same directly to the Government’s Treasury. Though there is no cost to the Government, the fee for using Sentinal will be deducted from the payments due to the online gaming operators, which may pass the additional cost to their customers.
To achieve this, FIRS mandated all Nigerian and non-resident companies (NRCs), offering online gaming services to Nigerian customers, to connect to the Gateway not later than 31 December 2022, enjoining affected companies to comply with its requirement or they will be penalized for failing to do so in accordance with relevant laws
“Though Sentinal can be deployed to collect taxes at source in real time from the e-commerce industry, the FIRS has limited the deployment to online gaming transitions for now. It is possible that this may change in the future.
“The FIRS’ attempt to capture online gaming transactions in the tax net and ensure tax compliance by the companies operating in the industry is unsurprising, given the significant growth and expansion of the industry in recent years.
“With Nigeria’s revenue challenge as shown in the proposed 2023 Budget, the move to simplify tax compliance and collection of taxes in the industry from a transaction-point is timeous”, KPMG, renowned global tax and advisory service firm said in a note.
Recently, the FIRS announced plans to implement a digital solution called ‘FIRS e-Invoice’, aimed at improving tax administration and compliance in Nigeria.
According to Adedeji, this initiative which aligns with the Tax Administration and Enforcement Act of 2007 is part of the FIRS’ ongoing digital transformation strategy.
He noted that the e-Invoice system would facilitate real-time validation and storage of transactions across business-to-business, business-to-consumer, and business-to-government transactions.
An e-invoice, or electronic invoice, is a document that is exchanged between a buyer and a supplier in a structured data format. E-invoices can be processed automatically and electronically, and they remain digital throughout their lifecycle.
The introduction of the e-invoice, among other initiatives, is seen as a crucial step towards modernizing Nigeria’s tax system, ensuring efficiency, transparency, and better compliance.
Adedeji stated that the evolving tax environment presents both challenges and opportunities and leveraging technology is essential for creating a more sustainable and equitable tax system.
“Our collective efforts will pave the way for a more prosperous and resilient Nigeria. As we move forward, we encourage you to support these initiatives with constructive feedback and collaboration.
“By doing so, we can all build a stronger, more resilient economy that benefits everyone,” he said.
Nigeria is grappling with one of its most severe cost of living crises in decades, with inflation reaching 33.4%, according to the National Bureau of Statistics (NBS).
Despite being densely populated, with a large youth demographic, the country continues to face revenue shortfalls due to low economic output and widespread unemployment.\
Nigeria’s revenue-to-GDP ratio is among the lowest in Africa, contributing just 10.8% to the GDP.
Amid significant drop in oil revenue in recent times, the Federation Accounts Allocation Committee (FAAC) has recorded increased revenue proceeds arising from improved tax collection.
Data from the FIRS revealed that the revenue agency grew its tax collection from a paltry N4.9 trillion in 2020 to N12.37 trillion in 2023 and N3.94 trillion in Q1 2024.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
