Tuesday 15 December 2020

Governors To Stop Tax Collection Concession As States’ Revenues Decline


Plan to harmonise taxes

Governors of the 36 states of the federation have resolved to stop contracting collection of taxes to consultants, saying the huge commission being paid out to contractors would help swell the states’ internally generated revenue (IGR).

Chairman of Nigeria Governors’ Forum (NGF), Dr. Kayode Fayemi, who is also the governor of Ekiti State, said yesterday the planned review of the policy on revenue collection by states was part of reforms being considered to boost the financial outlook at the sub-national level.

Many states, notably Lagos, have contracted their revenue-collection duties to consultants despite having internal revenue collection agencies. 

This has resulted in the loss of internally-collected revenue in the form of commission to the contractors.

Fayemi, at the sixth Internally Generated Revenue (IGR) National Peer Learning Event in Abuja, also listed other reforms being planned by the states.

He said: “Other reforms being implemented by state governments under the SFTAS programme and as detailed in the “COVID-19 Response for Tax Authorities” issued by the NGF Secretariat and endorsed by us at the forum earlier this year include: ending the contracting-out of tax collections and assessments.”

According to him, another resolve of the governors is to increase collaboration among the internal revenue service, ministries, departments and agencies (MDAs), and local governments; roll-out of tax-for-service initiatives; scale-up of cashless payments; and the deployment of a Geographic Information System (GIS) to support effective land administration and property taxes.

He said this year has presented the states with a perfect storm of difficulties to deal with, from a health pandemic to the second economic recession in five years.

He explained that at the wake of the COVID-19 pandemic, the forum worked with the federal government, international partners and the private sector to deliver the necessary response needed to contain the virus and ease out its impact on the lives of the citizens.

These, he said, include the set-up of intervention funds, roll-out of social investment programmes, distribution of palliatives, initiation of tax incentive programmes to protect and support livelihoods and businesses.

“Unfortunately, the decline in oil prices that followed the global lockdown and the social unrest, which echoed the demands of the #EndSARS protests, further worsened the country’s economic and social conditions for months. This exacerbated the already vulnerable fiscal environment for governments at both the national and sub-national level.

“Other accompanying trends have included rising inflation rate, degrading exchange rate and growing unemployment,” he added.

Fayemi said the governors worked together to reflate the economy, adding that the need to improve government revenues to adequately service planned expenditures cannot be overemphasised.

He said 2020 half-year year-on-year IGR performance reported a negative growth of 11.7 per cent for the 36 states and the Federal Capital Territory (FCT).

However, he stated that despite the overall decline, some states recorded positive growth, adding that three states in this category are Ebonyi, Gombe and Yobe, which recorded more than 50 per cent in growth.

He said the three states would have experiences to share with their other colleagues.

On the new finance bill, Fayemi said: “At the federal level, a new finance bill is being proposed to provide a legal framework that underpins many of the reform recommendations to stimulate the economy and deliver an effective but friendly tax system.

“The forum is actively engaging with the Federal Ministry of Finance, Budget and National Planning on the provisions of the bill, especially those impacting state taxes and jurisdiction. It is important that the bill services the interest of all and not a few.”

At the state level, the governor said they planned to professionalise their internal revenue services to be taxpayer-centric and responsive to the new normal of digitalising tax administration.

He added: “The world’s trade and financial market are going digital and we must adapt or be left behind. We are not canvassing or proposing for new taxes to be introduced but emphasising the need for our internal revenue services to be more strategic, innovative and pragmatic in administering those taxes, fees, levies and charges that have been legally prescribed for collection across various jurisdictions.”

The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, quoted global analysts as saying that Nigeria remains the fastest growing economy in Africa.

She said business and economic indicators anticipated that the country’s path toward economic recovery would commence in the fourth quarter of 2020.

She said: “Overall, economic analysts have predicted that the global economy will recover in 2021, especially with the positive outcomes of the race toward the discovery of a vaccine. For Nigeria, economic analysts forecast that the economy will experience positive growth in the first or second quarter of 2021.

“Going forward, the impact of COVID-19 on the economic and fiscal revenue outlook for 2021 presents a significant opportunity for states to strategise and reposition your fiscal revenue management systems for this era called the ‘new normal’. Fiscal reforms are important now, more than ever, to mitigate against current and future risks, bearing any future pandemics or other global crises.”

She said the federal government has embarked on a fundamental strategy that comprises wide-ranging reforms in its tax policies and administration in the last few years.

For instance, she pointed out, the Finance Act 2019 and the Finance Bill 2020 have brought significant changes and consolidation to tax administration and management in the country.

The minister explained that the Finance Bill 2020 seeks to achieve the promotion of fiscal equity; reform domestic tax laws in alignment with global best practices; introduce tax incentives; support MSMEs and raise revenues for the government.

“Some of the key provisions of the bill include: tax relief for companies that donate to a COVID-19 relief fund; a reduction of 50 per cent in the minimum tax rate from 0.5 per cent to 0.25 per cent of gross turnover for financial years ending January 1, 2020, to December 31, 2020; an exemption from tertiary education tax by companies with turnover of less than N25 million; among others,” she said.

Ahmed explained further that the Finance Bill 2020 will amend extant laws in order to facilitate and strengthen revenue mobilisation and growth in 2021.

She listed the laws to be amended as the Capital Gains Tax Act, Companies Income Tax Act, Personal Income Tax Act, Tertiary Education Trust Fund (Establishment) Act, Customs and Excise Tariff, Etc. (Consolidated) Act, Value Added Tax Act, Federal Inland Revenue Services (Establishment) Act, Nigerian Export Processing Zone Act, Oil and Gas Export Free Zone Act, Fiscal Responsibility Act, Companies and Allied Matters Act 2020, and the Public Procurement Act.

Some of the other ongoing initiatives of the federal government, she said, include the Integrated Revenue Monitoring System; the implementation of the National (Single Window) Project; and the full nationwide adoption of the Joint Tax Board – TIN.

“With these initiatives, we seek to chart a new course for the tax system while addressing tax encumbrances for individuals and businesses in Nigeria,” she said.

Earlier, the Director-General of NGF, Mr. Asishana Okauru, said given the impact of the COVID-19 pandemic, governments at both the national and sub-national levels suffered revenue shortfall and contraction in their tax base owing to the decline in business activities.

He said governments have been compelled to increase public spending to mitigate the impact of the pandemic by setting up testing and treatment centres from scratch and implementing targeted responses in public health, security, public works, social safety and other stimulus-targeted interventions, including tax relief for individual taxpayers and businesses.


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