Experts caution FG’s move to centralize revenue collection through FIRS, as new tax reforms affect NERC, NNPCL,60 other MDAs
Taiwo Oyedele, Chairman, Presidential Tax Policy Reform Committee
Oredola Adeola
Experts have called for caution and proper study for clarity purpose, even as the Federal Government (FG) make moves to centralize revenue collection through the Federal Inland Revenue Service (FIRS), taking the responsibilities off the shoulder of all the 62 MDAs, including Nigerian Electricity Regulatory Commission (NERC) and the Nigeria National Petroleum Company (NNPC) Limited, based on recommendation of the new Presidential Committee on Tax Policy and Fiscal Reforms led by Taiwo Oyedele.
The Experts made this known in reaction to the decision of the FG to centralise revenue collection through the Federal Inland Revenue Service (FIRS) in double its total annual revenue without imposing extra taxes.
Oyedele, Tax Reform Committee Chairman, disclosed during an interview on Channels Television’s Sunrise Daily breakfast program last week, said the 62 other Ministries, Departments, and Agencies (MDAs) should stop direct revenue collection activities.
Oyedele believes that the Federal Inland Revenue Service (FIRS) should be responsible for revenue collection in Nigeria, as concerns have been raised about the country’s relatively low tax revenue collection rates on a global scale.
“Ironically, our cost of collection is one of the highest. And the reason for that is that we’ve got all manner of agencies. The Federal Government alone, we have 63 MDAs that were given revenue targets last year, no; actually, in the 2023 budget.
“And two things that would come up from that: on one hand, these agencies are being distracted from doing their primary function, which is to facilitate the economy. Number two, they were not set up to collect revenue, so, they won’t be able to collect revenue efficiently,” Oyedele stated.
He argues that the cost of collection is high due to the large number of agencies involved, which are being distracted from their primary functions and are not set up to collect revenue efficiently.
According to him, by moving revenue collection functions to the FIRS, the cost of collection and efficiency will improve, and agencies can focus on their work, which will benefit the economy.
Oyedele also suggested that agencies should focus on trade facilitation and regulation rather than collect revenue. He believes that this approach will increase transparency and accountability in how the money collected from the players in the sectors is spent.
THE TWO MAJOR ENERGY INDUSTRY REVENUE GENERATORS
The NNPC Limited is a for-profit oil company in Nigeria that is the only entity licensed to operate in the country’s petroleum industry. It partners with foreign oil companies to exploit Nigeria’s petroleum resources and generates revenue from the sale of oil and gas exports, which account for 98% of Nigerian export earnings. The revenue gained by the NNPC accounts for 76% of federal government revenue
However, data obtained from the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) showed that the NNPC failed to remit N8.4 trillion due from oil proceeds between January 2022 and May 2023.
The NNPC now operates as a government-owned enterprise and commercial-driven entity, but has failed to agree on modalities for the remittance of revenues due to the federation from its operations.
EnergyDay gathered that by nature of its commercialization, NNPC is expected to be paying royalties, dividends and taxes to the government, but not properly structured its revenue remittances framework.
The Nigerian National Petroleum Corporation Limited (NNPCL) has for many years up till June 2023, failed to remit money into the federation account which is why a committee was set up by President Bola Tinubu to reconcile the crisis between the national oil company and FAAC.
NNPCL in July paid an interim dividend of N123 billion, being the first post Petroleum Industry Act (PIA) 2021 remittance to the FAAC for the month of June 2023, which include N81 billion as a monthly interim dividend and N42 billion as 40 per cent oil Production Sharing Contract (PSC) profit.
EnergyDay further gathered that the Nigeria Bulk Electricity Trader (NBET) is a government-owned company that was established to serve as the “bulk purchaser” of electricity generated by independent power producers (IPPs) in Nigeria.
NBET collects revenues from the sale of electricity to distribution companies (DISCOs) and remits the funds to the appropriate parties, including the Nigerian government.
However, despite being responsible for complying with VAT regulations and remitting the VAT to the government, the power sector has been characterized by near-zero remittance more than 10 years after it was privatized.
The Nigerian electricity supply industry (NESI) is subjected to payment of Value Added Tax (VAT), and a significant percentage of the energy generated in Nigeria comes from gas-fired power plants, the natural gas used in these plants is liable to VAT.
REACTIONS
Dr, Joe Abah, former Director-General of the Bureau of Public Service Reforms in Nigeria, in a statement seen by EnergyDay, said that the cost of the collection will go down if FIRS is made the only agency that collects revenue on behalf of the government.
Dr. Abah said that the Federal Government would need to amend the FIRS Act, before going on to ask the FIRS to collect everything.
He said, “However, FIRS has not shown that they are any more efficient or less corrupt than any other revenue-collecting agency, like JAMB. So, there is work to do on that score.
“There is also the possibility that illegal, under-the-table, collections will increase to bypass FIRS. So, there’s more work to do there because even what we are getting from them now may dry up, at least in the short term,” Dr Abah said.
Dr. Boniface Chizea, Chief Executive Officer of BIC Consultancy Services said that the proposal to centralise revenue collection by the Tax Reform Committee is hanging and lacking clarity. According to him, we need more details or better clarity!
He said, “If the revenue collecting bodies should stop doing so, which is their core function, we have not been told how such revenues will be collected going forward.
“If this means we want to explore the tech option, what progress has been made in that respect?
“We caution that we have had enough of taking a leap in the dark as we just experienced with subsidy removal. There must be thorough study and arrangements put in place before any potentially disruptive measures are further experimented with again,” Dr, Chizea said.
Adetayo Adegbenle, the Executive Director of PowerUp Initiatives for Electricity Rights (PowerUp Nigeria), expressed hopes that the Tax Committee’s position might help fast-track the demise of NBET and the transition to bilateral contracts between the Discos and Gencos.
He however called for clarity in what the FIRS and the Presidential Tax Reform Committee intend to do through the recommendations.
A source at NERC informed EnergyDay that anyone is free to talk or make recommendations. He added that any serious recommendation, such as centralization of revenue collections in Nigeria, will be subjected to further scrutiny at the appropriate time.
