Bicci Alli
Revenue refers to all receipts the government gets, including taxes, custom duties, revenue from state-owned enterprises, capital revenues and foreign aid. Nigeria operates a Federal Political structure and has three tiers of Government; Federal Government, State Governments and Local Governments.
The Nigerian Federation comprises of Federal Government, 36 State Governments and 774 Local Governments. Each tier of Government has functions specified in the 1999 Constitution of the Federal Republic of Nigeria. The Constitution also grants taxing powers to the various tier of Government through which needed revenue can be raised to meet the assigned responsibilities.
Executives at various tier of Government are expected to put in place appropriate Legal and Institutional framework to collect revenue in line with provision of 1999 Constitution as a result, at the Federal Level we have Federal Inland Revenue Service, Nigeria Custom Service, Nigeria Immigration Service, Nigeria Port Authority etc., the States have Boards of Internal Revenue and various Ministries, Departments and Agencies assigned with the responsibility of collecting revenue due to the State. Likewise, Local Governments collect rates and levies through suitable administrative structure. In this paper Revenue Authority(RA) refers to Agency of Government at any of the tier of Government responsibility for Assessing, Collecting and Accounting for revenue accruing to that tier of Government. However, greater emphasis will be on Federal Inland Revenue Service (FIRS) and States Board of Internal Revenue. (SBIR)

Recent Trend in Revenue Administration in Nigeria
In the face of fluctuating and dwindling Statutory Allocation, most States cannot pay salaries, meet other recurrent expenditure, had to rely on borrowings at prohibit cost, and put capital projects on hold. There is therefore the pressing need to increase Internally Generated Revenue(IGR). To increase IGR, Governments embarked on various form of reform of the RA believing that such reforms will automatically result in exponential and sustainable increase in IGR.
It disheartens to note that most of the reform effort do not meet the desired objective of increased and sustainable IGR. Accepted that in some instances, the effort might result in increase in IGR, but usually these increases are one off / spikes which are not sustainable. For instance, revenue from back duty and tax investigation is not sustainable. The principal reason for failure of most reform initiatives is usually over concentration on the quantum of revenue that could be raked in within the shortest period possible, instead of holistic evaluation of the RA’s external environment and Administrative structure.
External Environment
The performance, complexity, resource requirements and strategy of the RA depends, to a considerable extent, on the economic environment in which it operates. In other words, most of the reform efforts take care of the Cart (institutional framework) and ignore the Horse pulling the Cart (the external environment). Domestic Revenue that could be mobilised depends on the Economy i.e. IGR is derivate. Therefore, in order to understand the reasons for poor performance of the RA, we might first look ‘outside the box’, beyond the organizational boundaries of the RA, and analyse the impact of important environmental influences on its performance.
a. The Economic Environment
The amount of Domestic Revenue that could be mobilised in an Economy, varies according to changes in GDP, interest rates, exchange rates, consumer confidence and business cycles. A high degree of openness of the economy raises knotty issues of international taxation, such as transfer pricing, tax arbitrage and origin or completion of taxable transactions in foreign jurisdictions. High levels of inflation increase the propensity of taxpayers to delay payment of taxes. The lack of formality in economic transactions, unreliability of business records and low levels of literacy make enforcement of tax laws difficult.
Assuming all other factors are constant, an Economy with a GDP of $500 Million will generate higher revenue than same economy with GDP of $400 Million. Also, in situation of drop in GDP, the amount of revenue that could be mobilised will also drop. Furthermore, the degree of informality in an Economy will determine the amount of Domestic Revenue that can be mobilize within the economy. A case in point is VAT. One may ask to what extent will FIRS be able to raise appropriate revenue from VAT on Electronics Products giving the high level of informality within the Electronics market in Nigeria.
How does FIRS trace the transactions of operators in Alaba International Market and Computer Village in Lagos for imposition of appropriate Taxes? Considering the degree of informality, can the Chairmen of Lagos State and Oyo State Internal Revenue Service collect appropriate Personal Income Tax from market women in Apongbon and New Gbagi Markets respectively? Despite having higher GDP than South Africa, our Tax to GDP ratio is lower than that of South Africa; one of the principal reason is the size of informal sector in our Economy. One way to enthrone sustainable IGR is to Formalise the Informal Sector, which certainly is outside the purview of FIRS.
b. Fiscal Policy
Fiscal policy defines the agenda for the RA. The level of budgeted government spending, debt financing and fiscal deficit determine the amount of taxes the RA is expected to raise. Expansionary fiscal policies, high levels of national debt and debt servicing requirements, or fiscal crises create strong pressures on the RA to collect more taxes. They also create opportunities for mobilizing political support for efforts to modernize the RA.
A properly articulated revenue forecast which mirrors the key external factors provides needed platform for reform and evaluation of the Institution Responsible for revenue collection. Revenue forecasting is perhaps the weakest link in the chain between tax structure and revenue collected. In some cases, the forecasting exercise is done by a few individuals in the Ministry of Finance or Budget and Economic planning, who simply increase last year’s forecast or actual tax collections by next year’s assume growth rate. In other instances, next year’s budget expenditures are estimated through call circulars to all the Ministries, Departments, and Agencies. Expected borrowing and deficit financing are subtracted from total estimated budgetary expenditures, and the remaining amount is assigned to the Revenue Agency as next year’s revenue targets.

A revenue target without any basis or link to the state of the economy destroys the integrity of the tax system. Revenue forecasts based on sound verifiable factors and data is a useful benchmark for monitoring collection, stimulating effort, and measuring the performance of RAs.
c. Public Agencies
The RA is usually dependent on a number of public agencies, such as the Police, Customs, Immigrations, the Attorney General and other MDAs for executing its functions. The quality and timeliness of assistance provided by these agencies has a major impact on the RA’s performance. Further, access to information about taxable transactions available with other government agencies is crucial for monitoring taxpayer behaviour and investigating tax evasion. Most of the MDAs render services that have bearable influence on IGR. Unfortunately, rather can cooperate with RA to raise the State’s IGR profile, they see the RA as irritant and meddlesome resulting in monumental loss of revenue to the state.
d. The Legal Framework
Tax Laws makes Tax Policy Enforceable. Wrong Translation of policy into law might result in complicated tax laws which becomes difficult to implement and create fertile ground for inventing interpretation that favours tax avoidance. This might also lead to unending legal issue at huge cost to the Revenue Agency. Most of our revenue laws are simply archaic and out dated.

Tax Laws defines the powers that revenue authority can exercise to enforce the laws. Weaknesses in the power to collect information about taxpayer transactions, take coercive action to gather evidence of tax evasion or collect tax arrears, and impose penalties for noncompliance have a telling effect on the overall effectiveness of Revenue Agencies. For Instance, no State can initiate and execute criminal process against individuals that failed to pay Personal Income Tax unless the Attorney General of the Federation grant/ transfer such power to the State.
e. Other Environmental Factors
In addition to the factors discussed above, there may be a number of other environmental influences that have an important impact on the RA. The country may have a long, rugged international border that is difficult to monitor for customs purposes; some ports may be transhipment points for international trade; or the RA being under pressure to quickly meet regional operating standards as part of Regional Arrangements, such as the ECOWAS. Such country specific factors need to be identified and their effect on the RA studied. To say that our borders are porous is repeating the obvious. I was wondering why some imported items are cheater in Kano than Ibadan that is closer to Lagos seaport, only to be told that the items sold in Kano were brought in through Republic of Benin and eventually Niger Republic to Kano. The volume of trade between Adamawa State and Cameroon, I am sure is not factored into Domestic Revenue Mobilisation computations.
Performance Summary of External Environment of Revenue Authorities in Nigeria
Having highlighted some of the external environment factors, which affect the Performance of RA, it is incumbent therefore to evaluate these factors and properly situate them. In doing this I have relied on Global Economic Forum’s The Global Competitive Report 2017-2018. The Global Competitiveness Index 2017–2018 measures national competitiveness—defined as the set of institutions, policies and factors that determine the level of productivity, and ranks Nigeria 125th out of 137 economies.
The report summarises Nigeria’s business environment as follows:
‘Nigeria (125th) moves up two positions in the rankings despite its score having fallen every year since 2012. Its macroeconomic conditions are worsening (122nd, down 14), inflation (131st) is high at 15.7 percent, and its budget deficit (98th) has reached 4.4 percent. Institutions appear more fragile (125th, down seven), adding uncertainty to the business environment. Nigeria is struggling to adapt to lower commodity prices, with the potential for structural change impeded by low scores on infrastructure (132nd), technological readiness (112th, down seven), higher education (116th), and innovation capacity (112th). However, new prudential requirements have strengthened the banking sector’s soundness, and the Economic Recovery and Growth Plan (ERGP) for 2017–2020 contains much needed reforms on transport and power infrastructure and the business environment…’
Administrative / Institutional Framework
During the period of implementing new structure, process and procedures, that are fundamental for sustainable IGR, quantum of revenue collected might not increase exponentially. In order to properly evaluate RA’s Institutional Framework, The authors of World Bank Technical Paper No 472, A Diagnostic Framework For Revenue Administration, rightly suggest 5 years’ trend analysis of (i) Total revenue collected / Annual revenue collection target, (ii)Total revenue collected /GDP, (iii)Tax gap= 1- total revenue collected/ Potential revenue ,(iv) Number of tax declarations filed / Number of registered taxpayers,(v) Number of tax declarations received on time / Total number of tax declarations filed, (vi)Amount of taxes paid voluntarily by taxpayers / amount of taxes payable on the basis of the declarations,(vii) Additional taxes assessed after investigation and audit / tax liability declared,(viii) Amount of additional assessed taxes upheld in appeal / amount of additional assessed taxes in appeal,(ix) Amount of additional taxes collected / additional taxes assessed,(x) Amount of arrears recovered / total amount of tax arrears at the beginning of the year,(xi) Number of cases of taxes evasion, , (xii)Perception of taxpayer regarding, Risk of detection of non-compliance and severity of consequences,(xiii) Quality of assistance provided by the RA to enable taxpayers to comply with the obligations,( xiv)Effectiveness of the RA in resolving taxpayer problems ,(xv) Public perception regarding the degree of corruption in the RA(xvi), RA morale and self-image(xvii) Number of taxpayers/ number of RA employees and (xvii)Administrative costs/ Total revenue collected.
The World Economic Forum’s Global Competitiveness Report 207-2018 highlighted above clearly mirrors the External Environment in which the RAs operate in Nigeria and the determinants of Quantum of Domestic revenue that could be mobilised. Damaging as the report is, it clearly points to the factors that should be quickly addressed for us to have sustainable IGR rather than evaluate performance of Heads of Revenue Agencies on short term pyrrhic yardsticks of quantum of revenue collected only.
Alli, was at different times, the Executive Chairman of Oyo and Osun State Boards of Internal Revenue
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