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Finance Bill 2021: “Our Tax System Must Work For Every Nigerian” – Muhammad Nami

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Muhammad Nami

“We must build a tax system that is not only robust but that will outlive our respective services to this nation” – Nami

Olushola Okunlade Writes

The 2021 Finance Bill must be tailored towards enabling an efficient tax system that works for every Nigerian.

This was the position of the Federal Inland Revenue Service (FIRS) disclosed by its Executive Chairman, Muhammad Nami to journalists after a stakeholder engagement on the Finance Bill 2021, today at the House of Representatives, Abuja.

“Our laws and policies must first and foremost work for the Nigerian people who we have either been elected or appointed to serve,” Nami stated.

“Whatever proposals that have been submitted for consideration should be looked at critically vis-a-vis what works for Nigeria, the business community, the taxpayers, tax consultants, and the Nigerian system altogether. It will help us more if we realise that our collective effort and service are not about us. It is about our country.

“We must build a tax system that is not only robust but that will outlive our respective services to this nation; whether as members of the executive, the judiciary, or the legislature. In other words, these laws must be made in a manner that reflects not just what we feel is right, but what is indeed right -yesterday, today, and continues to be right tomorrow.”

Muhammad Nami further appealed that the Fiscal Policy Reform Committee and the House Committee on Finance should continue to make laws that stand the test of time and reflect economic realities. He further called for laws that will not only assist the government at the three levels in mobilising revenue but that will also assist small and medium scale enterprises to grow, and become taxpayers in the future.

The FIRS Executive Chairman also commended the leadership of the National Assembly and members of the Executive for the annual review of the Finance Act which he said has afforded the Federal Government the opportunity to deploy new ways of enhancing domestic revenue mobilisation and improving tax administration in the country.

“The Finance Bills have accorded the Federal Government and the Fiscal Policy Reform Committee the opportunity to annually review and identify gaps in our tax system, to fix them and ensure that government can earn the much-needed revenue for the execution of its mandate. Without the commitment of the National Assembly leadership and members of the Executive, from day one to the fiscal reforms that the Finance Bills were aimed to achieve, we would not have been able to attain the resounding successes we have recorded since 2020.” Nami stated.

Describing the annual review as a “clear demonstration of political will for the actualisation of good governance,” Nami highlighted that it was the enablement provided by the Finance Act 2020 that gave the FIRS the powers to deploy its own digital tax administration solution, TaxPro Max with its attendant results.

“That single revolutionary amendment to the FIRS Establishment Act gave us the power to deploy our homegrown digital Tax Administration Solution called the TaxPro-Max. This platform allows for seamless electronic registration of taxpayers, electronic filing of returns, and payment of taxes.

“Consequently, it is not surprising that the FIRS was able to collect over N5 trillion between January this year to date while we are confident that we will achieve our total VAT target for the year,” Nami stated.

Taxation

MTN, Airtel, Others Appointed By FIRS To Withhold VAT Charged To Them

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FIRS COMMENCES DIRECT COLLECTION OF TAXES FROM ONLINE GAMING OPERATORS The Federal Inland Revenue Service (FIRS) has stated that it has commenced the deduction of taxes at transaction points from Online Gaming Transactions using the Sentinal National Payment Gateway and Electronic Solution. In a Public Notice signed by its Executive Chairman, Muhammad Nami, the Service while directing full compliance by the online gaming community, explained that the Sentinal National Payment Gateway was a transaction processing system that enables Integrated Payment Services Providers to deduct taxes at the points of transaction and immediately remit the tax deducted to the government’s treasury. “The FIRS is automating the administration of tax on online gaming using Sentinal National Payment Gateway and Electronic Solution. “Sentinal National Payment Gateway is a transaction processing system that enables Integrated Payment Service Providers to deduct taxes at transaction-points and remit the tax deducted directly to government’s treasury. “The deployment of Sentinal National Payment Gateway will simplify tax compliance for companies engaged in online gaming activities,” the notice read. The FIRS also noted that all operators offering online gaming services in Nigeria, not later than the 31st of December 2022, were required “to connect to the Sentinal National Payment Gateway, deduct tax from online gaming transactions and remit same directly to the relevant government’s treasury.” The Notice stated that though it was not mandatory for online gaming operators offering online gaming services from outside Nigeria to be incorporated in Nigeria, they are compelled by extant tax laws to connect to the Sentinal National Payment Gateway for the purposes of dedicating tax from the gaming transactions of players in Nigeria, and remitting same directly to the government purse. Mr. Muhammad Nami, Executive Chairman of the FIRS, commenting on this approach to tax collection at the point of transaction stated that the country needed to innovate and harness technology for improved revenue generation from e-commerce as well as for accountability. “The world is entering a challenging time where there is a strong obligation on Governments to increase tax revenue as a percentage of GDP so as to provide much needed funding for local infrastructure and public services. Nigeria needs to innovate and harness technology to ensure that online transactions are taxed and accounted for. “We have been very impressed with the Sentinal platform which allows us to not only collect tax revenues at source, but also provides us with tax reporting and monitoring tools in real time,” Mr Nami stated, “The system will also integrate with our own TaxPro Max portal.” In his comments at a meeting with the tax authority head, the Director General of the National Lottery Regulatory Commission of Nigeria, Mr. Lanre Gbajabiamila commended the adoption of this innovation, describing it as a “huge step” for taxation of the gaming industry. “Online gaming continues to grow rapidly in Nigeria, particularly on mobile, and the adoption of E-technologies’ Sentinal National Payment Gateway is a huge step for us to allow us to capture gaming duty at source. “We are welcoming all responsible offshore gaming operators to apply for a Remote Operator Permit as long as they pass all the relevant criteria including full AML screening and responsible gaming practices. We are proud to be the first country to adopt the Sentinal System and we believe it will bring a real national benefit to Nigeria,” Mr. Gbajabiamila noted. David Kicks, the CEO of the E-Technologies Global Limited, the proprietors of the Sentinal National Payment Gateway expressed excitement over the adoption of the system by the Service. “Governments in rapidly developing nations are struggling to keep pace with the evolution of eCommerce and the ascent of mobile transactions. “We are thrilled that the Nigerian Government has made the decision to integrate our Sentinal System, which empowers them to streamline online taxation. By understanding better how the payments ecosystem behaves and evolves, we can drive a paradigm shift towards a point of consumption tax methodology,” he said.

Olushola Okunlade Writes

MTN, Airtel, as well as money deposit banks in Nigeria have been appointed by the Federal Inland Revenue Service (FIRS) to withhold Value Added Tax (VAT) charged on all taxable supplies made to them, and remit to the Service.

This is contained in a Public Notice the FIRS issued on the 1st of November, signed by its Executive Chairman, Muhammad Nami, where it explained the role of the companies as well as the obligations of their suppliers with regards to the withholding of Value Added Tax.

“This Notice is given to all persons carrying on a trade, profession or business of any kind, tax practitioners and the general public that, with effect from 1st January 2023; in line with the provisions of Section 14(3) of the Value Added Tax Act Cap. V1 LFN 2004 (as amended), the following companies are appointed to withhold or collect VAT charged on all taxable supplies made to them: MTN; Airtel; and all money deposit banks—as defined by the CBN Guidelines.”

The FIRS noted that these companies were expected to remit the tax they would withhold on or before the 21st day of the month immediately following the month the tax was withheld, in the format prescribed by the Service.

“The companies shall remit the tax withheld or collected, in the currency of transaction, to the Service on or before the 21st day of the month immediately following the month the tax was withheld or collected;

“The tax withheld or collected under this notice shall be remitted in the format prescribed by the Service but separately from VAT due on the companies’ taxable supplies.”

The notice further explained the options that were available to suppliers of these companies whose output tax is withheld.

“A supplier whose output tax is withheld, as provided in this notice, may deduct the input tax paid on the goods purchased or imported to make the taxable supply from the output tax collected on other taxable supplies,

“And where the input tax paid to make the supply is not fully recovered from the output tax on other taxable supplies, the balance is refundable to the supplier; provided that a supplier who is entitled to a refund may utilise the amount refundable to offset future VAT liability or request for a cash pay-out,” the Notice explained.

It further noted that the Service has instituted adequate measures to ensure prompt payment of refundable input tax under this arrangement, while also stating that input tax claims, which include refunds, are subject to the limitations imposed by Section 17(2)(a) of the VAT Act.

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Tax Dialogues, Crucial For Strengthening Tax Administration – Muhammad Nami 

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Nami Charges Professional Tax Bodies On Contribution To Tax Development In Nigeria

Olushola Okunlade Writes

Tax dialogues, which provide a platform for the exchange of diverse ideas on taxation, have been described as a tool for engendering tax compliance through collective ownership of the tax system, as well as a means to strengthen tax systems.

Speaking at the 2022 Kaduna State Tax Dialogue, held in Kaduna State today, Mr. Muhammad Nami, Executive Chairman of the Federal Inland Revenue Service (FIRS) stated that dialoguing on tax was very necessary for inclusivity, fairness, and pooling expert ideas to aid tax policy formulation, which ultimately strengthens tax administration. 

Nami Charges Professional Tax Bodies On Contribution To Tax Development In Nigeria
Executive Chairman, FIRS, Muhammad Nami.

“Dialoguing on tax is very important for many reasons,” he stated. 

“Tax dialogue is a multi-sided communication channel that enables every view of to taxation to be aired and considered. By so doing, it lends itself to inclusiveness in the design and implementation of the tax system thereby engendering the spirit of collective ownership which, ultimately, promotes voluntary tax compliance;

“Dialoguing on tax prevents destructive conflicts as no one feels cheated or unfairly treated.  

“Examples from history are rife on the importance of engagements on tax issues. For instance, the then British Parliament passed the Tea Act which constrained Americans to buy tea on which duty had been paid without dialoguing with the people.  Consequently, the Act was rejected.  According to Richard Murphy, in his book — the “Joy of Tax” —, one of the complaints cited by those who signed the Declaration of Independence in 1776 was ‘The King which was imposing taxes on us without our consent’.

“When governments do not dialogue with the people on the taxes they wish to impose, they create room for conflict and even rebuff.  

“Crucially, tax dialogue provides the platform for pooling expert ideas to aid tax policy formulation, review of tax laws, and ultimately the strengthening of tax administration,”  Mr. Nami said. 

Speaking on the concept of the “Social Contract” that exists between the government and the citizens, Mr. Nami explained that for the government to provide public goods for the enjoyment of citizens, citizens had the duty to provide the government with the needed resources to do so by paying their taxes. 

“As much as individuals running the apparatus of government are liable to satisfy the yearnings of citizens for public goods, it is the duty of the citizens to supply the resources required. This is the Social Contract.  

“The Social Contract is two-sided – it involves the duty of government to provide public goods for the enjoyment of citizens on the one hand, and the duty of citizens to provide the government with the resources needed to provide those public goods on the other hand. Citizens fulfill their side of the Social Contract by paying taxes with minimal prompting.” 

Mr. Nami further noted that two key drivers of voluntary tax compliance are effective communication and trust, and that “Tax Authorities must develop effective tax communications strategies while governments, at all levels, must ensure taxpayers receive value for taxes paid.” 

In 2019, the Southern Swamp Associated Gas Solutions project was commissioned, and the SPDC JV is planning to reduce associated gas flaring further through its Forcados Yokri gas-gathering project, of which large parts are set to be completed in 2022. Despite such efforts to reduce continuous flaring, unfortunately flaring intensity (the amount of gas flared for every tonne of oil and gas produced) at both SPDC- and SNEPCo-operated facilities increased in 2021 owing to short-term operational issues. Flaring from SPDC-operated facilities increased by around 5% in 2021 compared with 2020. The increase was primarily because of the extended outage of the gas compression system in SPDC’s shallow-water operations. The system was restored and became operational from January 2022. Flaring at SNEPCo-operated facilities rose by around 160% in 2021 compared with 2020. This was mainly because of an increase in flaring on the Bonga floating production, storage and offloading (FPSO) vessel. Repairs to a flex-joint on the Bonga FPSO’s gas export riser in the second quarter took longer than expected, in part because of weather conditions. While repairs were under way, the FPSO continued to produce oil and therefore flaring was necessary for safety reasons. The repairs were safely concluded in July 2021. Although flaring intensity levels rose in 2021, SPDC and SNEPCo over the last 10 years have almost halved the combined amount of hydrocarbons they flare from 1.5 million tonnes in 2012 to 0.8 million tonnes in 2021. This reduction is the result of a strict flaring reduction management process and both SPDC and SNEPCo will continue to work in close collaboration with joint-venture partners and the government to make progress towards ending routine flaring of associated gas. NIGERIA LNG EXPANSION UNDERWAY Global demand for LNG continues to grow as the world increasingly seeks reliable supplies of lowercarbon energy. Shell’s investment in Nigeria’s gas infrastructure for export is expected to help 6 This is according to a data provided by global research and consultancy business Wood Mackenzie. the country benefit further from revenues. Shell Gas B.V. and its partners took a final investment decision in 2020 on a new LNG processing unit – known as Train 7 -- at NLNG. The expansion is expected to create around 12,000 jobs for Nigerians during construction and stimulate growth of the local oil and gas service sector, with 55% of engineering and procurement of goods and services being sourced in-country. Train 7 is expected to ensure Nigeria’s continued place as a global player in a lower-carbon energy source. Once operational, Train 7 will add around 8 million tonnes per annum of capacity to the Bonny Island LNG facility, taking the total production to around 30 million tonnes per annum. In 2021, NLNG began awarding procurement and construction contracts. Early works started at the site. The first phase of the worker village is expected to be ready for occupancy in 2022 and the new material offloading facility ready for use by the end of 2022. NLNG’s Train 7 is expected to come onstream in the middle of the 2020s. KEY LICENCE RENEWED FOR DEEP-WATER SNEPCo has interests in four deep-water blocks in the Gulf of Guinea, two of which it operates. Today, nearly one-third of Nigeria’s deep-water oil and gas production comes from the Bonga and the nonoperated Erha fields.6 Since production began in 2005, Bonga alone has produced more than 950 million barrels of oil with the 2021 average oil production per day at 105,000 barrels. The Bonga FPSO vessel has a total production capacity of 225,000 barrels of oil per day and 150 standard cubic feet of gas export per day. In 2021, the availability of the FPSO vessel increased to 80% from 70% in 2020. In addition to Bonga, SNEPCo’s exploration activities have led to several significant discoveries of oil and gas over the last two decades, including the Bolia and Doro fields (Shell interest 55%). Nigeria Briefing Notes Helping to power Nigeria’s economy 13 In the right investment climate, SNEPCo believes that there are opportunities to expand. In 2021 the OML 118 (Bonga) production sharing contract was renewed and the lease extended for 20 years. Bonga North and Bonga South West Aparo (BSWA) oil fields are two such potential opportunities. Bonga North is a proposed tie-back project to the existing Bonga FPSO with Phase 1 comprising 14 wells. BSWA is a development of a new FPSO with Phase 1 comprising 23 wells. SUPPORTING RENEWABLE ENERGY STARTUPS Millions of Nigerians are excluded from the country’s power grid and Shell Companies in Nigeria have established and provided substantial funding for a not-for-profit, impact-investing company called All On. Operating as an independent company, All On works to bring reliable electricity – often from renewable energy sources -- to off-grid urban and rural customers. This support aims to build a solid pipeline of viable businesses that can create the scale required to address Nigeria’s access to energy gap. In December 2019, SPDC and SNEPCo made a significant additional 10-year financing commitment of $160 million in All On, bringing the total commitment to $200 million. By the end of 2021, All On had provided investment capital to over 40 renewable energy start-ups in its portfolio – an increase of more than 30% from 2020. One such company is Infibranches Technologies Limited, to which All On has committed $2 million, which is expected to enable the indigenous technology company to expand sales of solar home systems via its more than 13,000 agent banking partners across Nigeria. With the support of the Rockefeller Foundation, the All On Hub was established in 2020 to provide nonfinancial support and build the capabilities of off-grid energy entrepreneurs. In 2021, the hub supported 81 ventures – nearly double the 41 supported in 2020. Also in 2021, All On, Odyssey Energy Solutions and the Global Energy Alliance for People and Planet launched a $10 million equipment financing facility as part of the DART pilot programme in Nigeria. 7 Hydraulic flying leads support the delivery of hydraulic fluid and/or chemicals between subsea equipment. 8 Subsea trees are an assembly of valves and other components used to monitor and control the production of a subsea well. DART will combine demand pooling, aggregated purchasing of solar equipment, and access to affordable finance to unlock economies of scale for solar companies, achieve cost savings for end-users, and accelerate the growth of the renewable energy sector in Nigeria and beyond. DEVELOPING LOCAL CONTENT AND SKILLS Shell Companies in Nigeria contribute to the growth of Nigerian businesses that can provide technical and support services to the industry. This includes the manufacture of tools and technical kits, the operation of helicopter flights in the Niger Delta, and strategic partnerships between foreign and local companies to stimulate technology transfer and capacity development. While there are government-required programmes in some areas, such as the Nigerian and Community Content Strategy embedded in the Assa North/Ohaji South gas development project, Shell Companies in Nigeria deliberately seek to contract local businesses wherever possible. In 2021, Shell Companies in Nigeria awarded $800 million worth of contracts to Nigerian-registered companies. Of these, 92% were companies with at least 51% Nigerian ownership. SNEPCo has awarded major engineering and construction contracts to companies that are indigenous, have local staff, or possess domestic capabilities in the country. At present, the manufacture and rebuild of hydraulic flying leads7 (HFLs) is being carried out in-country by wholly indigenous companies. Pressure Controls Systems Nigeria Limited, another Nigerian company, continues to refurbish old subsea trees.8 Sometimes, a lack of access to capital hinders Nigerian companies from competing for and executing contracts effectively. Shell Companies in Nigeria have provided access to nearly $1.6 billion in loans to 901 Nigerian vendors under the Shell Contractor Support Fund since 2012. These loans help improve their tendering opportunities.

The FIRS boss further called on tax authorities to implement data-driven tax administrations, noting that “modern and efficient tax administration is run with data.” 

“The time is ripe for Nigerian tax authorities to start using data to identify all taxable persons, track all economic activities, and determine tax payable. 

“Nigeria needs an appropriate statutory framework for a centralised data sourcing, warehousing, analysis, and retrieval system that every tax authority can plug into.” 

Muhammad Nami also called for the harmonisation, at all levels of government, of all revenue-generating functions into a single platform under the administration of one revenue authority to reduce cases of uncertainty and instability in the economy. 

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7th ATAF General Assembly: Nami Leads Call For Effective Revenue Utilisation By African Governments

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7th ATAF General Assembly: Nami Leads Call For Effective Revenue Utilisation By African Governments

Olushola Okunlade Writes

Governments across Africa must begin to rethink governance, engender public confidence and trust in government by providing value for taxpayers’ money in line with their obligations under the social contract they have with citizens.

This was the call made to African Governments by the Executive Chairman of the Federal Inland Revenue Service (FIRS), Muhammad Nami at the Opening Ceremony of the African Tax Administration Forum (ATAF) 7th General Assembly, held in Lagos, Nigeria, Tuesday.

7th ATAF General Assembly: Nami Leads Call For Effective Revenue Utilisation By African Governments
Executive Chairman, Federal Inland Revenue Service (FIRS), Muhammad Nami

Muhammad Nami who made this call in his opening remarks to the 7th General Assembly, with the theme “Rethinking Revenue Strategies: The Human Face of Taxation,” added that it was imperative for African Tax Administrators to mobilise and speak with one voice as a regional bloc on global tax issues for their collective interests.

“The Fiscal social contract which hinges on the willingness of the citizens to pay tax in return for the provision of public service is a clarion call on the government at all levels in Africa to rethink governance.

“In my view, if we must transform the tax system and enhance revenue collection in Africa, there is a need for the governance at all levels to engender public confidence and trust in government by providing value for taxpayers’ money”, Nami said.

7th ATAF General Assembly: Nami Leads Call For Effective Revenue Utilisation By African Governments
7th ATAF General Assembly: Nami Leads Call For Effective Revenue Utilisation By African Governments
Executive Chairman, Federal Inland Revenue Service (FIRS), Muhammad Nami

Nami also stated that governments should reconsider how projects are reported in the public space, with such reports communicating to convey the idea that taxpayers’ money’s is used to fund infrastructural projects.

The Executive Governor of Lagos State, Babajide Sanwo-Olu who was represented by the Executive Chairman of Lagos State Internal Revenue Service (LIRS) Mr. Hamzat Ayodele Subair, in the same vein said that there was the need to give taxation a human face, by implementing projects with taxpayers’ moneys that impact the lives of the citizens.

“There is no development without funding. We have amongst others, embarked on major transformational infrastructure projects cutting across transport, health, education, agriculture, technology amongst others.

“These major infrastructural interventions are designed to improve the quality of life of our citizens and re-engineer economic growth and development trajectory with improved productivity of our citizenry, which invariably improves our tax generating abilities.

“In a bid to save the human face of taxation, communication and feedback from the taxpayer is of paramount importance,” Mr. Subair noted.

Similarly, in his remarks, the Executive Secretary of the African Tax Administration Forum, Mr. Logan Wort noted that a critical component of rethinking Domestic Revenue Mobilization is to ensure that government has an impact on the lives of citizens.

“While we consider strategies or frameworks within which to enhance Domestic Resource Mobilization on the continent, we must always put into perspective its primary objective—being the impact on people’s lives as reflected by ATAF’s mandate in the new decade which is to serve the higher purpose of enabling and assisting African governments to mobilize their own domestic resources through taxation in order to build states that foster economic growth and social development in the interest and wellbeing of all their citizens.

“This mandate especially the latter part is one we all share in various capacities across our jurisdictions, and one that must drive our Domestic Resource Mobilization objectives”, Mr. Wort said.

The 7th ATAF General Assembly, which is being hosted by the FIRS, has in attendance tax administrators from 41 tax authorities in Africa. It is the first physical gathering of the forum since the covid-19 pandemic.

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