BY

AWA IBRAHEEM, PhD, FCA, FCTI.
ICMA Services (Tax Consultants),
3, Core Group Close,
Opposite Police Headquarters, Asaba.
Email: awa@icmaservices.com

INTRODUCTION
This paper is sequel to the one jointly written by Messrs R. O. Jegede and AWA Ibraheem titled FEDERAL INLAND REVENUE SERVICE (ESTABLISHMENT) ACT 2007: CENTRALIZATION OF TAX ADMINISTRATION IN NIGERIA THROUGH THE BACK DOOR. The purpose of this paper is to briefly highlight matters arising from the enactment of the legislation under reference and to suggest necessary amendments that will make the Act federalism compliant.

BACKGROUND
The publication of the Federal Inland Revenue Service (Establishment) Act, 2007 (hereinafter referred to as ‘the Act’) led to the realization that all the existing major tax laws in the country have been put under the administration of the Federal Inland Revenue Service (FIRS). Putting under the administration of the FIRS the Personal Income Tax Act of 1993 (PITA) and other tax laws for which the State Inland Revenue Services (IRS) were established to administer, ipso facto, means centralization of tax administration in the country if not outright extermination of the IRS.
The Act was passed into law in May 2007. After carefully studying the provisions of the Act, we petitioned the National Assembly and copied chairmen of 36 state Inland Revenue Services. We also petitioned all the 36 governors and published articles in some national dailies drawing the attention of stakeholders to the fact that the Act, if enforced, would lead to centralization of tax administration in the country. This is, in our opinion, against the concept of federalism as stipulated in the 1999 constitution.

MATTERS ARISING
After absorbing the realities of the Act, it is pertinent for all the stakeholders to address three issues arising from the new dispensation. The first issue to be addressed is whether the real intention of the Act is to centralize tax administration in Nigeria her federalism not withstanding. If the real intention of the Act is centralization then the second issue to be addressed is whether the federal government is really serious in implementing the Act in its present form. Finally, it is interesting to find out whether the draft of the Act submitted to the National Assembly has the support of the Joint Tax Board members most of whom (as the state IRS chairmen) the Act has the tendency of rendering jobless.

REAL INTENTION OF THE ACT
It has been suggested in some quarters following earlier petitions and publications that the intention of the Act is not to centralize tax administration in the country regardless of its wordings. This suggestion is baseless given the objective of the Act as stated in the brief that accompanied the draft bills on tax reforms to the National Assembly. For instance, in the preamble to the briefs, one of the salient issues in the bill is that the FIRS believed it did not have enough powers to administer taxes for which it was responsible hence “… the FIRS Bill seeks to confer on the FIRS a composite set of powers for the wholistic enforcement of all tax types.”

In order to clear the ambiguity contained in the above statement of intention, the FIRS later in the same brief to the National Assembly made suggestions that are external to the bills under consideration including Centralisation of Tax Collection under a “Nigeria Inland Revenue Service” that is fully accountable to the National Assembly as is obtainable in most other countries and is being considered in all others given the fact that it addresses improved effectiveness and efficiency of Tax Collection.

In order to ensure that the centralization was achieved without leaving any loophole that might derail the real intention, FIRS again suggested that the amendment of the PITA should consider “Centralisation of Personal Income Tax Collection which is currently a Federal Law but administered by the States, for improved effectiveness and efficiency”.

It is clear from the above quoted statements that the intention of the FIRS that happens to be the major promoter of the Act is to centralize tax administration in the country.

IMPLEMENTATION OF THE ACT
It has further been suggested that the federal government has no intention of implementing those sections of the Act that would bring about the centralization of tax administration in Nigeria. Certain actions and statements credited to the main actors in the unfolding drama make such a suggestion untenable. For instance, the FIRS has commissioned Consultants to be working on the provision of Personal Tax Identification Numbers at States level as contained in the Act probably to test waters and feel the pulse of relevant tax authorities in the States. However, the clear indication of our suspicion that the Act was not passed for the fun of it can be derived from the FIRS Chairperson’s statement to the effect that FIRS is charged with revenue collection for the three tiers of government. It has a duty to optimize income tax collection. It has no power under the law to give away any revenue which should accrue to the Federation Account.

With the above confirmation from the horse’s mouth, need we say more? It is therefore gratifying to note that the Governors forum directed Attorneys General of 36 States of the Federation to study the Act with a view to identifying and arriving at a common favourable position on the areas of conflict in the Act.

CONTENTIOUS ISSUES IN THE ACT
Relevant provisions in the Act that we consider to be contentious and the implementation of which will lead to a centralization of tax administration in Nigeria can be summarised as follows:
1. Sections 2, 25 and 68 (1), read in conjunction with the first schedule of the Act, made     FIRS the sole administrator of the Personal Income Tax Act (PITA) of 1993, Capital     Gains Tax Act, 1993 and Stamp Duty Act, 1993 though the State IRS were created, ab     initio, to administer all but few aspects of these tax laws. In effect, no major role is     envisaged for the States or their IRS in administration of tax laws affecting their     citizens.

2. All the functions of FIRS as listed in Section 8 of the Act are functions that are     ordinarily performed by the State IRS as far as they are in respect of individual tax     payers and unincorporated bodies resident in their States as provided for in PITA.

3. All powers granted to FIRS under Sections 25, 26 and 27 of the Act are similar to     powers granted to the IRS under Sections 46, 47, 48 of PITA as far as they are in     respect of individual tax payers and unincorporated bodies resident in their States.

4. The powers granted to the Minister of Finance under Section 59 of the Act to establish     Tax Appeal Tribunal effectively take away the powers granted the State     Commissioners for Finance at the State level.

5. The inclusion of Taxes and Levies (Approved List for Collection) Act is unnecessary. It     only could have been included in the Act so as to enable the FIRS manipulate it at will.
    It can be deduced from the foregoing that the collective implication of the contentious     Sections is to centralize tax administration in the country by divesting the State IRS of     their powers and concentrating same in the FIRS.

SUGGESTED AMMENDMENTS TO THE FIRS ACT
In view of the foregoing, we wish to suggest that the Act should be amended in line with our earlier suggestions. In particular, we suggest that the First Schedule and Section 11 (1) of the Fifth Schedule should be amended as per the attached suggested draft the copies of which we attached to our earlier petition.

SUGGETED AMMENDMENTS TO PITA
Having considered all the issues involved, we have discovered that the confusion created by the Act was made possible by the lopsidedness existing in the composition of the Joint Tax Board (JTB). While the Board is dominated by the chairmen of IRS as members, Section 86 (2)(a) of the PITA made the chairman of the FIRS the JTB chairman. The FIRS also provides the Secretariat while its Legal Adviser also serves as the JTB Legal Adviser as per Section 86 (8). In an ideal situation, there would have been nothing wrong with this arrangement which is meant for the convenience of the IRS chairmen that are scattered all over the country. However, we observe that objectives of the FIRS in some instances are not necessarily synonymous with objectives of the IRS hence the need to reconsider it. The following instances will suffice;

1. The FIRS sometimes advised the Federal Government on certain fiscal policies that are     not necessarily beneficial to the states. Such policies are reflected in personal income     tax rates and allowances that are fixed without due cognisance being paid to     idiosyncrasies of the States. This had made it difficult for the States to budget     accurately for their tax yields as they are not in control of the appropriate fiscal     policies.

2. The JTB is vested with the statutory duty of advising the federal Government on tax     matters as stipulated in Section 86 (9) (c) of PITA. It follows, therefore, that contents     of FIRS Act ought to be jointly agreed by the FIRS and JTB and should have been     presented by JTB to the National Assembly. On the contrary, the draft bill was     presented to the National assembly by the FIRS as indicated on the brief that     accompanied the bill. Of course, some IRS chairmen were present as onlookers as     usual. It was probably the way the bill was presented as a document of the FIRS that     led to the National Assembly to ignore the opinion of the JTB and approved     centralisation of tax administration as suggested by the FIRS in the brief.

3. It is on record that the JTB was very categorical in August, 2005 that the issue of     centralisation of tax administration is premature and should be dropped. Yet, the FIRS     informed the National Assembly in December 2005 (just four months later) that

    Centralisation of Tax Collection under a “Nigeria Inland Revenue Service” that is fully     accountable to the National Assembly as is obtainable in most other countries and is     being considered in all others given the fact that it addresses improved effectiveness     and efficiency of Tax Collection.

    It is clear from the foregoing that the objectives of FIRS can sometimes be at variance     with those of the IRS hence the need for an amendment to the PITA that gave birth to     the JTB.

    In view of the foregoing, we suggest that Section 86 of PITA should be amended to     make the JTB’s chairmanship rotational among the chairmen of the IRS and that of     FIRS. In addition, we suggest that membership of JTB should be expanded to     accommodate knowledgeable people from the private sector and academia. It is only     when these amendments are made will the JTB cease being susceptible to     manipulation.