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FG considers revenue enhancing options with depressed taxes from oil

By on June 9, 2015

With the income accruable to the federal government from petroleum taxes dropping to its lowest level in the past 15 years, THISDAY has learnt that the new administration of President Muhammadu Buhari may be facing tough funding challenges in the execution of his campaign programmes, even as the Federal Inland Revenue Service (FIRS) is said to be considering a number of revenue enhancing strategies and initiatives.

For years, the oil and gas sector has always constituted more than 50 per cent of the total taxes collected by the federal government.
For instance, while the total tax collection for 2013 was N4.805 trillion, receipts from the sector accounted for N2.666 trillion, about 55 per cent of the total receipts.

The total tax collection for 2014 was estimated at N4.086 trillion while the cumulative oil receipts for the same period was estimated at N2.453 trillion, about 60 per cent of the total.

But speaking in an exclusive interview with THISDAY, the acting Executive Chairman, Federal Inland Revenue Service (FIRS), Mr. Samuel Ogungbesan, said going by the most current data available to FIRS as at April this year, the federal government had received only N50 billion from its oil activities, essentially from Petroleum Profit Tax (PPT), while the target for the whole year has been revised to N150 billion, about seven per cent of the N2.453 trillion for oil receipts last year.

He said: “When last April we reported something very low from oil and gas – it was the lowest in the last 15 years – oil revenue of N50 billion only for 2015, when we are expected to bring in about N150 billion for the whole of 2015.

“But you know oil has not been doing well in the international market. Yet, we are supposed to bring in about N150 billion but we did only N50 billion for the month of April 2015. It was terribly low.”

A taxation economist who spoke with THISDAY on Sunday said there was every reason why the dwindling revenue should be of concern, adding that the whole receipts by the federal government are not driven by real production.

He said: “More and more companies are closing shop, as the operating conditions in the country have continued to be stifling. Lagos that is credited with high Internally Generated Revenue (IGR), people should take a careful look at what is happening to production activities in the state.

“Look at Oba Abkran and the Ikeja industrial areas, most of the warehouses owned by corporate organisations have been taken over by religious organisations. The current administration just has to quickly settle down and address the disequilibrium in the economy.”

To curb dwindling receipts, especially in the oil component of the taxes, Ogungbesan told THISDAY that FIRS would be adapting what he described as the strategy of engaging taxpayers at all levels, including persuading some categories of taxpayers to guarantee FIRS a minimum amount of tax on a monthly basis.

According to him, “I can then sit down with them and say can we have an understanding that throughout these 12-month period of reporting to government, you won’t give me less than this amount.

“I know how much you would pay ultimately but can we divide it into 12? Just ensure that you give me certain amounts every month and I can go home and sleep and be comfortable; because that month of April, Shell, the biggest player, returned zero as PPT because of the high cost of production and the fact that they had reduced the volume of lifting and the oil price was declining.”

He said FIRS also intended to work with the Central Bank of Nigeria (CBN) and the 25 banks, to work out other measures to ensure that the federal government gets some reasonable amount of taxes in monthly.

In this regard, THISDAY learnt that the federal government may consider a downward review of taxes payable by luxury goods owners in the country, based on the information that the strategy may have been based on some wrong assumptions.

In the wake of the present fiscal crisis, occasioned by the sustained drop in oil price in international market, the immediate past administration had unveiled some measures which included introduction of levies on luxury goods, namely, champagne, yachts and private jets, among others.

The measures were to minimise the impact of dwindling oil revenue on the Nigerian economy.
The introduction of luxury taxes particularly on private jets was estimated to fetch about N100 million on a yearly basis into the federal government coffers.

But despite opening an account for payment of the taxes, owners of the luxury assets are yet to make remittances on the levies charged them, it was further gathered.

Most of them appeared not to be comfortable with the rationale for the charges, as well as the basis for determining what to pay and believed the charges were exorbitant.

It was further revealed that the basis for computing the amount to be paid as tax by private jet owners has already unsettled some government officials who also shared their view on the need to review the levy.

Ogungbesan said that even though government would still collect luxury charges, the current basis for computation would have to be reviewed to make it easier for compliance.

He said going forward, government will engage and dialogue with owners of luxury goods with a view to reconsidering the basis for computation of the taxes levied.

According to him, owners of luxury goods weren’t paying the taxes partly because some of them are not comfortable with the current classification of the assets.

He said one of the luxury goods owners had asked why he should be charged when all he does is to provide a platform for private jets, insisting that he does not own any plane.

“He divulged that real owners registered the planes or private jets in his name when they were being brought in, but that did not make him the owner of the planes,” the FIRS boss explained.

Ogungbesan also made reference to Julius Berger, which also operates private jets and had expressed reservations over the rationale for determining what qualifies as luxury assets merely on the basis of its weight.

He said a review was inevitable given that at the time the recommendations for luxury tax introduction was made “they didn’t know some people were using them for commercial purpose and they were charging VAT and remitting it to the VAT office”.

Ogungbesan said rather than seal off business premises over non-tax compliance, he would rather engage in constructive dialogue with taxpayers and make them remit their taxes voluntarily.

He said the use of force had not yielded significant outcomes, stressing that it would only be considered as a last resort under his administration.

 

[ThisDay]