The Federal Inland Revenue Service (FIRS) granted various tax incentives that amounted to N1.81 trillion in the 2022 financial year, an official report has shown.
In its 2022 annual report and financial statement, the tax agency said it granted tax incentives, different from tax credits, to support businesses and enhance business and economic performance in the country.
The FIRS, in the year 2022, collected a total of N10.1 trillion in both oil (N4.2 trillion) and non-oil (N5.9 trillion) revenues as against a target of N10.44 trillion.
The actual oil tax revenue collection of N4.2 trillion exceeds the set target of N3.32 trillion while the N5.9 trillion non-oil revenue tax represented 90 per cent of its budget, the agency said.
It is the first time that the FIRS crossed the 10-trillion naira mark in tax revenue collection. The agency would have exceeded its target if not for the tax waived on account of various tax incentives.
Breakdown of tax incentives
1. Loans granted for agriculture: N3.19 billion;
2. Government bonds: N132.35 billion
3. Government Treasury Bills: N212 billion
4. Pioneer Incentive: N388.83 billion
5. VAT Exemptions: N1.068 trillion.
At the end of the year 2022, the total tax incentives in these categories totalled N1.8 trillion.
Conditions and respective laws under which exemptions were granted
1. VAT exemptions on Agric loans
VAT exemptions were granted on interest on agric loans to allow farmers enough resources to improve their output, FIRS said.
2. Loans granted for Government Bonds and Treasury Bills.
This category is for VAT exemptions on interest received by companies/investors on Federal Government securities (bonds and treasury bills) to further encourage investments in government securities and provide resources to finance government expenditures.
The FIRS report did not state how many companies or investors benefitted under this category.
3. VAT exemptions on goods and services as stipulated by the VAT Act.
The VAT Act CAP.VI LFN 2014 requires that you pay VAT on all goods manufactured /assembled in or imported into Nigeria, and all services rendered by any person in Nigeria except those specifically exempted under the law as follows: basic (raw) food items, baby products, medical services and services rendered by Community Banks etc.
4. Tax exemptions under Pioneer Status Incentives (PSI)
The federal government granted tax holidays for a minimum of three years to companies with Pioneer Status awarded by the Nigerian Investment Promotion Commission (NIPC).
This was in accordance with the Industrial Development Income Tax Relief Act (IDITRA) to boost investment in the sectors in the approved pioneer status list.
Companies that benefitted from exemptions
In 2022, NIPC listed 57 companies as PSI beneficiaries.
These companies include Aarti Rolling Mills Limited, Stallion Motors Limited, Von Automobile Nigeria Limited, Ikorodu Steel Mills Limited, Confluence Metals Fabrication Company Limited, Cormart Nigeria Limited, and Princess Medi–Clinics Nigeria Limited.
Others are Tiamin Rice Limited, Honeywell Flour Mills Nigeria Plc, Outsource Global Technologies Limited, Crown Flour Mills Limited, Elvis Hotels Nigeria Limited, Olam Hatcheries Limited, etc.
Notwithstanding the tax exemptions, FIRS said, it achieved 98 per cent of its target revenue in the financial year 2022.
Checks by PREMIUM TIMES show that the N1.8 trillion the federal government granted as tax incentives are higher than the total amount the country budgeted for health and education in the same year. The education sector comprising 236 MDAs at the federal level was allocated the sum of N888.82 billion in the 2022 budget. On the other hand, the federal government budgeted N821.49 billion for health in 2022.
In its report, the FIRS acknowledged both the advantages and demerits of tax waivers.
“Tax waivers are put in place to boost economic activities and encourage growth in sectors of the economy,” it noted, but tax waivers “can also signify potential income forgone by the country.”
Tax credit scheme
The tax incentives are different from the government’s tax credit schemes. In 2019, former President Muhammadu Buhari signed Executive Order 007: “Road Infrastructure and Refurbishment Tax Credit Scheme.”
FIRS said the scheme is an innovative approach and technique to facilitate the development and construction of critical infrastructure in the country.
Tax credit approved to date for road infrastructure is worth N1.56 trillion in respect of 38 roads. Of the approved N1.56 trillion, FIRS said, N146 billion worth of tax credit certificates was issued in the year 2022.
The companies that benefited from the Road Infrastructure Tax Credit Scheme are NNPCL, Dangote Limited and Dangote Flour Mills, NPA, Nigeria LNG, BUA Limited, MTN Nigeria, GZ Industries Limited, Transcorp Group, and Access Bank.
Revenue Drivers for 2022
The key revenue drivers by tax categories are Petroleum Profits Tax (PPT), N4.2 trillion; Company Income Tax (CIT), N2.8 trillion; Value Added Tax, N2.51 trillion; Capital Gains Tax, N45.5 billion; Stamp Duty, N53.5 billion; and Education Tax (EDT), N328 billion.
Others are Consolidated Taxes (PAYE, PIT, Pol); N37.4 billion; National Information Technology Development Fund (NITDEF), N22.5 billion; Electronic Money Transfer Levy (EMTL), N125.6 billion; NASENI, N2.37 billion; and Police Trust Fund, N70 million.
“The growth recorded in revenue collection from N6.4 trillion in 2021 to N10.18 trillion in 2022 is not unconnected with the technology deployment (TaxPro-Max), staff training, stakeholders engagement, and the aggressive drive for compliance at all levels,” FIRS said.
To achieve this feat, the agency noted that it introduced a four-point focus namely: administrative and operational restructuring; making the service customer-focused; creating a data-centric institution; and automation of administrative and operational processes.
It further noted that throughout 2020 to 2022, the management had introduced reforms bordering around these four-point foci which were producing results.
However, a major challenge the agency faces is the country’s lack of a harmonised tax system.
“The global best practice is for a country to have a single tax authority, with a single technology to drive tax administration,” FIRS said, noting that “the multiplicity of the tax system has driven a wedge in the efficiency and capacity of FIRS in pooling more resources for the federation.”
It added a multiple tax allows for loopholes that can be exploited by taxpayers to dodge tax payments. Hence, the agency said, “the harmonisation of our tax system would boost tax receipts in the greater interest of the country.”
