The Executive Chairman of the Federal Inland Revenue Service (FIRS), Muhammad Nami has embarked on a spending spree, despite a lack of substantial increase in productivity in the form of higher non-oil collections.
Documents seen by MoneyCentral which were presented at the National Assembly by Nami during the 2020 budget defense/2021 budget proposal of the FIRS last week, shows that the executive chairman proposes a 60 percent hike in the 2021 FIRS budget to N289 billion.
This comes despite a shortfall in non-oil collections by the FIRS in 2020. The 2020 approved non-oil revenue target was N4.79 trillion, meanwhile the FIRS budget performance (January – December) was N3.43 trillion, a 28 percent shortfall.
The FIRS has a N4.26 trillion non-oil revenue target for 2021, which is 12.4 percent less than the 2020 target, making it more baffling as to why the service seeks to increase its expenditure by 60 percent this year.
Illegal move to deduct 7% as cost of collections
To fund the astronomical increase in its budget in 2021 compared to the 2020 levels, the FIRS executive chairman Nami is seeking to deduct 7 percent of actual non-oil revenues as cost of collections.
This is however contrary to the codified reforms in the Federal Inland Revenue Service Establishment Act (FIRSEA), which provided for 4 percent as ‘cost of collections’ passed into law in 2007.
Up till 2004, the FIRS relied substantially on monies from its Staff Productivity Bonus Fund (monies given to staff by government as a productivity incentive grant) to finance its operations.
As part of plans under Ifueko Omogui Okauru, its reforming chairman between 2004 and 2012, initiatives to improve funding for the Service were placed at the center of reforms initiated by her.
The FIRS reckoned that it was necessary to have sufficient funds in a sustainable manner to enable the Service carry out the numerous activities it deemed essential for the turnaround of the tax system.
Some of these activities included its ability to recruit competitively, pay reasonable wages and train and retrain staff. The Service needed to acquire modern offices and equipment.
“It was on account of this that the FIRS sought the approval of the 4% cost of collection to enable it to run its operations. The Federal Executive Council approved the operationalization of the cost of collection, and then submitted same to the National Assembly which approved same,” Okauru said in a paper she delivered recently at an event by the Africa Initiative for Governance (AIG) led by Aigboje Aig-Imoukhuede and the Blavatnik School for Government (BSG).
“This new approach to funding the Service took effect from 2005. To entrench this approval and ensure it was institutionalized and difficult to change, a central part of the work from 2005 to 2007 was developing the legislation to give autonomy to the FIRS and make the “cost of collection” an integral source of funding the service.”
Sources tell MoneyCentral that the FIRS executive chairman’s move to increase the cost of collections to 7 percent from 4 percent as enshrined by law is illegal.
“Revenue collections by the FIRS are falling but it wants to increase its spending in a year in which the country just came out of recession,” said a senior partner at a Lagos based international tax consultancy, who spoke on condition of anonymously, owing to the sensitivity of the matter.
“This shows a disconnection between the FIRS goals of improving productivity and collections and actual actions it is taking. For instance, the new staff the FIRS is hiring and paying astronomical sums should be working to improve non-oil collections. One they do that the 4% cost of collections will be enough for the FIRS as the pie increases. Right now they are only robbing other Nigerians to pay for their inefficiencies.”
Nami’s reasons for hike in FIRS budget
Out of the proposed FIRS expenditure of N289.25 billion for 2021 across the three expenditure heads, the sum of N147.08 billion and N94.97 billion are to be expended on Personnel and Overhead Costs against 2020 budgeted sum of N97.36 billion and N43.64 billion, equivalent to a 50.8 percent and 117 percent increase respectively, compared to 2020 levels.
Also, the sum of N47.19 billion is estimated to be expended on capital items against the budgeted sum of N27.80 billion in 2020, a 69.7 percent increase.
The nominal roll used in arriving at the personnel cost for the FIRS for 2021 is 11,000 staff. There is a proposed salary review in 2021 by an average of 28 percent and increase in employer pension from 10 percent to 15 percent.
FIRS proposed increase in the personnel cost for 2021 is predicated on payment of 13-month salary equivalent to one-month salary (estimated at N5,717,228,982), allowance of 30 percent of consolidated salary (N20,582,024,334), 50 percent performance bonus of annual consolidated salary (N34,303,373,889), while N1,819,556,000 is to be expended on Contract Drivers and N369,848,167 on Contract Staff, according to documents seen by MoneyCentral.
Nami affirmed during the hearing at the House of Representatives last week that no fewer than 5,000 staff out of a total of 11,000 are to get salary increases, adding that about 70 percent of the staff work from home as a result of the COVID-19 pandemic/lockdown.
“On the overhead increasing astronomically, there’s a reason for that. The increase is due to full provision in the 2021 budget for 1800 staff recruited by the immediate past management and the little we added in 2019, 2020,” Nami told lawmakers.
“Another reason is that we carried out promotion exercises in order to deal with promotion arrears in 2019, 2020. And in doing so about 5,000 staff were promoted which means more cost for us to carter to. And if you have more staff surely, their salary will go up, taxes that you’re going to pay on their behalf will go up, the National Housing Fund contribution, PENCOM contribution will go up. Those promoted you have to implement a new salary regime for them. There’s also the issue of inflation and exchange rate differential.”
Nami also claimed there was a need to get closer to taxpayers by opening of new offices in selected business districts across the country, provide adequate working tools and conducive working environment for staff, increase the capacity of staff through structured training, pay staff entitlements as at when due including performance incentives and reward for hard work.
Bogus line item budgeted expenses
While the FIRS executive chairman may claim that improved worker’s welfare is at the heart of his moves to hike spending by 60 percent over 2020 levels despite an inability to meet targets, there are still many bogus line item expenses proposed for the 2021 budget for FIRS.
These include plans to spend N1 billion on international travels up from N175 million in 2020 (a 471% increase from 2020 levels) and N400 million on retreats.
Motor vehicle maintenance N700 million, (up from N300m in 2020), contribution to local organisations N12.3 billion (up 485% from 2020),
Others are contribution to foreign organisations N200 million, Board expenses N774 million up 209 percent from N250m in 2020, tax investigation expenses up 1,046 percent to N470 million, financial consulting N815 million (up 313%), IT consulting N343 million, legal services N2.136 billion, and miscellaneous expenses of N24.6 billion up 241 percent compared to 2020 levels.
As the Chief Revenue Officer of the Federation and the face of the Nigerian Tax System to the outside world, the Chairman of the FIRS and by extension the Board must focus on strategic tax administration of which tax collection is only a component, according to Taiwo Oyedele, Fiscal Policy Partner and West Africa Tax Leader at PwC.
“The cost of collection is too high; this should progressively reduce to the international benchmark of 1%. There should be full transparency on how FIRS budget is spent and disclosure regarding FIRS’ own compliance with its tax obligations,” Oyedele said in a recent note titled ‘Agenda for the new FIRS leadership.’