Creating an efficient tax system in Nigeria- A case for implementation of the Integrated Tax Administration System
Policy makers around the world are increasingly interested in the tax systems of various countries, especially as regards the ease of tax compliance. Indeed, the ease of paying taxes is part of the factors considered in the World Bank’s global competiveness survey. This is measured using various indicators, such as the number of taxes paid, number of hours required for tax compliance and availability of electronic filing system. Improvement in any of the indicators helps economies achieve better competiveness. It goes without saying that the more competitive an economy is, the more likely it is to attract foreign investments, as multinational companies usually consider such issues when deciding where to host their regional operations. In view of this, tax authorities around the world are continually making effort to streamline tax administrative processes and modernise payment systems. This is to ensure continuous improvement in the competitiveness of their individual economies to attract much needed investments.
Generally, tax authorities are using electronic systems to make tax processes easier, more accessible and more reliable for taxpayers. The latest World Bank’s 2015 Paying Taxes Survey revealed that taxpayers are able to file tax returns electronically in about 45% of the countries that were surveyed. In 83% of the surveyed countries, taxpayers are able to complete at least one aspect of their tax compliance process electronically. In 2014, more than 24 countries instituted reforms that made it easier or less costly for firms to file returns and pay taxes and the most common feature of tax reforms globally was the introduction of, or enhancement of electronic filing system. Such changes were implemented in 18 countries including Costa Rica, Cyprus, Mozambique, Spain, Vietnam, Serbia, and Zambia, amongst others. Businesses in these countries now file returns electronically thus spending less time on compliance. The system also increased transparency and limited the opportunity for corruption and bribery.
In Serbia, for example, the government introduced a system that electronically centralised all communication between taxpayers and tax administrators, including filing and payment of taxes. The system consolidated the payment of different taxes into a single account and automated the exchange of data with banks. This significantly reduced administration cost for both business and the tax authority. This is something that Nigeria can definitely adopt, such that a taxpayer’s records can be linked with the bank account through the Bank Verification Number. This will improve the FIRS’ capacity to monitor the compliance level of taxpayers.
It has been observed that the ease of tax compliance has an inverse relationship to the economic growth of any country as inefficient tax systems tend to encourage tax evasion. Countries with such a system usually have a large informal sector and increased corruption within the tax system. It is, therefore, important to continuously review the administrative burden of compliance and seek ways to enhance it. The electronic tax systems, if implemented well and used by most taxpayers, will benefit both tax authorities and the taxpayers as it lightens workloads and reduces operational costs.
Implementation challenges and lessons for Nigeria
Developing countries, such as Nigeria, usually encounter challenges with the implementation of electronic tax systems. The most significant challenges are the absence of adequate IT support infrastructure and difficulty in ensuring adequate taxpayer education and familiarity with the system.
Where taxpayers have limited internet access, low network speeds, power shortages and system failures, the electronic system can be quite slow and unreliable, thereby leading to limited acceptance by taxpayers. In Kenya, for example, the online filing system was introduced in 2009, but it took three years for the system to gain acceptance with taxpayers due to initial challenges with the processing speed of the filing website.
Ensuring that taxpayers and tax officials are properly educated on the use of the system can be a herculean task. Adequate enlightenment plan should, therefore, be made in this regard and the system must be designed to be user friendly for ease of acquaintance by the users. Lastly, proper security protocols must be included in the system to protect the taxpayer information from unauthorised alteration and data theft.
The countries that have successfully implemented ITAS adopted a phased approach where the pilot scheme runs parallel to the old system for some time. This allows problems to be identified and resolved. It also enables the system to improve appreciably before being rolled out to all taxpayers. This is to ensure that the systems is efficient and reliable so that taxpayers will accept it and use it.
The proper implementation of the ITAS in Nigeria will not only improve the tax administration process but has the potential to encourage voluntary tax compliance which will ultimately improve revenue collection. It will also improve the competiveness of Nigerian economy and potentially attract more foreign direct investment, this will enhance the country’s forex earning capacity.
The ITAS is completely aligned with the basic principles of taxation, such as convenience, simplicity, transparency and efficiency. If Nigeria can overcome the hurdles associated with implementing an efficient and reliable tax system, then the tax compliance system will be made easier. This will reduce the barrier to bringing the informal sector of the economy into the tax base and thereby increase revenue collection.