Nigeria’s Electronic Tax Compliance System: So Far, So Good

Globally, there have been advancements in the application of information technology to various endeavours over the last few decades. Tax administration has not been left out as nations and countries globally have continued to harness technology for efficient and effective tax administration.

Over the past years, the international tax community has been encouraging the introduction of electronic tax (e-Tax) systems/platforms as part of technical assistance programs to modernise and strengthen tax administration. Today, the use of e-Tax platforms has spread from developed to developing countries considering the effectiveness, reduced compliance cost, convenience, flexibility, and increased accountability that the platforms offer. A recent study shows that over 100 economies now use electronic tax systems. These e-Tax systems help reduce the time spent on paying taxes and filing tax returns.

The Federal Inland Revenue Service (FIRS) Introduced the Integrated Tax Administration System (ITAS) in 2013. The initiative was conceived to drive efficient tax administration. The State Internal Revenue Services (SIRS) are not left out as several SIRS are beginning to adopt the e-Tax platform to ease the process for filing annual employers tax returns (Form H1) and payment of state taxes and levies such as business development levy and business premises etc.

A Look at the FIRS E-Tax Platform

The Finance Act 2020 and Sections 25 of the FIRS Establishment Act grant the FIRS powers to deploy technology to automate the tax administration process, including assessment, collection and information gathering. It will interest you to know that the Finance Act 2021 further strengthens the foregoing. As part of the amendments to the FIRS Establishment Act in the Finance Act 2021, FIRS is now empowered to use third-party technology to automate tax administration.

In line with its mandate to automate the tax administration system, the FIRS launched an e-Tax portal for filing naira-denominated tax returns (TaxPro Max) to ease compliance, ensure convenience and flexibility and increase accountability. The TaxPro Max platform is the FIRS' latest effort at digitalising tax administration in Nigeria. The platform, deployed fully in 2021, gives taxpayers the ability to file tax returns (Value Added Tax, Tertiary Education Tax and Companies’ Income Tax) electronically, pay the applicable taxes electronically/online, enjoy instant credit of withholding tax as well as other credits to the taxpayer's accounts, ascertain capital allowance carried forward and obtain tax clearance certificates.

The platform is accessible via a dedicated link (www.taxpromax.firs.gov.ng). Currently, only Naira denominated tax returns can be filed on the platform. A Document Identity Number (DIN) will be generated upon filing the tax returns, except for Nil returns. The DIN is mandatory to make payment upon successful filing. Also, TaxPro Max allows companies to make tax payments on account. Payments made on account may be used to offset applicable taxes in future.

Features of the TaxPro Max Platform

The TaxPro Max platform demonstrates FIRS’ commitment to automate and improve tax compliance and administration processes. We have therefore highlighted the observed features of the FIRS TaxPro Max platform as follows:

Convenience and Flexibility

The platform is easily accessible by taxpayers and their agents (tax consultants). The site has a user-friendly interface, provides a single view to taxpayers for all transactions and can be easily navigated. To get enrolled on the platform, a taxpayer needs to fill the update form and submit same either physically at its registered tax office or send it to the dedicated e-mail address.

The taxpayer gets enrolled in less than 48 hours and get a notification showing the passcode, which the taxpayer can change.

Saves Time and Cost

According to a publication released by the World Bank on the ease of doing business in 2021, it takes about 349 and 325 hours to pay the various taxes in Lagos and Kano, respectively. TaxPro Max is a good start at saving compliance time and cost. The goal is to simplify the tax system and encourage compliance, thereby enabling the country to achieve a high tax-to-GDP (Gross Domestic Product) ratio.

The platform reduces time and cost for both the tax authority and the taxpayer because it is generally much easier and faster to process e-tax returns than paper returns, thereby saving time and cost on both ends.

Accuracy

The platform limits the occurrence of errors in tax returns. For instance, the TaxPro Max prompts a dialogue box asking the taxpayer to confirm and ensure all details are imputed correctly. However, because humans are not perfect, there may be limited occurrence of errors. Taxpayers can request to rectify any errors either in writing or during reconciliation meetings. The platform prevents the manipulation of records and increases accountability of the tax authority and taxpayer.

Revenue Growth

The platform allows a wide range of businesses who are not covered in the tax net to register and file their tax returns with ease. In a recent statement released by the FIRS chairman, he explained that the TaxPro Max has positively impacted the country’s revenue generation. He stated that the FIRS recorded over N664 billion in June 2021, and he attributed this to the implementation of the TaxPro Max portal. The platform is geared towards increasing revenue collection for the government and improving transparency/accountability in the tax administration system.

Concerns on the Existing E-Tax System

Requires the Application of Technical Knowledge

Despite how user-friendly the platform is, it can be complicating for taxpayers, especially for those who attempt to file their taxes without the help of consultants. This is because of the technical knowledge and expertise required to complete and file some of the tax returns.

Timely Upgrade and Modifications

Since it is a relatively new process, there are still many upgrades and modifications to be done on the platform. For instance, the system is yet to accommodate all sectors and categories of businesses in Nigeria as well as updates from the Finance Act 2021. Also, foreign currency-denominated tax returns are yet to be incorporated to the system.

Security

Like every other e-Tax platform, data security is key. We live in a world where cybercrime has become the order of the day, therefore making security one of the biggest concerns that come with e-filing. On the platform, highly sensitive financial and tax data are stored electronically. An unethical hack could potentially lead to a breach of data confidentiality.

Conclusion

Tax revenue is a fundamental way for countries to generate the much-needed public revenues required to finance investments in human capital, infrastructure, and the provision of services for citizens and businesses. One of the most effective and efficient ways to improve tax revenue collection is employing information technology to drive the tax administration process.

The implementation of electronic Tax platform in Nigeria for registration, filing, payment of tax and dispute resolution (desk reviews and audit assessment) by the FIRS has provided some respite to taxpayers and demonstrated the Federal Government’s resolve to ensure transparency in the tax space.

Contacts

Oluwatobi Olafaju

Manager, Tax & Regulatory Services

Stephen Olayinka

Associate, Tax & Regulatory Services