The current administration has taken steps to implement its decision to generate the fiscal revenue required to leapfrog Nigeria's economy out of the current depressed level. In this regard, it has appointed a committee headed by one of the country's tax specialists (Taiwo Oyedele) to midwife the process. 

In this series, it is our intention to assist the Committee by drawing their attention to various areas that need attention. This first article is therefore focused on the fundamentals of an effective tax administration in any economy. We intend to assess the Federal tax laws and administration through the lens of the century old four canons of taxation – convenience, economy, certainty and equity. 


The process of compliance with the Nigeria Federal tax laws can be categorized into four: Registration, Compliance, Audit/Investigation and Collection. We have addressed each of these below:

  1. Registration - Relative to other countries, Nigeria still has one of the most tedious processes in the world despite the available technology. In the first instance, taxpayers need to provide documentation and provide certain information. The information provided and available to different regulatory ministries, agencies and departments of the government are not linked to permit effective information sharing. Taxpayers therefore need to endure the process of providing the same information and documents across different strata of government for different purpose. Despite the simultaneous registration of newly incorporated companies for tax purpose on incorporation, taxpayers are still required to provide other information to the FIRS to regularize its registration.

    There is need to automate the process of tax registration such that every taxable person which includes companies is registered for tax purpose as soon as such is identified within the Nigeria system. For this purpose, FIRS can afford to deploy technology that leverages on information provided to other regulatory and non-regulatory agencies to automatically register companies for tax purpose, even where the company has not applied. Any additional information and documents available thereafter can always be collated and harmonized on the FIRS' system for such company.

  2. Compliance - FIRS has made several efforts to deploy technology for periodic tax compliance in the last few years. It is however still a nightmare given the complexity and non-user-friendly technology currently available. The information gathering process is also rigid and sometimes in conflict with the provisions of the law. The platform is also not robust enough to accommodate several users simultaneously. The challenge encountered by taxpayer on the final day of filing corporate income tax returns is better imagined. This has led FIRS itself to extend the deadline for filing tax returns in the last three years since the system was deployed. The need to deploy efficient, robust, effective, modern, scalable, reliable, dependable, secured, etc, technology cannot be overemphasized. It lies at the core of operation of any forward-looking agencies in this century. FIRS is sufficiently funded to achieve this. This should therefore be done very quickly.

  3. Audit/Investigation – Currently, audit and investigation exercises are manually driven. In most instances, taxpayers are still required to provide the same set of information earlier submitted to the FIRS during compliance to the audit/investigation team. There is no central electronic archival system where tax auditors can easily retrieve documents and information already submitted to the same FIRS. FIRS do not also have a central library that can guide tax auditors on positions already taken by FIRS on some issues to guide the entire Service. This leads, in most instances, to contradictory positions on the same issue from different tax offices.

    Collection – the most surprising issue out of all these is the collection of taxes payable in foreign currencies. The law requires taxpayers to pay tax in the currency of transaction. FIRS platform is however not currently set-up to assess tax in foreign currencies not to consider making payment in the same currency. The nightmare in respect of withholding tax remitted in foreign currencies is unbelievable. There is no system where tax payments in foreign currencies can be made and evidence obtained online. If Nigeria truly needs foreign currencies to run this economy adequately given the level of our import dependency, why on earth should we not have a system that can assess and collect taxes payable in the currency of our appetite?

    Finally, the law requires that taxes should be paid in the currency of transaction. However, there is no penalty if any taxpayer unilaterally decides to pay in our national currency. Given the current continuous depreciation of naira, it would be difficult to get anyone to continue to pay in foreign currency.

In closing this segment of the article, our suggestion is that before moving too quickly to reform the tax system, the Committee should get the appropriate agency of government to fix these low hanging matter. Why plan to reform for the purpose of collecting more when there is absence of adequate channel to even collect the one that is available?


The Federal Government recognized the uniqueness of FIRS to drive economic growth through adequate tax administration and collection by approving four percent of non-oil and gas revenue for this purpose. An assessment of the deployment of this fund however leaves much to be desired. There is significant gap in value-for-money!

In August 2021, the Executive Chairman of Internal Revenue Service of Federal Capital Territory (IRS-FCT), disclosed that 60% of federal government revenue is generated from Lagos ( . From reliable source within FIRS, we understand that only one office of FIRS in Lagos accounts for more than 80% of that revenue. The question then is what percentage of the total cost of running FIRS is spent on the only office that accounts for bulk of the tax revenue relative to others? How does one reconcile a situation where the revenue generated by an FIRS office is less than the cost of running the office? In the banking sector, physical branches that is not able to add to the overall profitability of the Bank does not have any reason to continue to exist.

Ordinarily, it is expected that personnel cost will account for the bulk of the cost of running FIRS. There is however significant dearth in the skills of most of the personnel. Most of the personnel lack basic accounting and technological skills that are required to navigate the financial records maintained by modern accounting software. The Nigerian factor has also caught up with the Service where employment has been based on factors other than merit. The need to balance Federal Character principle is also not helping matter! The sheer number of low to average skilled personnel relative to experienced and skillful ones does not show that FIRS is ready to triple tax revenue generation in three years. It is most likely that if the figures being reported by FIRS is recent years is adjusted for foreign exchange movement, actual revenue generation may be declining.

A 21st century revenue generation agency such as FIRS is expected to be at the forefront of technological innovation. Its process should have been fully automated by now with minimal human interference. The South African Revenue Service and Rwanda Revenue Authority are both fully automated. The two agencies do not permit any form of human interaction between the taxpayer/consultants and the agencies, except through an approved channel and only on invitation from the authorities. One cannot even reach the officials through any form of telecommunication channels. Private email exchanges are not permitted for official purpose. This is the hallmark of international best practices where technology is deployed to aid tax compliance and administration.

In terms of getting value for money, the Lagos State Internal Revenue Service seem to have implemented this in a more effective and efficient manner, similar to what happens in the private sector. In this regard, reward system is closely linked to performance at office and individual levels. If FIRS wants to collect money from the taxpayer on merit, whilst will the deployment of the cost of collecting the money be on any other factor!


Tax is a major cost of running compliant businesses. Best practices therefore require high level of certainty with no room for surprises. Nigeria's tax system is still enshrined in high level of uncertainty. Below, we have identified some of the areas of uncertainty and suggestion on how they can be addressed:

  1. Commencement date of amendments to tax laws – In the first instance, one must commend the current administration for implementing the provisions of the tax policy with regards to commencement date of changes in tax laws. Nevertheless, in international best practices, the timeline should be longer. Three months is too short for businesses to prepare for such changes. The Tax Reform Committee should consider period not less than one calendar year for adequate planning and adjustment by taxpayers.

    Closely aligned to the above is the need to curtail self-serving posture of FIRS to redefine commencement date of amendments to tax laws. In 2022 and twice in 2023, FIRS indicated commencement dates of Finance Acts that not only counter the provisions of the Acts themselves, but also contradicted express court judgment ( ). It should be noted that each time FIRS makes a pronouncement on provisions of the law that appears to contradict the express provisions of the law or interpretation by the courts, it increases the level of uncertainty in the system.

  2. Tax audit – The Nigeria tax laws permit the tax authority to audit taxpayers' records for compliance with the various taxes for immediate past six years as often as it is deemed necessary. The major issue that has however not been determined is for how long can a tax year remain open from the time that the tax authority commences the exercise? Does commencement of an audit automatically make a tax year opened indefinitely as long as the tax authority has not concluded the exercise? Similarly, should different offices of FIRS be permitted to conduct tax audits on the same company for the same period as long as the period remains open?

    The lack of clarity in respect of frequency of tax audit and openness of a financial statement for tax purpose has increased the level of uncertainty in our tax administration in Nigeria. In order to improve level of certainty, the Tax Reform Committee may need to consider setting a timeline with regards to an audit exercise similar to what is available in the Electoral Act 2022. The latter Act sets a timeline for dispensing with all disputes arising from an election.


A measure of equity is to estimate how evenly spread is the final burden of taxation on different groups of taxpayer. Usually, there are three main classes that can be identified – low, middle and high. Currently, Nigeria direct tax system has tried to adopt seemingly progressive form of taxation to ensure that those who have the capacity and ability are required to pay more. However, progressiveness has only been achieved in absolute figures. The required standard of progressiveness is not present when effective tax rate variable is used. The 'non- progressiveness' is even more evident when the effects of both direct and indirect taxes are determined, making low to middle income earners bear more of the tax burden. There are even strong indications (as explained below), that the affluent in the society including those drawing from government covers do either not pay at all or pay what cannot be considered as fair and equitable.

Nigeria's population is currently estimated at about 224million ( ). The population of each of some of the large cities exceed the entire population of most countries in the world. The high concentration of people in few cities make the country a ready market for products. If we assume that the middle and high income earners are less than 25% of the entire population, it implies that the targeted population that consumes the bulk of supplies made by companies are the low-income earners. The bulk of the high tax remittances made by these companies from supply of goods and services can therefore be assumed to be paid by the low income earners. An analysis of the expenditure of a low-income earner will show that indirect tax takes a considerable percentage of their income. Since the direct tax paid by the companies are also derived from the profits from sale of goods and services to consumers, majority of whom are low-income earners, we can safely assume that the low-income earners pay the taxes on behalf of the affluent. Indeed, given the level of technology and current drive towards heathy living, the high income earners are able to avoid patronizing the manufactured items and use alternatives for some services, thereby making them avoid payment of taxes altogether. Even where the government has provided incentives in form of tax holidays to enable the companies operate at the level commensurate to Nigeria's economic development, such benefits are hardly passed to the populace. The beneficiary companies will rather deploy the humongous profits to expand their businesses rather than pass it to the consumers in form of lower prices.

Another indication of the inequality in the Nigeria's tax system is the ability of non-compliant taxpayer to avoid sanctions. Nigeria has one of the lowest tax-to-GDP ratio in the world. Contrastingly, the level of consumption of ostentatious items which are only available to the ultra-rich is very high. It is reported that the country has one of the highest fleet of private jets in developing countries. It is therefore obvious that if the one percent that controls more than 70% of the wealth of the country pays appropriate tax, tax to GDP ratio can multiple easily. Nevertheless, despite this high level of non-compliance, one is not aware of any non-compliant wealthy individual that has been successfully prosecuted in accordance with the provisions of the law. The wealthy people are therefore able to avoid being sanctioned for not paying tax. This itself is an indication of the inequality in the Nigeria's tax system.

There are two major suggestions to address the current state of inequality:

  1. Multiple indirect tax rates - Introduction of multiple indirect tax rates aimed at increasing level of taxes payable on ostentatious items and reducing what is payable on basic and essential commodities. For instance, while VAT, duty and other indirect taxes payable on ostentatious items can be increased to as much as 100%, the rate on those considered to be basic and consumed by low income earners can remain at single digit.

  2. Effective and efficient judicial system - There should be speedy trial process to ensure that individuals that have flagrantly failed to pay taxes are sanctioned appropriately. The process should be transparent and fair. The penalty should also be severe enough to serve as deterrent.


The efforts of the Committee to reposition Nigeria's tax system is a great one indeed. It should be all encompassing and fundamental. We should however avoid putting a new wine in an old bottle. The review exercise should not spare the agencies of government that will implement the changes. This is the only way that there will be a positive and far reaching impact in the end.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.