FIRS and New TCC Portal: Understanding the Inconvenient Truth of a Missing Portal

Proshare

Wednesday, June 10, 2020 / 6:57 PM  / TheAnalyst / Header Image Credit: FIRS

 

In the last few days Nigerians have found it difficult to obtain Tax Clearance Certificates (TCCs) and tax payments receipts from the Federal Inland Revenue Service (FIRS), which according to the FIRS, was a problem derived from the challenges with their software applications 'under maintenance'; and one that the agency was working to resolve as quickly as possible.

 

Ordinarily, this would have been a decent and responsible enough a response, except for the fact that the FIRS claim appears to be far from the reality; and stretched to its logical conclusion, is misleading.

 

The inconvenient truth about the FIRS's recent inability to process TCC's would appear to be related to the challenges being faced with its 'planned' in-house software application designed to replace the previous 'AMANDA' application which was a bespoke software programme the previous administration had engaged a third party to deploy, which is represented as being used by up to 350 governments and agencies across the world.

 

The decision to replace the existing software without a clear cut best practice plan to introduce an alternative, better system would appear to be at the heart of a decision that has thrown the TCC system into a conundrum.

 

The FIRS administration headed by Mr. Muhammad Nami, the new Executive Chairman, has seemiongly made the decision to adjust the existing template to deliver on the vision for a new TCC regime on the back of a seeminly lower operational costs, which would meet the test for innovation; only if it has not been done/pursued outside a preferable governance practice. 

 

From available information from our investigation, the tax agency set out to develop an in-house software solution to provide taxpayers with TCC's and receipts, a novel approach which unfortunately from early trials of the software threw up glitches and inconviniences that required more time for necessary finetuning for a seamless operational deployment.

 

The rush-to-market approach evidently has thrown up anticipated disruptions to the agency's services which could have been handled differently, not just from our assessment but from observers and agency personnel who posit that the agency ought to have entered into a forward transitional arrangement with the AMANDA consultants .

 

That is better said, if only we ignore the toxic athmosphere created by the approach undertaken where the consultants, owed for services rendered since May 2019 have remained unpaid and therefore approached engagements with the FIRS with concern, if not suspicion. It did not help that efforts to develop the new portal had involved activities that included staff poaching that rubbed off the consultants (especially their foreign partners) negatively and led to their pulling out of the relationship in May 2020; after a series of meetings with the new management.

 

The investigation revealed that the AMANDA contract expired in October 2019, the same month that the erstwhile Executive Chairman of FIRS, Babatunde Fowler, left office after his contract for a second five-year tenor was not renewed by the federal government. It is instructive that the non-renewal speaks to the proper governance structure existing that required that such renewals would be conducted by the new board; as should be expected of an arms-length transaction.

 

Proshare Nigeria Pvt. Ltd.

 

The Creeping Problem of A Tax Trap

 

In a publication published in Proshare yesterday, Tuesday, June 9, 2020, and authored by the international tax and audit firm - KPMG, the firm noted that the FIRS had developed an in-house tax online tax management solution that would replace the "old" platform.

 

According to the KPMG statement, "The Federal Inland Revenue Service (FIRS) has launched a new tax clearance certificate (TCC) application portal ("the new portal"), following the decommissioning of the current TCC application website ("the old portal").  Consequently, taxpayers have been advised to update their information with the FIRS to enable a smooth transition to the new portal and ease of processing TCC applications from next year".

 

However, KPMG went on to represent as follows, "While we commend the FIRS on the launch of the new portal, we are aware that most taxpayers were issued restricted six-month TCCs earlier in the year, which will expire by 30 June 2020.  Therefore, the timing for deactivating the old portal may not be most convenient for taxpayers who are currently applying for an extension of their TCCs through the old portal.  This may also explain the difficulty taxpayers are experiencing in accessing the old portal".

 

KPMG's footnote/comments subsequent to the information shared was well-advised but would appear inaccurate or at best, mis-informed.

 

Investigations revealed that not many people are aware of a new system in the FIRS that has replaced the TCC service; and indeed learnt about the new service from the publication.

 

The problem FIRS has had to face unfortunately, as it would appear, has not been only one of the deactivation of the AMANDA portal, but of a weak handling of the transition planning process; all things being equal. 

 

Our investigations revealed that the agency failed to design and implement a transition plan that would allow the new platform interface with the previous platform to allow for data migration and integrity testing; at the least and more importantly, offer a seamless discharge of their service mandate and best intentions.

 

It would thus appear that the reason entities have had problems with paying their tax obligations in the past two weeks; and with printing real-time receipts and TCC's as has been the practice since 2018, was that the local consultants to FIRS managing the AMANDA platform in Nigeria had withdrawn their services as at the end of May 2019.

 

The company managing AMANDA, CSDC Ltd, had allegedly sent three notifications to the FIRS that it would withdraw its services if its annual contract was not renewed or if the outstanding payments owed to the company for the last thirteenth months remained unresolved.

 

This was and remains the crux of the dispute that led to the shut down of the existing system unfortunately.

 

Sadly, the TCC's earlier issued by the FIRS in 2020 had a six-month validity that would end on June 30th, 2020, but with no functional alternative portal in place to regularize the established one-year tax clearance practice. This approach in itself appears to be a holding position and not the norm, we discovered.

 

The subsequent absence of a portal to carry the burden of confirming payments and issuing receipts and certificates to companies and individuals would thus create multi-dimensional challenges for firms or individuals that require the Bureau of Public Enterprise (BPE) to validate their tax clearance status before such firms can do business with the federal government. This cannot be a compliment to the governments efforts to rebuild the economy after an extended lockdown.

 

The tax trap caused for those who have both the ability and willingness to pay taxes but now not having access to the digital platform for instant acknowledgement of such payments by way of downloadable receipts and TCC's would reverse the gains the country/agency has made in its globally recognized improvement in the ease of doing business. This is not what the FIRS wants or desires, but the FIRS effort at developing an indigenous software solution, while commendable, would appear to have been done at the expense of the smooth operations of the tax payment system operational to that point.

 

NB: Please note, we have not be able to ascertain the value of the AMANDA platform as an independent user. This may just be a necessary pause in the overall improvement of the existing system but the concerns at this point will benefit from a stakeholder carry-on.

 

Proshare Nigeria Pvt. Ltd. 


The Cost of Uncertainty

 

The key consequences of the current uncertainty in TCC and receipt issuance are likely to be a temporary reversion to the old manual system. A few economic downsides may include the following:

 

  • Whereas the AMANDA system served as a quick clearinghouse and auditing mechanism for tax payments and authenticated payment receipts; the suspension of this service may obscure the documentation and authentication process and lead to a return to the use of paper and clerical human intervention which would be a set back for Nigeria's ease of doing business, albeit in the interim.
  • The regional controllers interviewed confirmed that they have found themselves increasingly less involved in the daily administration of the tax process as it would appear that there was a growing centralization of administration at FIRS in Abuja which was not was existed before. This indicates that a change program is ungoing and it may be necessary to re-engage the workforce to achieve a buy-in to the new direction, beyond the subject of the software/system.
  • The recent move by FIRS to accelerate tax revenue generation has resulted in a situation wherein Q1 2020 saw over 40,000 tax clearance certificates (TCCs) issued, an equivalent to the total TCCs issued in 2019, a figure slightly above the 45,000 issued in 2018.

The implication is that bunched tax payments in Q1 will leave little payments to be made across the next three quarters. While this might serve to meet immediate fiscal challenges it would not allow either for tax transparency or fiscal sequencing. In Q3 and Q4 2020, the government might find little, if any, fiscal leverage to meet budgetary obligations as TCCs had already been issued for the year without appropriate levels of auditing and authentication which the system in place offered.

  • A major challenge foreign investors have with Nigeria is the absence of commitments to the sanctity of contracts and agreements. The lack of respect for agreements breaks the sanctity of trust and the underlying concept of Uberimae Fidei or utmost good faith. If AMANDA is a tax management tool used for public authorities globally, how the FIRS has managed the disengagement process with the company's local representative would appear to knock a nail into the country's business integrity coffin, a situation that goes against the grain of the administration's ease of doing business agenda and wooing of foreign direct investment (FDI).
  • While analysts note that there is nothing wrong with the FIRS developing indigenous Nigerian capacity to provide bespoke solutions to Nigerian problems on a government-to-citizen (G2C) basis, the process of transitioning from independent private service providers and in-house software developers needs, according to these observers, should be guided by best global governance practice to avoid creating national reputational damage that hurts the country's business risk ratings.
  • In 2017 the number of taxpayers before automation was 9,574 but this number increased by 519.91% to 59,350 taxpayers by the end of 2018. The rise in taxpayers demonstrates the improvement in tax administration brought about by the digital TCCs platform. The progression to the digital platform equally showed that in 2018 45,361 taxpayers had tax identification numbers (TINs) and paid the tax, while 40,611 taxpayers had TINs but were not making payments while an estimated 45,504 potential taxpayers did not have TINs and were not paying taxes (see table 1 below).

 

Table 1  Number Tax Payers Before and After Automation  2017-2018

VAT AUTOMATION PROGRAMME

No of Taxpayers Before Automation 2017

No of Taxpayers After Automation

2018

9,574

59,350

 

Have the TIN and are Making Payments

Have TIN and are not Making Payment

No TIN and are not making Payment

 

45,361

 

40,611

 

45,504

Source: FIRS, Proshare Research

  

  • The digital tax system has improved the processing and administration of tax such that potential tax recovery rates have risen but the recent disruption to the process may have created a temporary relapse as taxpayers feel the pressure of their inability to collect timely TCCs (see table 2 showing quarterly collections Q1 2018-Q1 2020).

 

Table 2 Quarterly Target and Actual Collection of Taxes

Quarterly

Quarterly Target (N'bn)

Quarterly Collection (N'bn)

Q1 2018

1,686.7586

1,173.6138

Q2 2018

1,686.7586

1,334.2953

Q3 2018

1,686.7586

1,380.3819

Q4 2018

1,686.7586

1,432.6157

Q1 2019

2,200.5965

1,046.8898

Q2 2019

2,200.5965

1,400.6086

Q3 2019

2,200.5965

1,564.5689

Q4 2019

2,200.5965

1,251.0340

Q1 2020

2,126.2414

1,190.2882

Source: FIRS, Proshare Research

 

The uncertainty around tax administration in Q2 2020 could bring about fiscal disruption as taxpayers jump through difficult hoops created by the service gap of the inoperational in-house FIRS platform.

 

There would likely be a loss of institutional credibility and public confidence if the issue of a functional digital platform is not expressly resolved. The AMANDA framework was provided ahead of the COVID-19 curve and provided a robust backstop to the possible collapse of tax administration in an environment of physical and social distancing. Whatever the previous administration may have gotten wrong, the digital administration of tax receipts and certificates was not one of them.

 

The FIRS should consider a quick resolution of the CSDC matter; leverage on the lessons built to date to improve its in-house software to deiver on it mandate and avert a major disruption to fiscal revenues and the ability of businesses and individuals to continue their legitimate economic activities with minimal interruption.

 

Proshare Nigeria Pvt. Ltd. 


The Ethical Question

 

The FIRS effort at building an indigenous platform for tax administration is a mark of farsightedness, however, the handling of the process will remain the question mark on the intentions.

 

That said, looking beyond the efficient operations of the FIRS, the way the digital transition has been managed so far has brought the following issues to the fore:

 

  • Resolving matters related to the outstanding payments due to the old platform managers and using such a resolution to build confidence in the community;
  • Negotiating a transition exit plan that involves renewing the contract of the consultants managing the AMANDA platform with a view to the consultant exiting at a mutually agreed date after data transition and system validation had been confirmed; and
  • Re-establishing good faith by renewing the October 2019 contract which already has gone deferred into eight months, while agreeing to an interim three months contract that allows both parties the opportunity to mid-wife the change. The approach would rebuild the confidence of the international investment community in the local Nigerian business.

 

While the steps taken by FIRS in developing an indigenous in-house tax portal could be seen as commendable and desirable, the method with which the disengagement of the consultant was carried and the subsequent difficulties in administering tax since May 2020 raises ethical and operational questions.

 

In the process of investigating the report, it was discovered that most tax controllers were yet to be fully briefed about the change in platform, controllers that fielded questions admitted to a lack of full comprehension about the fact that AMANDA was being replaced with a new platform as the earlier information passed to them was that the previous system was undergoing maintenance. The controllers also noted that the current situation at the FIRS was 'fluid' as they were awaiting headquarter guidance.


Proshare Nigeria Pvt. Ltd.


Going forward

 

If Nigeria's tax administration is not to be stuck in a hole from June 2020, the FIRS would need to move speedily to avert national embarrassment and a fiscal logjam. The best foot forward would appear to be to discuss with the AMANDA consultants for a short extension of their service while the FIRS tests its platform side-by-side with the old platform to ensure system proficiency and integrity. The negotiated exit of DSDC, the local managers of AMANDA, would be consistent with best governance guidance and practice, ensuring that the country does not slip down the slippery slope of tax failure. The withholding tax (WHT) credit issue raised by KPMG is a typical area where what could go wrong will go wrong in line with Murphy's law.

 

Tax observers have noted that there should be at least a three-month window for AMANDA to migrate data to the new platform and provide. The collaboration would means the FIRS would have pay for the migration of data which could be seen as fair enough since the data was its intellectual property, as the process of gathering data and analyzing such is propriety. 

 

They equally argue that the FIRS needs to settle the issue of outstanding payment to AMANDA/CSDC and migrate data from the old platform under fair terms. The move would establish integrity and respect for contract terms, it is, according to tax experts, critical that the FIRS sees to the smooth transition of the tax management system from the old AMANDA system to the new FIRS in-house system. AMANDA is an international company and FIRS could suffer reputational damage if it doesn't allow for a smooth relationship. One of the respondents for this report who is a tax consultant and who requested for anonymity noted that, "If we break foreigner companies  trust in the sanctity of local Nigerian contracts and disrupt the reliability of contract payments it would be a disincentive to attracting foreign direct investment (DFI) and capital importation which could come at higher costs to defray contract-fulfilment risks. Therefore, FIRS should renegotiate its contract with AMANDA until its in-house tax administration portal works effectively.

 

Going forward governance is just as important as patriotic intent. If Nigeria is to come out of the COVID-19 pandemic stronger, public institutions need to engage their private sector counterparts in a collaborative manner that makes everyone a winner.


Proshare Nigeria Pvt. Ltd. 

 

Related News - Tax Clearance Certificates (TCC)

1.       FIRS Launches New TCC Application Portal

2.      FIRS Offers One-Month Window To Ease TCC Issuance

3.      FG Mandates all MDAs and FIRS to Authenticate All TCCs Presented by Companies and Individuals

4.      FIRS advises taxpayers to guard against fake tax certificates

 

Proshare Nigeria Pvt. Ltd.

 

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Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

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