Tax incentives hard to track – FIRS

The Federal Inland Revenue Service (FIRS) has acknowledged significant challenges in tracking and managing tax incentives in Nigeria, leading to substantial revenue losses and inefficiencies in the tax system.

Key Challenges in Tracking Tax Incentives

1. Lack of Centralized Monitoring: Nigeria’s tax incentive frameworks often lack clarity on eligibility criteria and performance outcomes. The absence of a centralized database to track the cost-benefit dynamics of these incentives further complicates their evaluation . 
2. Weak Institutional Capacity: The FIRS and the Nigerian Investment Promotion Commission (NIPC), tasked with overseeing the administration of incentives, are often under-resourced, leading to lapses in monitoring and enforcement . 
3. Revenue Losses Due to Waivers: The FIRS has reported significant revenue losses due to tax waivers granted to large companies. For instance, in 2020, N1.3 trillion was lost to tax waivers over five years, and in October 2021, the tax agency reported losses amounting to $2.9 billion yearly . 
4. Corruption and Bureaucratic Bottlenecks: Pervasive corruption and bureaucratic bottlenecks have created avenues for abuse, where entities that do not meet the stipulated criteria benefit from these incentives .
   

Efforts to Address the Challenges

1. Legislative Measures: The Nigerian Senate has passed a bill to amend the FIRS Act, aiming to limit the number of tax holidays issued to companies. The bill mandates the FIRS to obtain National Assembly approval before granting new or renewing corporate tax incentives and waivers . 
2. Technological Initiatives: The FIRS is exploring the adoption of technology to improve tax collection and block revenue leakages. The agency has emphasized the need for federal and state governments to shore up revenue by embracing automated processes and e-solutions in their operations . 
3. Capacity Building: The FIRS has called for increased capacity building to enhance tax administration processes among its personnel. The agency aims to equip its staff with the knowledge and skills to understand evolving tax technologies and contribute to formulating transparent and beneficial rules for the jurisdiction .
   

Addressing these challenges is crucial for enhancing the effectiveness of tax incentives in Nigeria and ensuring they contribute to sustainable economic development.