Nigeria’s Tax Revenue: The Rise of FIRS as a New Economic Mainstay Amidst Oil Decline

Nigeria’s shift from reliance on crude oil to tax revenues highlights the Federal Inland Revenue Service (FIRS) as the new cornerstone of government income. In 2024, FIRS accounted for around 70% of total revenue distributed among the three tiers of government. Under the leadership of Zacch Adedeji, strategic reforms have led to a significant increase in voluntary taxpayer registration and enhanced revenue generation, aligning with economic diversification objectives under President Bola Tinubu.

Historically, Nigeria’s economy thrived on agriculture, with revenues from groundnut, cocoa, rubber, and palm oil. The discovery of crude oil in 1956 drastically shifted revenue sources from agriculture to petroleum, positioning the Nigerian National Petroleum Corporation (NNPC) as a vital entity for government revenue. However, as the reliance on oil decreases, the Federal Inland Revenue Service (FIRS) has emerged as the new primary revenue generator, surpassing NNPC’s contributions.

In 2024, FIRS accounted for approximately 70% of revenue shared among the three tiers of government at Federation Account Allocation Committee (FAAC) meetings. In January, FIRS collected over 50% of the N2.068 trillion pooled revenue, amounting to N1.275 trillion. Subsequent months saw FIRS contributions grow, with significant monthly increases reflecting its critical role in Nigeria’s fiscal stability.

For instance, in February, FIRS contributed N1.491 trillion, representing more than 50% of the N2.3 trillion total, while its contributions for March and April were N1.061 trillion and N1.187 trillion respectively. In May, FIRS’s share reached N1.571 trillion from the N2.324 trillion pool.

The trend continued into the latter half of 2024, where FIRS contributed N2.841 trillion from a N3.5 trillion accrual in June. July contributions were N2.295 trillion, maintaining a significant percentage of the total pool. This trend highlights the transformation within FIRS under the leadership of Zacch Adedeji, who has initiated strategic reforms improving tax collection efficiency.

Adedeji emphasized a customer-centric approach, shifting FIRS operations to prioritize taxpayer needs. This strategy involved restructuring assessment and collection processes, resulting in a 25.3% increase in voluntary taxpayer registration in 2024. Such reforms aim to build trust and facilitate smoother tax administration.

The increasing tax revenue not only signifies the growth of the non-oil sector but also demonstrates the effectiveness of Nigeria’s efforts to diversify its economy, particularly under President Bola Tinubu’s policies, which have enhanced tax collection. The removal of fuel subsidies and currency unification have substantially bolstered FIRS’s revenue generation.

Although FIRS has achieved significant growth, Adedeji asserts that further progress is essential. The goal is to raise Nigeria’s tax-to-GDP ratio to 18% in three years without burdening taxpayers. The agency’s trajectory of increased revenue generation reflects its commitment to reform and modernization in tax administration.

FIRS aims to collect N25.2 trillion in tax revenues by 2025, which will provide substantial funding for government obligations at all levels. The success witnessed thus far suggests that the tax reform initiatives currently pending in the National Assembly could greatly enhance revenue mobilization capabilities.

The allocation of tax revenues emphasizes that approximately 70% of funds shared monthly during FAAC meetings originate from FIRS. Consequently, President Tinubu merits recognition for fostering an environment conducive to increased fiscal distributions among states, highlighting the positive impact of his leadership on Nigeria’s economic governance.

In summary, the FIRS has successfully transformed into Nigeria’s leading revenue agency, significantly contributing to the nation’s fiscal stability by enhancing tax collection strategies and modernizing operations. The shift from oil dependency towards tax revenue underscores the government’s commitment to economic diversification. President Tinubu’s policies have facilitated this transformation, which is essential for future fiscal sustainability and growth in government allocations to various states.

Original Source: businessday.ng