A major contributor to the nation’s economy is the prevalence of the informal sector. On the flip side, the sector is the most under-taxed due to regulatory concession and waivers. It is in light of this that the Federal Inland Revenue Service, FIRS is proposing a method to make up for these untapped potentials.

The method identified by FIRS is to close the gaps by proposing to the federal government, the introduction of road taxes law. Recall that this is coming days after the federal government approved a new policy for tollgates across the country.

Disclosing this recently at an interactive session organised by the House of Representatives committee on finance of the 2022-2024 medium-term expenditure framework/fiscal strategy paper (MTEF/FSP) for ministries, departments, and agencies (MDAs) in Abuja, Mohammed Nami, the FIRS Chairman hinted that this is the way to go.

The idea of introducing road tax beyond closing in on road deficit will also help the FIRS make up for reduced tax collected from the informal sector mostly caused by legal limitations.

Detrending Issues with informal sector taxing

  • The FIRS before now had proposed a presumptive tax to the National Assembly with a bid to adequately capture the thriving sector in the tax net.
  • Presumptive tax is a tax that allows taxpayers based on their estimates to voluntarily declare how much they made in a year after which the FIRS demand them to pay a particular percentage of the declared sum.
  • Consequently, the FIRS decided to slow down on pursuing the above proposal as there are legal limitations that exempted businesses with a turnover of about ₦1 to ₦25 million. These businesses contribute a chunk of the informal sector.
  • To tackle the issue of transparency with the formal sector, the FIRS had created Intelligence, Strategic Data-Mining, and Analysis Department, saddled with the responsibilities of gathering intelligence, business analysis on businesses operating in the informal sector.
  • The latest of its effort is the proposal of road taxes transmitted to the federal government.

As culled from The Cable News, below is Mohammed Nami’s rationale for road taxes,

 As is it today, even if you can give an entire ₦10 trillion to the Federal Republic of Nigeria, it will not be able to fix the roads in Nigeria, just the roads in Nigeria alone.

So what we have decided to do is to propose the introduction of road taxes to the federal government through our special tax operations department so that at least 50 trucks that would be plying these roads for free at any given point in time, comes across a toll gate or probably somewhere that we are going to use an electronic device to collect it without necessarily erecting toll gate.

We are aware that the owners of these trucks, they don’t pay anything to the government, they don’t get the FIRS certificate. So up to 15 or 20 trucks that will ply the road that is built with a personal income tax that I pay and you pay and then they don’t pay taxes. That is what we want to identify.

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