Revenue

ABUJA – The Executive Chairman of the Federal Inland Revenue Service, Zacch Adedeji, on Tuesday, revealed that revenue lost to tax expenditure remains difficult to quantify due to poor data availability across relevant government agencies.

He said this is because tax incentives are not properly weighed against their real economic benefits, which makes it hard to know their true cost and creates room for unverified tax expenditure figures in different quarters.

Adedeji made this known while delivering a keynote speech at the 2025 Tax Expenditure Workshop organised by the Tax Expenditure Management Unit of the FIRS Corporate Services Group in Abuja.

The event, themed “Tax Expenditure and Its Effect on Government Revenue,” was aimed at examining whether tax incentives are genuinely driving economic growth or quietly draining the nation’s revenue base.

According to financial experts, tax expenditures as “revenue forgone attributable to provisions of the tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.”

Reports that the government has been conceding significant revenue to companies seeking to invest in the country, primarily through the Pioneer Status Incentive scheme.

Despite plans to abolish and comprehensively review the incentive, the special tax exclusion has reportedly cost the government an estimated N8tn in lost revenue annually.

The FIRS chair, who was represented by the Coordinating Director, Corporate Services Group, Bolaji Akintola, said the policy directive was designed to support critical sectors such as industrialisation, employment creation, innovation, infrastructure, and foreign exchange earnings.

However, the lack of proper data management and impact assessment has made it difficult to evaluate the true cost and benefit of these incentives.

He said, “Tax expenditures have serious direct and indirect impacts on the citizenry, especially based on equity and fairness. We all know that the Fiscal Responsibility Act of 2007 mandates that Agencies of government provide an evaluation of the budgetary and financial implications of any proposed tax expenditure each year.

“Tax expenditures, like direct expenditures, affect the government budget as it is an expenditure that is spent indirectly by the government through tax exemption, tax deduction, tax offset, concessional tax rate or deferral of tax liability. It is granted for several reasons, among which are to encourage industrialisation, creation of employment, provision of infrastructure, foreign exchange earnings, positive balance of trade, encouragement of innovations and reaching the underserved locations.

“It has been argued that the government is losing revenue through tax incentives, which have been difficult to quantify due to limited data availability. In granting tax incentives by the government, there are expected benefits to be derived from the entities that enjoy these incentives, such that if adequately quantified when analysing the Tax Expenditures in terms of socio-economic impact will show that the actual financial cost to government vis – a viz benefits will be minimised, and a positive developmental curve or growth curve will be observed.

“It is the lack of this adequate monitoring tool on impact assessment that gives room to the ‘IFs’ and ‘Buts’ which create room for these unverified tax expenditure figures in different quarters.”

Adedeji further lamented that many stakeholders operate in silos, with no central coordinating framework for tax incentives, and highlighted the absence of a dedicated tax committee in the National Assembly.

Other challenges identified include conflicting incentive schemes, Base Erosion and Profit Shifting, and politically motivated tax policies.

He noted that the Fiscal Responsibility Act 2007, which mandates all government agencies to evaluate the financial implications of proposed tax expenditures annually, is often poorly implemented.

To resolve this, the FIRS boss disclosed that the Service has empowered its Tax Expenditure Management Unit to evaluate and monitor all tax incentives, adding that the unit is now supported by the integrated digital tax administration system (TaxPro Max).

“While some abuses have been noticed in tax expenditure management, there is also the question about the continued relevance of some of the Tax Incentives. It is, therefore, important that innovative strategies are adopted to achieve efficiency in tax expenditure management,” he added.

Adedeji called for amendments to the various laws underpinning tax expenditures, saying this has become necessary to prevent abuse and ensure the system is flexible enough to keep pace with global reforms, such as the OECD’s Pillar II global minimum tax rule.

He advocated for a centralised framework to regulate and monitor tax incentives, stressing the need for consistent cost-benefit analyses to determine which incentives should be sustained.

This, he said, would also help eliminate duplication and overlap among Ministries, Departments and Agencies.

Adedeji noted that while the FIRS is currently focused on extracting and computing tax expenditure data, the responsibility for assessing their impact still lies largely with administering agencies such as the Nigerian Investment Promotion Commission, the Nigeria Export Processing Zones Authority, and the Oil and Gas Free Zones Authority.

He also called for stronger inter-agency collaboration and emphasised the need to regularly assess the continued relevance and impact of tax incentives on national development.

“We believe that data is life in tax expenditure reporting. That is why the Service will continue to collaborate with the ECOWAS, IMF, World Bank, and the Addis Tax Initiatives to build a robust tax expenditure value chain,” he stated.

Speaking further, Adedeji revealed that the FIRS is currently contributing over 60 per cent of monthly inflows to the Federation Account, a result of several reform initiatives.

In 2024, the Service recorded N21.6 trillion in revenue and is targeting N25.2 trillion in the current fiscal year.

Despite these milestones, he said the FIRS is challenged by increasing demand for greater tax revenue amidst declining direct contributions by some Ministries, Departments and Agencies.

He said, “The FIRS is currently challenged by the ever-increasing demand for greater tax revenue collection by the government at all levels, especially in the face of dwindling direct revenue contributions by some MDAs. Under this current dispensation, the Service is contributing an average of over 60 per cent monthly to the Federation Account.

“This is due to several proactive and reformative steps adopted by the Service. In 2024, we recorded a collection figure of N21.6tn, and in the current year, we are targeting a revenue collection of N25.2tn.”

On his part, the Statistician-General of the Federation, Adeniran Adeyemi, said the discussions at the event provided a unique opportunity for collaboration among statisticians, tax administrators, economists, and policymakers.

He explained that tax and revenue data play a vital role in the national account compilation process, with Inland Revenue data directly impacting the quarterly GDP statistics.

He said, “At the National Bureau of Statistics, we believe in the power of numbers to inform policy decisions. The discussions here today provide a unique opportunity for us to collaborate and engage between statisticians, tax administrators, economists and policymakers.

“Tax and revenue data collated and collected serve as inputs into the data that we produce, especially when we come to national account compilation. The quarterly GDP data we produce for the country is compiled from inputs from the inland revenue. It has a great impact on what we compile for quarterly data.”

Adeyemi expressed concerns that the ongoing tax reforms and legislation are likely to influence both production and household consumption, further underscoring the need for close cooperation with the FIRS.

“I believe with the ongoing tax reform and legislation, it is likely going to affect production, going to have an impact on household consumption.