FEDERAL REPUBLIC OF NIGERIA WORLD BANK PROGRAM-FOR-RESULTS FINANCING ACCELERATING RESOURCE MOBILIZATION REFORMS PROGRAM-FOR-RESULTS (ARMOR- PFORR) ENVIRONMENT AND SOCIAL SYSTEMS ASSESSMENT (ESSA) Draft Final April 12, 2024 Prepared by the World Bank TABLE OF CONTENTS TABLE OF CONTENTS ................................................................................................................. 1 LIST OF ACRONYMS.................................................................................................................... 2 EXECUTIVE SUMMARY .............................................................................................................. 4 SECTION I: PROGRAM DESCRIPTION AND SCOPE .............................................................. 12 1.1 Introduction........................................................................................................................ 12 1.2 Program Description .......................................................................................................... 13 1.3 Program Implementation and Institutional Arrangements ...................................................... 16 1.4 Program Boundaries and Activities .......................................................................................... 16 1.5 Excluded Activities ................................................................................................................... 20 1.6 Scope of the Environmental and Social Management System Assessment (ESSA) ................... 20 1.7 Objectives of this ESSA ............................................................................................................ 22 SECTION II: STAKEHOLDER CONSULTATION ..................................................................... 24 SECTION III: DESCRIPTION OF EXPECTED PROGRAM ENVIRONMENTAL AND SOCIAL IMPACTS...................................................................................................................................... 25 3.1 Overview of Program Risks and Benefits ................................................................................. 25 3.2 Expected Environmental Benefits ....................................................................................... 25 3.3 Expected Environmental Risks and Impacts ....................................................................... 26 3.4 Expected Social Benefits ..................................................................................................... 26 SECTION IV: OVERVIEW OF RELEVANT BORROWERS ENVIRONMENTAL AND SOCIAL MANAGEMENT SYSTEMS ......................................................................................................... 28 4.1 The Constitution of the Federal Republic of Nigeria (1999)...................................................... 28 4.2 Policies Relevant to the ARMOR Program............................................................................... 28 4.3 Relevant Nigerian National Laws ............................................................................................. 30 4.4 Relevant Nigerian National Environmental Regulations .......................................................... 32 4.5 Nigeria’s Institutional Framework ........................................................................................... 33 4.5.1 Federal Ministries Relevant to ARMOR Program 33 SECTION V: ASSESSMENT OF THE CLIENT’S ENVIRONMENTAL AND SOCIAL MANAGEMENT SYSTEMS ......................................................................................................... 34 5.1: Summary of Systems Assessment ............................................................................................ 35 Core Principle 1: General Principle of Environmental and Social Management ............................ 35 Core Principle 2: Natural Habitats and Physical Cultural Resources ............................................ 36 Core Principle 3: Public and Worker Safety .................................................................................. 37 Core Principle 4: Land Acquisition................................................................................................ 37 Core Principle 5: Social Considerations - Indigenous Peoples and Vulnerable Groups .................. 38 Core Principle 6: Social Conflict .................................................................................................... 39 SECTION VI: PROGRAM ACTION PLAN (PAP) AND RECOMMENDATIONS ..................... 40 6.1 Environmental Summary and Recommendations ............................................................... 40 6.2 Social Summary and Recommendations ............................................................................. 40 SECTION VII. SUPPORTING ANNEXES AND REFERENCE DOCUMENTS .......................... 42 Annex 1: Applicability of Core Environmental and Social Principles (CP) to the ARMOR Program Result Area and Disbursement Linked Indicators (DLIs) .............................................................. 42 Annex 2: Key Environmental & Social Risks and Benefits Associated with Program Activities .... 45 1 LIST OF ACRONYMS AEO Authorized Economic Operator ARMOR Accelerating Resource Mobilization Reforms BOF Budget Office of the Federation CIF Cost Insurance and Freight CIT Corporate Income Tax CP Core Principle CSO Civil Society Organization CV Control Visit DLI Disbursement Linked Indicators DRM Domestic Revenue Mobilization E&S Environment and Social ECOWAS Economic Community of West Africa States EIA Environmental Impact Assessment EMT Electronic Money Transfer ENB Environment, Natural Resources and Blue Economy ESSA Environmental and Social Management System Assessment FGN Federal Government of Nigeria FIRS Federal Inland Revenue Service FMEnv Federal Ministry of Environment FMFBNP Federal Ministry of Finance, Budget and National Planning FPRC Fiscal Policy Reform Committee GBV Gender-Based Violence GDP Gross Domestic Product GON Government of Nigeria HHK Household Kerosene ICT Information and Communications Technology IGR Internally Generated Revenues IPF Investment Project Financing LFN Laws of Federation of Nigeria MDA Ministries Departments and Agencies MDB Multilateral Development Banks NCC National Communications Commission NCS Nigeria Customs Service NDC Nationally Determined Contribution NPC National Pension Commission PAD Program Appraisal Document PAP Program Action Plan PAYE Pay As You Earn PCU Project Coordinating Unit PDO Program Development Objectives PforR Program-for-Results PIA Petroleum Industry Act PIT Personal Income Taxes PMS Premium Motor Spirit PSF Permanent Secretary of Finance 2 RA Result Area SGD Single Goods Declaration SRGI Strategic Revenue Growth Initiative SSA Sub-Saharan Africa SSB Sugar Sweetened Beverages SUP Single-Use Plastics TA Technical Assistance TLA Tax and Levy Act TTP Trusted Trader program UAE United Arab Emirates UN United Nations VAT Value Added Tax 3 EXECUTIVE SUMMARY 1. The World Bank is proposing to support the Government of Nigeria (GoN) with a Program for Results (PforR) instrument in a program referred to as Accelerating Resource Mobilization Reforms Program-for-Results (ARMOR-PforR) (hereafter, the Program). The Program Development Objectives (PDO) is to raise non-oil revenue collections, and safeguard oil and gas revenues. 2. The operation which is planned to cover the implementation period of 2024–2028 will be a hybrid one with both a PforR and Investment Project Financing (IPF)/ Technical Assistance (TA) components. The total operation cost to be financed by the World Bank is US$750 million. Under the PforR component, the World Bank will contribute US$730 million to the total cost estimate, financing the most impactful expenditures under the Government Program. The IPF/TA component will support the implementation of the DLIs and develop a strategic communications campaign to raise public awareness about revenue mobilization. Of the total operation cost of US$750 million, the Bank will finance the IPF/TA components in the amount of US$20 million to support the agencies responsible for achieving the results, the Project Coordination Unit (PCU), and the independent verification of the results. 3. The implementation of the PforR Component will leverage on the existing systems within the relevant Ministries Departments and Agencies (MDAs), an arrangement that will also serve to enhance their capacity. Successful implementation of the ARMOR Program will require strong collaboration and a robust implementation arrangement between the Federal Ministry of Finance, (FMF), the Federal Inland Revenue Service (FIRS) and National Customs Services (NCS). The PCU housed in the Technical Services Department and directly supervised by the PSF office will be the main interlocutor of the World Bank on behalf of the government, responsible for finalizing the monitoring framework and verification protocols, audits, procurement of the Independent Verification Agent, and Program coordination. The PCU will use the existing capacity within the TSD office supplemented by a professional project manager, a procurement specialist, an E&S specialist, and a communications specialist, in addition to the FM staff deployed to the PCU by the Accountant General. At implementation level, FIRS and NCS will set up Project Implementation Units to take responsibility for technical delivery of FIRS and NCS Disbursement Linked Results (DLRs). The ARMOR oversight structure has three layers: the steering committee, the technical committee, and the Implementation. The implementation of the IPF components will be the responsibility of the PCU and the PIUs. 4. The PforR will support the Government program’s action plan, reorganized into three result areas and nine disbursement linked indicators (DLIs) detailed below: i. Result Area 1: Increase revenues through implementing tax and customs excise reforms. This result area focuses on: (i) enhancing VAT collections through improved VAT regulations, taxpayer outreach and a helpdesk to enhance the number of registered VAT traders; (ii) rationalizing tax expenditures and reducing revenue foregone; and (iii) increasing tax revenues from pro-health and green products. ii. Result Area 2: Improve taxpayer and customs trader compliance through strengthened revenue and customs administrations. This result area focuses on: (i) 4 boosting VAT and CIT compliance by improving ICT-systems to allow fore-filing and e-payment to lower the costs of compliance for taxpayers; (ii) boosting accuracy of VAT-trader declarations through the introduction of a VAT lottery scheme and electronic invoicing for VAT-registered traders; and (iii) increasing revenues from audits by implementing automated data exchange between FIRS and NCS, and building an effective risk-based audit system. In customs administration, the goal is to facilitate compliant trade flows and process more goods through the green channel, and to implement more effective post-clearance audits. iii. Result Area 3: Safeguard oil and gas revenues by improving governance and transparency of NNPCL and increasing transfers to the Federation. This result area aims to: (i) increase transparency of NNPCL financial and operational performance through regular production of enhanced reports submitted to FAAC, including all relevant information; and (ii) increase net oil and gas revenues transferred to the Federation. 5. The list of DLIs for the three result areas are as follows: DLI1 - Increased revenue from VAT. DLI2- Reduced forgone revenues; DLI3- Increased revenue from pro-health and green taxes DLI4- Increased on time on-line e-filing and e-payments; DLI5- Enhanced VAT voluntary compliance; DLI6- Improved tax audits; DLI7- Increased compliant trade flows; DLI8- Increased customs revenues through better risk management and enhanced Post Clearance Audits (PCA) ; DLI9- Enhanced Transparency and Increased Oil Revenue Flows. 6. The Program will exclude activities that do not meet the World Bank’s Policy on eligibility for PforR financing (September 2020). The borrower shall ensure that the Program excludes any activity which, in the opinion of the World Bank, is likely to have significant adverse impacts that are sensitive, diverse or unprecedented on the environment and human and/or requires significant land acquisition, displacement and or resettlement of affected people. Given that the ARMOR-PforR Program is an institutional reform program, it will not support investments with high environmental and social risks and impacts, for example, construction and infrastructure development. It will not accommodate involuntary displacements and resettlements. Thus, any Program activity that entails land acquisition, negative impact on natural habitat and cultural resources, public and workers’ health and safety will not be funded under the PforR. 7. The Environmental and Social Systems Assessment (ESSA) examines the extent to which the Federal Government’s existing environmental and social management systems operate within, an adequate legal and regulatory framework to guide and monitoring at the PforR Program level. It assesses their consistent with the six ‘core principles’ of Program for Results Policy and recommends actions to address the gaps and to enhance performance during Program implementation. This ESSA incorporates recognized elements of good practice in environmental and social assessment and management and thereafter defines measures to strengthen the system and 5 recommends measures that will be integrated into the overall Program. The ESSA is undertaken to ensure consistency with six core principles and key planning elements of PforR ESSA. 8. The ESSA was prepared by the World Bank team through various methods. These include a combination of detailed reviews of existing program materials and available technical literature, including policies, regulations, guidelines and examples of due diligence and design documents, interviews and extensive consultations with government staff, non-governmental organizations, regulatory agencies, private sector organizations and sector experts associated with public revenue generation. The findings, conclusions and opinions expressed in the ESSA are those of the Bank based on the analysis conducted. 9. In line with the six core principles, the relevant risks associated with the ARMOR Program and within the proposed Result Areas (RAs) under the PforR cover environmental and social issues and include: i. Increased generation of e-waste due to strengthening of ICT systems in FIRS, NCS and other agencies. ii. Possible socio-political discontent against tax reforms for example, increase in or introduction of excise duty rates, on health harming goods and green taxes. iii. Potential marginal increase in poverty due to increase in taxes, for example, excise duties on some products (Annex 5). 10. Overall, the Program's environmental outcomes are expected to be positive as it boosts green taxation and reduces single-use plastic consumption which would generate climate co-benefits. DLI 3 of the Program will introduce revenue from pro-health and green tax on sin goods including imported vehicles which is expected to incentivize businesses and households to transition to more fuel-efficient automobiles. It will also support tax exemption for environment friendly zero emission vehicles, mass transit vehicles, and automobiles with engine capacity under 2000ccs. 11. Overall, the social outcome is expected to be positive although there are some social risks associated with the program. Some social risks and benefits are associated with the program. The achievement of all the DLIs will lead to increased domestic revenue generation which will enhance government spending in social sectors, economic growth and poverty reduction. Social risks include potential loss of jobs due to increase in pro-health taxes. 12. The overall environmental and social risks have been assessed and deemed to be Substantial. Although specific environmental risks were assessed as low because the Program does not involve construction or rehabilitation works and program activities are not likely to require significant changes to the borrower’s overall environmental systems, the program was generally assessed as Substantial because combined with the social impacts, there could be some changes in social management approaches due to envisage Substantial social risks. 13. The ESSA process includes stakeholder consultations and disclosure of the ESSA Report, in accordance with the World Bank Policy and Directive for Program for-Results Financing and Access to Information Policy. At present, the ESSA consultation process is 6 embedded in the Program consultation process. Feedback from stakeholders have been instrumental in designing and revising the Program Action Plan (PAP), indicators, and program operations manuals and appraisal documents via providing data and details on the existing situation, management status and priorities of government regarding DRM. 14. Consultations for the ESSA were held on February 7 and 18 2022 for government stakeholders and on February 8 for private institutions and civil society organizations (CSOs). The main aim of the consultation was to present the ARMOR PforR and the draft ESSA to them and to get their input regarding the program, the findings of the ESSA, recommendation and PAP. The key output of the consultation with government stakeholders was that the key implementing agencies understood the requirement as regards the PAP. Also, the need to carry along the trade organizations so that they can fully understand the program. 15. Overall, private sector organizations and CSOs welcomed the project as a good one that would facilitate revenue generation and enhance economic development in Nigeria. They stressed the need to involve CSO in the program, especially in monitoring to ensure that government funds are properly accounted for. They also noted that a good grievance redress mechanism should be put in place so that grievances can easily be resolved as it has a tendency of derailing the program. 16. Some analysis was carried out to determine the range of environmental and social risks and benefits that are associated with the PforR program based on each of the DLIs . The PforR component of ARMOR will generate some E&S risks and benefits. Although the environmental impact is expected to be low, the overall E&S risks of the Program have been assessed and deemed to be Substantial given the expected social risks associated with an increase in taxes, especially the green tax. The environmental risks are limited to e-waste given the increased use of ICT in facilitating an efficient tax system. Also, there could be local air pollution due to the increased importation of other vehicles not covered by the green tax. On the other hand, the introduction of green taxes and excise on SUP are expected to have some climate co-benefits especially a reduction in greenhouse gas emissions, and thus will facilitate the achievement of the emission targets Nigeria pledged in her Nationally Determined Contribution (NDC). The introduction of green taxes may be resisted by vested groups and thus lead to political discontent. 17. The PforR program will deliver some direct and indirect environmental benefits . Environmental benefits that will accrue from achieving some of the DLIs include a reduction in carbon footprint and increased climate co-benefits especially due to reduction in greenhouse gas emissions. Specifically, increased revenue from pro-health taxes that will be achieved in DLI3 will discourage the consumption of tobacco and thus reduce the carbon footprint and environmental damage of the tobacco industry. The tobacco industry is known to cause wide- ranging environmental damage, including deforestation and water pollution from pesticide use and cigarette littering. 18. Also, the introduction of green taxes and environmental surcharges on imported vehicles that will be carried out under DLI3 will help reduce greenhouse emissions from transportation and thus deliver climate-co-benefits. This aligns with Multilateral Development Banks' (MDB) list of eligible mitigation activities under Category 9.1, that is, efficient pricing of 7 fuels and electricity that will lead to a reduction in carbon emission. Also, the achievement of this DLI will encourage the use of urban mass transit which is known to deliver some carbon co- benefits. Urban mass transit aligns with Multilateral Development Banks (MDB) list of eligible mitigation activities under Category 7.1. The introduction of ten percent excise on single-use plastics (SUP) will reduce the consumption of plastic products, reduce the menace of plastic waste and reduce greenhouse gas emissions. 19. The ARMOR PforR has few activities that are expected to impact on the environment. There are no construction or rehabilitation activities under the PforR and environmental impact is envisaged to be low. The environmental impact envisaged is the generation of e-waste due to the extensive use of ICT facilities that will drive the achievement of many of the DLIs especially DLIs 3, 4, 5, and 7. 20. The ARMOR PforR has many social benefits that will result from the achievement of the DLIs. The social benefits include increased revenue generation, enhanced economic development and poverty reduction, enhanced health outcomes, and reduced corruption including gender-based violence (GBV) due to improved tax filing using an e-filling system. The achievement of all the DLIs will lead to increased domestic revenue generation which will enhance government spending in social sectors, especially education, health, and social transfers which invariably will enhance economic development and poverty reduction, especially among the most vulnerable. 21. Besides the increase in government revenue, ARMOR will generate several socio- economic benefits. DLI3 (increased revenue from pro-health taxes) will generate health benefits as an increase in tax for harmful commodities, for example, cigarettes, will discourage their consumption, thus reducing health burden/ deterioration in health and health cost due to their consumption. Also, the removal of tax exemption that will be achieved under DLI 2 (reduced forgone revenues) is expected to improve parity in terms of tax incidence as men often benefit more than women from tax expenditures. In addition, e-filling that will be achieved under DLIs 5 would empower women by decreasing their chances of facing harassment and gender-based violence (GBV) when filing taxes due to reduced person-to-person interaction given that studies have shown that women are more likely to face higher costs and harassment when dealing with public officials. especially those related to taxation. Also, e-filling would likely eliminate bribery and corruption associated with person-to-person tax filling. 22. Furthermore, the introduction of green taxes will encourage the use of mass transit vehicles and automobiles with engine capacity under 2000 ccs. The use of mass transit vehicles will directly reduce transport costs of households and free up resources for expenditure on other household needs. Also, the introduction of ten percent excise on SUP will reduce the health impact of plastics due to reduced exposure to chemicals in plastics. 23. The reform of the excise duty system especially increasing the excise duty rate on sin products could be resisted by the public due. Although the increase in excise duty rates are not expected to largely impact the poor, this could increase the goods of these goods. A poverty and social incidence analysis has been carried out and concluded that the measures proposed by the Program are largely borne by the rich deciles of the society (see Annex 5). 8 24. Although pro-heath taxes that will be introduced under DLI3 will enhance health outcome, it may also result in income loss for those that depend on income from selling of cigarette. Besides it may result in job loses for those employed in the sector as a result of decrease in sales and operations of the companies producing and marketing cigarettes), there could be resistance and effort to scuttle the process from interest groups especially economic and political elites who are quite influential and capable of blocking reforms. 25. Under DLI 4 (Increased on time on-line e-filing and e-payments) is likely to entail transition risk. The introduction of modern ICT-based platforms for filing taxes as opposed to the traditional face-to-face systems might lead to the exclusion of those who are more accustomed to the old methods and who may not have access to the technology. Although the new platforms present opportunities for some social benefits, the transition period could present challenges for people who are not technologically savvy in a situation where e-channels become the only option for taxpayers. An additional risk is that it may result in payment of penalty fees by the people who are used to old methods and may delay tax payment due to challenges in using ICT-based platforms. 26. Following the identification of environmental and social risks, the E&S management system in place to manage the identified risks were assessed. The assessment was done using the following criteria: strengths of the system, or where it functions effectively and efficiently and is consistent with Bank Policy and Directive for Program-for-Results Financing; inconsistencies and gaps between the principles espoused in Bank Policy and Directive for Program-for-Results Financing and capacity constraints; actions to strengthen the existing system. Information from this analysis, identification of gaps and opportunities/actions, was used to inform the recommendations and Program Action Plan (PAP). 27. Given the low environmental impact of this project, a few recommendations are made as follows: • There is a need to strengthen the E&S capacity under the project especially in the FMFBNP, the FIRS and NCS that will be responsible for executing this ARMOR PforR. To facilitate this, E&S specialists should be recruited for the Program. • The is also a need to develop an E-waste management strategy to facilitate the management of e-waste. The requirements of the E-waste control should be a part of the bidding document under ARMOR PforR. 28. Given the identified social issues and weaknesses in the federal system, the following recommendations are made: • The Federal Ministry of Finance and the Program Coordinating Unit (PCU) and with support from relevant agencies, should institute specific communication medium and packages to effectively communicate the tax reform to the citizens and strengthen social contract. • There is a need to strengthen the capacity of the agencies to effectively deliver specific communication packages regarding tax reform and building the trust of the citizens. 9 29. Following the recommendations, the breakdown of actions to be included in the Program Action Plan (PAP) with indicative timeline, responsibility for implementation and indicators for measuring the completion of such actions are detailed in the Table ES1 below. 10 Table ES1: Program Action Plan (PAP) s/ Action Description Due Date Responsible Completion Measurement n Party 1 Hire qualified ENB No later than 3 Federal Ministry Inclusion of the listed specialist in and SSI Officers that months after of Finance, (FMF) the team and maintained throughout will be dedicated to effectiveness the Program implementation, and for ensuring E&S (will be reported Training Module and PAP implementation during the first Implementation Support Supervision mission ISR) Report of World Bank Task team 2 Develop e-waste Within one year FMF and Program E-waste management strategy management strategy of effectiveness Coordinating Unit document. for managing e- or before the (PCU) waste result from the first bidding program document for equipment procurement, whichever is earlier. 3 Develop a tax reform Six months after FMF and PIU Communication package including communication program giggles, leaflets, billboards etc., in package for citizens effectiveness different Nigerian languages engagement 4 Prepare modified Six months after FMF and PCU Harmonized Complaints Redressal complaints redressal program Strategy with clearly identified strategic document Effectiveness action required from FIRS, NCS to address the and FMF. weaknesses in the processes for handling complaints arising from services available to all categories of taxpayers. 11 SECTION I: PROGRAM DESCRIPTION AND SCOPE 1.1 Introduction • Elections in 2023 brought in a new President and administration committed to improving macroeconomic stability and addressing fiscal and debt vulnerabilities due to low revenues and a dependence on global oil prices. Macroeconomic stability steadily deteriorated over the past decade leading to an increasing difference between official and parallel market exchange rates, shortage of foreign exchange and high inflation. Confronted with a fragile economic reality, the new administration that took office in May 2023 made two critical macro-fiscal reforms: the increase in the price of gasoline or premium motor spirit which was subsidized at a fiscal cost of 2.2 percent of GDP in 2022, and the liberalization of the exchange rate.1 These policies are expected to help boost revenues from 6.7 percent of GDP in 2022 to 8.6 percent of GDP in 2024. Nonetheless the fiscal deficit is projected to remain above 3 percent of GDP. This fiscal outlook has limited scope for essential public investments and services. The situation highlights the urgent need to mobilize domestic revenues to shore-up fiscal sustainability and provide funding for government investments in inclusive and sustainable development. • • The economic and fiscal outlook continues to be vulnerable to shocks and oil-dependence and the challenges associated with improving governance of the State. In recent years the economy has been hit by COVID-19, a fall in global oil prices, increasing insecurity, and weak domestic oil production. The post-COVID recovery was short-lived with real GDP growth dropping from 3.6 percent in 2021 to 3.1 percent in 2022-2023, due to low oil production, flood-related low agricultural output, and the disruptive currency demonetization policy in Q1-2023. The fiscal space is limited by the need to service debts (101.5 percent of revenues in 2022) and vulnerable to fully realizing the fiscal transfers from the oil and gas sector, restricting public investments. Long-standing perceptions of corruption and other governance challenges such as weak institutions and limited transparency and accountability dampen business sector confidence. • • Nigeria’s dependence on oil and gas revenue is a source of fiscal vulnerability. During the commodity-price boom of 1996-2014, the revenue-to-GDP ratio was 12 percent, (albeit considerably lower than the Sub-Saharan Africa (SSA) average of 21.5 percent at that time), while a decade later, revenue-to-GDP was just 7.7 percent in 2023. Despite a 116 percent increase in international oil prices between 2020 and 2022-2023, net oil and gas fiscal revenues transferred to the Federation fell in the same period from 2 percent of GDP to 1.8 percent of GDP due to falling oil production and the retention of fiscal transfers to finance the gasoline subsidy. Oil production fell from 1.8 million barrels per day (mbpd) in 2020 to 1.4 mbpd in 2022-2023 due to insecurity and a lack of investment and adequate maintenance. The cost of the gasoline subsidy increased over this period from 0.9 to 1.6 percent of GDP, deducted directly by Nigeria National Petroleum Corporation Limited (NNPCL)2 and reducing the net-oil revenue transfers to the Federation Account. 1Subsidies were deducted from gross oil and gas revenues resulting in lower remittance of oil and gas revenues to the Federation. 2 NNPCL is governed by the Petroleum Industry Act (PIA) 2021 12 • Despite recent reforms, Nigeria’s non-oil tax revenues underperform due to low tax rates, poor compliance, a narrow tax base, and high tax expenditures. Reforms introduced in 2020-21 increased non-oil tax revenues from 2.3 percent of GDP in 2020 to 3.7 percent of GDP in 2023 due to a rate rise in Value-Added Tax (VAT), improvement in tax digitalization, and the unification of the exchange rate in 2023. Despite this increase, tax revenues in Nigeria remain very low compared to peers. Unlike most developing countries, Nigeria has yet to tap VAT (a federal responsibility to collect but VAT revenues shared) as a significant source of revenues. In 2022 VAT revenues were only 1.2 percent of GDP while VAT tax expenditures were estimated at 1.98 percent of GDP. The current VAT rate of 7.5 percent is the lowest rate in Africa, and well below the SSA average of 15.8 percent. Under the VAT legislation the tax operated like a sales tax, since firms are unable to recover input VAT on purchases of fixed assets, services, and general administration costs. Meanwhile, Corporate Income Tax (CIT) has a very narrow tax base, and although collections have increased in recent years, they were just 1.6 percent of GDP in 2023. By comparison, poorly designed and sometimes discretionary tax CIT expenditures were estimated to cost 0.4 percent of GDP. Excise rates are exceptionally low by global standards, and revenues were less than 0.1 percent of GDP in 2023. Personal Income Tax (PIT) is assigned exclusively to the States, where challenges persist in collection due to tax evasion and underreporting: only 13 percent of the workforce is registered for PIT (2018) and only 2 percent of those are reported as active. • The tax and customs administrations need modernizing to improve efficiency. The 2023 Tax Administration Diagnostic Assessment Tool (TADAT) reported several priority areas for improvement: the tax registration database does not provide all required information to facilitate taxpayer interactions, and there are low rates of filing (2022 average was 41 percent for CIT and VAT registered taxpayers), and payment (the 2022 average for VAT was just 22 percent among registered taxpayers). Nigeria’s trade facilitation performance score of 2.6 (1=low to 5=high), ranks 88th out of 139 countries in the 2023 Logistics Performance Index, and the “efficiency of the clearance process" directly under NCS control was among the poorest scoring dimension at 2.4.3 1.2 Program Description 30. To facilitate DRM efforts in Nigeria, the World Bank is proposing to support the Government of Nigeria (GoN) with a Program for Results (PforR) instrument referred to as Accelerating Resource Mobilization Reforms Program-for-Results (ARMOR-PforR) (hereafter, the Program). The Program will support DRM and will cover the gamut of instruments that impact DRM, especially enhancing tax revenue and revenue administration providing financing of US$730 million. The Program Development Objectives (PDO) is to raise non-oil revenue collections, and safeguard oil and gas revenues The achievement of the PDO will be measured by the following PDO-level indicators: a) Value of VAT revenue enhanced (% of none oil GDP). b) Taxpayer compliance rate for VAT and CIT. c) Number of customs registered a accredited compliant firms. 3 https://lpi.worldbank.org/international/scorecard/radar/C/NGA/2023 13 d) Number of enhanced FAAC reports received by FMF. . 31. The operation is planned to cover the implementation period of 2024–2028 and it will support the Government Program. The World Bank support will be a hybrid one with both a PforR and IPF/TA components. Under the PforR component, the World Bank will contribute US$730 million to the total cost estimate, financing the most impactful expenditures under the Government Program. The Program implementation will be supported by an IPF component to support the implementation of the DLIs and develop a strategic communications campaign to raise public awareness about revenue mobilization. Technical Assistance (TA) in the amount of US$20 million will be provided to support the agencies responsible for achieving the results, the Project Coordination Unit (PCU), and the independent verification of the results. The component allows a closer working relationship between the World Bank, the implementing agencies, and the PCU ensuring that inputs are well-designed, and that sufficient quality assurance is provided, including on the verification of the results. 32. The proposed DLIs based on the result areas are presented in Table 1.1. 14 Table 1.1: ARMOR DLI Matrix Baseline Target in DLI price Disbursement Linked Indicators (DLIs) Disbursement Linked Results (DLRs) (unit of 2027 (US$ mln) DLI) (DLI unit) RA1: Increasing revenues through implementing tax and custom reforms 255.0 DLR 1.1: Revenues collected from VAT as a ratio of non-oil GDP, as per the verification protocol 105.0 1.3% 1.8% DLI 1: Increased revenue from VAT DLR 1.2: Number of VAT filers 30.0 472,060 660,000 DLR 2.1: By December 31, 2023, the exemption of interest on corporate bonds removed and capital gains over 10.0 No Yes NGN100 million taxed, as per the verification protocol DLR 2.2: By December 31, 2024, The Pioneer Status Industry Tax Incentive (PSIT) scheme, was rationalized as per DLI 2: Reduced forgone revenues 10.0 No Yes the verification protocol DLR 2.3: Additional revenues collected from lower tax expenditures as a percent of non-oil GDP, as per the 15.0 0% 0.2% verification protocol DLR 3.1: A presidential order issued to increase excises on sin goods, as per the verification protocol 10.0 No Yes DLR 3.2: Additional revenues collected from excises on sin goods as a ratio of non-oil GDP, as per the verification 35.0 0.0% 0.3% DLI 3: Increased revenue from pro-health and protocol green taxes DLR 3.3: A presidential order issued to introduce green excises, as per the verification protocol 10.0 No Yes 30.0 0.0% 0.2% DLR 3.4: Additional revenues collected from green excises as a ratio of non-oil GDP, as per the verification protocol RA 2: Improve tax and customs compliance 310.0 DLR 4.1: Online filing compliance rate for CIT (%), as per the verification protocol 23.3 17 55 DLI 4: Increased on time on-line e-filing and e- DLR 4.2: Online filing compliance rate for VAT (%), as per the verification protocol 23.3 65 85 payments DLR 4.3: Online VAT payment rate (%), as per the verification protocol 23.3 22 60 DLR 5.1: A VAT Lottery was launched, as per the verification protocol 20.0 No Yes DLI 5: Enhanced VAT voluntary compliance DLR 5.2: E-invoice system launched for VAT traders, as per the verification protocol 20.0 No Yes DLR 5.3: E-invoice system adopted by traders (%), as per verification protocol 45.0 0 30 DLR 6.1: By April 31, 2024 the FIRS system receives NITDA certification, as per the verification protocol 15.0 No Yes 10.0 No Yes DLI 6: Improved tax audits DLR 6.2: An automated and integrated data sharing between NCS-FIRS is functional, as per the verification protocol DLR 6.3: A centralized risk-based tax audit selection system is launched, as per the verification protocol 10.0 No Yes DLR 6.4: Tax audit cases selected using a centralized risk based system, as per the verification protocol 20.0 0 30 DLR 7.1: By December 31, 2023, a compliant trader program launched and an Authorised Economic Operator 15.0 No Yes (AEO) framework enacted, as per the verification protocol DLI 7: Increased compliant trade flows DLR 7.2: Number of companies enrolled in a AEO simplified (FT2.0), as per the verification protocol 10.0 125 300 DLR 7.3: Percent of goods directed through Green Channel, as per the verification protocol 35.0 0% 15% DLR 8.1: Risk Management and Compliance based criteria for conducting targeted and random inspections , as per DLI 8: Increased customs revenues through 10.0 No Yes the verification protocol better risk management and enhanced PCA DLR 8.2: Revenue assessed from the Post Clearance Audit (PCA) Unit (Naira bln) 30.0 37 110 RA 3: Safeguard oil revenues 165.0 DLR 9.1: A forensic audit of NNPCL has been completed, as per the verification protocol 15.0 No Yes DLR 9.2a: By March 2025, the Federal Account Allocation Committee (FAAC) approves an enhanced template for 5.0 No Yes NNPCL reporting. DLI 9: Enhanced transparency and increased oil DLR 9.2b: Three months after the approval of the enhanced reporting template, FAAC receives reports from revenue flows NNPCL, which include (i) the total oil lifted in all the operations it supervises, (ii) existing liabilities, (iii) forward crude 55.0 0 33 oil sales (iv) and outstanding fiscal and regulatory (such as gas flare) payments, as per the verification protocol DLR 9.3: Net fiscal oil revenues as a ratio of GDP 90.0 1.8% 2.5% 15 1.3 Program Implementation and Institutional Arrangements 33. The ARMOR Program governance structure comprises two key committees and a Project Coordinating Unit (PCU). First, the ARMOR Program Steering Committee led by the Federal Minister of Finance and Coordinating Minister of the Economy and comprising the PSF and the Heads of FIRS and NCS, and the Presidential Committee on Fiscal Policy and Tax Reforms convening quarterly for strategic oversight. Second, the ARMOR Technical Committee chaired by the Permanent Secretary, Ministry of Finance comprising relevant directors of FIRS, NCS, TSD, meeting monthly for technical oversight. The PCU will function as the core task team reporting and serving as the secretariat for the Steering and Technical Committees. A Program Manager hired on a consultancy basis, will be responsible for daily execution of all program management activities including effective supervision of fiduciary functions for activities financed by the IPF and reporting to the Program Coordinator. This hierarchical structure draws upon the experience in other successful PforR operations implemented in Nigeria, facilitates efficient communication, oversight, and resolution of implementation challenges at various levels. The structure is illustrated in Figure 1 Figure 1: Governance and Implementation Arrangement of ARMOR ARMOR Steering Committee: Chair- Minister of Finance, Secretary - PS Finance, Members: Heads of FIRS, NCS, BOF, FPRC, FAAC Program Monitoring & Armor Technical Committee: Chair- PS Finance, Members: Relevant Directors of Oversight FIRS, NCS, BOF, FPRC, FAAC NCS - PfoR Secretariat in PSF's Office also IPF TA Implementation FIRS - PfoR FMFBNP - PfoR 1.4 Program Boundaries and Activities 34. The program boundary is as shown in Table 1.2. The PforR will support the Government program’s action plan, reorganized into three result areas and twelve disbursement linked indicators (DLIs) with the following activities: i. Result Area 1: Increase revenues through implementing tax and customs excise reforms. This result area focuses on: (i) enhancing VAT collections through improved VAT regulations, taxpayer outreach and a helpdesk to enhance the number of registered VAT traders; (ii) rationalizing tax expenditures and reducing revenue foregone; and (iii) increasing revenues by raising excise rates on pro-health and green products. ii. Result Area 2: Improve taxpayer and customs trader compliance through strengthened 16 revenue and customs administrations. This result area focuses on: (i) boosting VAT and CIT compliance by improving ICT-systems to allow fore-filing and e-payment to lower the costs of compliance for taxpayers; (ii) boosting accuracy of VAT-trader declarations through the introduction of a VAT lottery scheme and electronic invoicing for VAT-registered traders; and (iii) increasing revenues from audits by implementing automated data exchange between FIRS and NCS, and building an effective risk-based audit system. In customs administration, the goal is to facilitate compliant trade flows and process more goods through the green channel, and to implement more effective post-clearance audits. iii. Result Area 3: Safeguard oil and gas revenues by improving governance and transparency of NNPCL and increasing transfers to the Federation. This result area aims to: (i) increase transparency of NNPCL financial and operational performance through regular production of enhanced reports submitted to FAAC, including all relevant information; and (ii) increase net oil and gas revenues transferred to the Federation. Table 1.2: Program boundary Characteristics Government ARMOR Item PforR ARMOR Program Comments on boundaries program Support strategic Increase tax revenues, and The PforR focuses on a subset of actions Objective domestic fiscal revenue safeguard oil and gas revenues included in the Government program growth • Additional 0.8 – 1.2 percent of GDP from improved collections Additional 8 percent of of VAT and excises Target GDP in revenues • Increased compliance rates • Enhanced oil and gas revenue transparency Duration 2020-2030 2024-2028 Geographic Federal Federal No difference. Coverage RA 1: Sustainability in revenue generation RA 2: New and The PforR will be more focused and enhanced revenue targeted. It does not include specific streams. Results areas RA 1-4 actions, such as managing people RA 3: Cohesion in performance and some oil-related revenue revenue ecosystem measures (people and tools) RA 4: Safeguard oil revenues Overall $730 million results-based The Program PforR finances 62 percent of $1.17 billion Financing $20 million IPF the Program Expenditure Framework (PEF) 35. The disbursement linked indicators to each of the result areas are as follows: Result Area 1: Introducing new tax and excise reforms. 36. DLI 1 will increase revenues collected from VAT. This DLI will support FIRS and NCS to collect more VAT revenues by implementing the new rules and regulations at the higher rates and to expand the tax base by reforming processes and systems that increase the number of registered VAT traders, especially for those where the policy changes make it more advantageous to register as a formal VAT taxpayer. The reform also supports Nigeria’s compliance with the 2023 ECOWAS VAT directives to harmonize domestic taxes. 17 37. DLI 2 will increase revenue by rationalizing tax expenditures. It will support phasing out the exemption of interest income from corporate bonds which was introduced by Executive Order u/s 23(2) of Corporate Income Tax Act (CITA). After supporting the development of the capital markets for a decade, the federal government plans to sunset this exemption, which cost an estimated N116.4 billion per year.4 In addition, this DLI will support the rationalization of the Pioneer Industry Scheme (PIS) exemption, which allows a CIT tax holiday for five years (initial period of three years, and renewable for additional two) and additional tax benefits to qualifying industries .5 This scheme faces several issues, including administrative inefficiencies and the potential for abuse due to overlapping agency roles and loopholes that allow businesses to exploit tax holidays. The scheme's relevance is further questioned as it covers 99 industries, many of which are no longer pioneering by nature,6 underscoring the need for a thorough review to align with national development goals and ensure its effectiveness. 38. DLI 3 aims to increase revenues while promoting healthier and more environmentally sustainable behaviors. It supports increasing the excise rates on health harming products or services that include tobacco, alcoholic products, as well as online betting and gambling services to dis-incentivize their consumption. In addition, this DLI (DLR 3.3 and DLR 3.4) will support introducing and implementing a green surcharge on large and high-polluting vehicles7 and an excise on single-use plastics, to encourage eco-friendly choices and reduce greenhouse gas emissions. These measures prioritize environmental sustainability and health without significantly affecting the poor, who rely more on public transport and small motorbikes and do not consume much alcoholic and tobacco products (see Annex 8). Result Area 2: Improving Tax and Customs Administration 39. DLI 4 will support the enhancement of online declaration and payment compliance for CIT and VAT through e-filing and e-payment systems. The adoption of online filing and payments is associated with increases in tax revenue (Kochanova, Hasnain, & Larson, 2020), and reducing compliance and tax administration. Instant availability of tax data facilitates analysis, monitoring, and compliance enforcement. Furthermore, it diminishes the opportunity for high-risk firms to collude with tax officials to reduce tax liabilities. By freeing human resources from routine tasks, staff can focus on more value-adding and revenue-raising activities. Factors such as reduced compliance costs, increased transparency, and a narrower scope for corruption may also boost taxpayer willingness to comply, thus leading to increased revenues. 4 The total value of the Corporate Bonds outstanding as listed on FMDQ is N934.5 billion. The effective interest rate on the bonds is 12.45 percent, hence an estimated annual interest of N116.4 billion. 5 The Pioneer Status Incentive was established by the Industrial Development (Income Tax Relief) Act, No 22 of 1971. The tax incentives apart from the CIT tax holiday are: deduction of fixed asset costs after tax holiday, tax losses incurred during the tax holiday can be used as set off against taxable profits earned after the tax holiday, and tax-free dividends. 6 https://www.nipc.gov.ng/ViewerJS/#../wp-content/uploads/2019/01/Gazetted-List-of-Pioneer-Industries-and-Products.pdf 7To make the tax more progressive, electric and hybrid vehicles, mass transit vehicles and automobiles with engine capacity under 2000 ccs, will all be exempted from this tax. 18 40. DLI 5 is designed to increase revenues through enhanced VAT voluntary compliance and accurate declaration of liabilities. VAT compliance gaps are largely driven by failure to register, failure to declare VAT due, and under-declarations of VAT liabilities to tax authorities. To help mitigate these issues, this DLI will support the establishment of a VAT e-invoicing system, which has been proven to significantly improve compliance and accuracy in tax reporting. Studies on Argentina, Brazil-SP, Ecuador, Mexico, and Uruguay found that adopting e-invoicing leads to a gradual increase in reported sales and VAT collection.8,9 Besides VAT e-invoicing, DLI 5 will support the implementation of a VAT lottery scheme, which will enable consumers to upload their invoices via a digital app, hence serving as lottery tickets. This strategy will incentivize formalization by encouraging consumers to request VAT invoices, thus fostering voluntary compliance among taxpayers. 41. DLI 6 aims to strengthen enforcement and compliance activities by improving effectiveness of the FIRS tax audit function. Despite the TADAT 2023 acknowledging the use of decentralized risk-based audit case selection and third-party data,10 the NCS and FIRS data exchange systems are not seamlessly integrated. This leads to decentralized risk management and selection of audit cases, a situation that leads to sub-optimal compliance and enforcement results. DLI 6 aims to rectify this by implementing a centralized, risk-based, and data-informed audit selection process, which has been shown to decrease tax avoidance and boost revenue collections significantly. 42. DLI 7 will facilitate trade by supporting the development of a compliant trader program. A voluntary compliance program for traders will help streamline border processes, provide a greater level playing field for the trade supply chain, and consequently increase the flow of compliant trade and associated revenues. To that end, this DLI supports enhancing the volume of compliant trade processed through the establishment of a simplified Authorized Economic Operator (Fast Track 2.0 Program) and increasing the flow of trade through the green channel. Simplified trade facilitation for accredited compliant or non-risky traders will increase revenues through higher volumes of trade as was the case in the United Arab Emirates, Kenya, and Uganda; reduce the cost of administration as customs resources are freed up to focus on higher risk traders, and reduce time and cost of importing and exporting borne by the private sector, ultimately increasing exports and economic growth. 43. As a complementary measure to safeguard revenue, as more flow of compliant trading (DLI 7) increases, DLI 8 supports increasing revenues through more efficient Post- Clearance Audits (PCAs). This DLI will support improving NCS’s risk management and selection criteria for declarations targeted for inspections. This will maximize the detection rate of malfeasance per customs declaration or post clearance audit, thus improving the efficiency of the 8Electronic Invoicing in Latin America, Alberto Barreix, Raul Zambrano, 2018, Inter-American Development Bank & Inter- American Center of Tax Administrations. 9A study on e-invoicing in Peru observed that e-invoicing increases reported firm sales, purchases, and value-added tax by over 5 percent in the first year after adoption. Further, e-invoicing had a larger impact on traditionally low compliance sectors, such as retail, business services and construction. This indicates a positive shift in firm compliance behavior. 10 TheFIRS process to identify, rank and quantify risks is in infant stage, leading to allocation of audit resources to not sufficiently target high risky taxpayers. 19 administration and revenues collected. By strengthening the PCA, an increase of one to five percent of customs revenue collected can be achieved, as evidenced by similar programs in Jordan, Australia, and Japan. In the case of Canada, PCA resulted in additional customs revenues of $128 million, or 3.6 percent of total customs revenues in 2010.11 While this DLI is expected to generate revenues in the long-term through reduced misdeclaration, it is also expected to improve the governance of customs. Result Area 3: Safeguarded oil and gas revenues 44. DLI 9 will support the FGN in conducting an audit of the NNPCL to clarify all claims and transfers made to the Federation. This DLI also supports the adoption of an enhanced template for NNPCL fiscal reporting, ensuring that the Federation receives more detailed monthly reports from NNPCL on fiscal flows. Finally, the DLI incentivizes increased net oil and gas revenues for the Federation as governance of the oil sector improves. 1.5 Excluded Activities 45. The Program will exclude activities that do not meet the World Bank’s Policy on eligibility for PforR financing (September 2020). The borrower shall ensure that the Program excludes any activity which, in the opinion of the World Bank, are likely to have significant adverse impacts that are sensitive, diverse or unprecedented on the environment and/or requires significant land acquisition, displacement and or resettlement of affected people. 46. Given that the ARMOR-PforR Program is an institutional reform program, it will not support investments with high environmental and social risks for example, construction and infrastructure development. It will not accommodate involuntary displacements and resettlements. Thus, any Program activity that entails land acquisition, negative impact on natural habitat and cultural resources, public and worker’s health and safety will not be funded under the PforR without adequate environmental and social management. For example, the program will support the procurement of any IT equipment only when an adequate e-waste management plan is in place of the bidding document and monitored and reported regularly. 1.6 Scope of the Environmental and Social Management System Assessment (ESSA) 47. The ESSA for the program examines the extent to which the Federal Government’s existing environmental and social management systems: operates within, an adequate legal and regulatory framework to guide environmental and social impact assessments, mitigation, management and monitoring at the PforR Program level; It evaluates how the system incorporates recognized elements of good practice in environmental and social assessment and management, via due diligence including: (i) early screening of potential impacts; (ii) the consideration of strategic, technical, and site alternatives (including the “no action� alternative); (iii) explicit assessment of potential induced, cumulative, and transboundary impacts; (iv) the identification of measures to mitigate adverse environmental or social risks and impacts that cannot be otherwise avoided or minimized; (v) clear articulation of institutional responsibilities and resources to 11 http://www.wcoomd.org/-/media/wco/public/global/pdf/events/2014/revenue_conference/revenue-impact-paper.pdf 20 support implementation of plans; and (vi) responsiveness and accountability through stakeholder consultation, timely dissemination of the PforR Program information, and responsive grievance redress mechanisms; among others. Based on these findings the ESSA thereafter defines measures to strengthen the system and recommends measures that will be integrated into the overall Program. 48. This ESSA has been prepared for the ARMOR Program to ensure consistency with the “core principles� outlined in the World Bank’s policy for the PforR instrument to effectively manage the Program’s risks and impacts while promoting sustainable development. These six core principles are: a) Environment: To promote environmental and social sustainability in the Program design; avoid, minimize, or mitigate adverse impacts, and promote informed decision-making relating to the Program’s environmental and social impacts. b) Natural Habitats and Cultural Resources: To avoid, minimize, or mitigate adverse impacts on natural habitats and physical cultural resources resulting from the Program. c) Public and Worker Safety: To protect public and worker safety against the potential risks associated with: (a) construction and/or operations of facilities or other operational practices under the Program; (b) exposure to toxic chemicals, hazardous wastes, and other dangerous materials under the Program; and (c) reconstruction or rehabilitation of infrastructure located in areas prone to natural hazards. d) Land Acquisition: To manage land acquisition and loss of access to natural resources in a way that avoids or minimizes displacement, and assist the affected people in improving, or at the minimum restoring, their livelihoods and living standards. e) Vulnerable Groups: To give due consideration to the cultural appropriateness of, and equitable access to, Program benefits, giving special attention to the rights and interests of the Indigenous Peoples and to the needs or concerns of vulnerable groups. f) Social Conflict: To avoid exacerbating social conflict, especially in fragile states, post-conflict areas, or areas subject to territorial dispute. 49. In line with the six core principles above, the relevant risks associated with the ARMOR Program and within the proposed Result Areas (RAs) under the PforR covers environmental and social issues and include: i. Increased generation of e-waste due to strengthening of ICT systems in FIRS, NCS and other agencies. ii. Possible socio-political discontent against tax reforms for example, increase in or introduction of excise duty rates, on health harming goods and green taxes. iii. Potential marginal increase in poverty due to increase in taxes, for example, excise duties on some products (Annex 5). 50. Overall, the Program environmental outcomes are expected to be positive as it boosts green taxation. DLI 3 of the Program will introduce green tax on imported vehicles which is expected to incentivize businesses and households to transition to more fuel-efficient automobiles. 21 It will also support tax exemption for environment friendly zero emission vehicles, mass transit vehicles and automobiles with engine capacity under 2000 ccs. Although Nigeria has limited capacity to measure the carbon benefits from the Program, in the future it can strengthen its capacity through the implementation of the ARMOR Program and can demonstrate a strong GHG reduction footprint. Also, increased use of e-filing will lower the demand for paper and reduce deforestation and the environmental impact associated with toner and ink cartridges. Additionally, the ten percent excise on single-use plastics (PET bottles, single-use bags, and packaging) will discourage excessive plastic use, contributing reduced plastic waste, which is a menace in Nigeria, limiting marine plastic pollution and simultaneously reduce GHG emissions. Nigeria ranked 9th out of 20 countries in 2010 with 0.13-0.34MMT/year of plastic marine debris12. 51. The details of applicability of Core Environmental and Social Principles (CP) to ARMOR PforR Result Area and Disbursement Linked Indicators (DLIs) is presented in Annex 1. Summary of DLIs Applicability by Core Principle is presented in the table below: Table 1.3: Summary of DLIs Applicability by Core Principle DLI # DLI Description Applicability by Core Principle Environment Social DLI 3 Increase revenue from pro-health and green CP1, CP3, taxes CP5 &CP6 1.7 Objectives of this ESSA 52. The specific objectives of this ESSA are to: a) Identify the potential environmental and social impacts/risks applicable to the Program’s interventions; b) Review all relevant Nigerian policy and the legal framework of the Government of Nigeria (GoN) and relevant State Governments related to management of environmental and social impacts of the Program’s interventions; c) Review the environmental and social due diligence and management procedures and institutional responsibilities that are being used by the GoN for the ARMOR program. d) Assess capacity within domestic revenue generation institutions and Environmental and Social management within the public sector operating systems of the GoN put in place for environmental and social impact management within the Program system; e) Assess the Program’s system performance with respect to the core principles of the Program-for-Results (PforR) instrument as well as to identify gaps in the Program’s performance. f) Recommended actions to fill gaps identified that will be embedded into the Program Action Plan (PAP) to strengthen the Program’s performance with respect to the core 12Jambeck, J.R., Geyer, R., Wilcox, C., Siegler, T.R., Perryman, M., Andrady, A., et al. (2015) Plastic waste inputs from land into the ocean. Science, 347: 768 –771. https://doi.org/10.1126/science.1260352 22 principles on Environment and Social of the PforR instrument to ensure sustainable implementation via good due diligence. 53. The overall environmental and social risks have been assessed and deemed to be Substantial. Although specific environmental risks were assessed as low because the Program does not involve construction or rehabilitation works and program activities are not likely to require significant changes to the borrower’s overall environmental systems, the program was generally assessed as Substantial because combined with the social impacts, there could be some changes in social management approaches due to envisage social risks outlined in section 3. 1.8 Approach of ESSA 54. The ESSA was prepared by the World Bank team through a combination of detailed reviews of existing program materials and available technical literature, including policies, regulations, guidelines and examples of due diligence and design documents, interviews and extensive consultations with government staff, non-governmental organizations, regulatory agencies, private sector organizations and sector experts associated with public revenue generation. The findings, conclusions and opinions expressed in the ESSA are those of the Bank based on the analysis conducted. 55. An environmental and social risk screening of proposed activities was undertaken at the concept stage. The purpose of the screening was to: (i) confirm that there are no activities which meet the defined exclusion criteria included in the PforR in line with the Bank Guideline for the ESSA; and (ii) establish the initial scope of the ESSA. This includes identification of relevant systems under the PforR and relevant stakeholders for engagement and consultations. 56. The ESSA process was informed by the Bank Guidance on PforR Environmental and Social System Assessment (September 2020). The guidance sets out core principles (See Section I.5) and planning elements used to ensure that PforR operations are designed and implemented in a manner that maximizes potential environmental and social benefits while avoiding, minimizing or mitigating environmental and social harm. 57. Following the initial screening, the system review was conducted using a two-step approach: • Identification of relevant systems that are pertinent to the ESSA was addressed in Section IV which presents an overview of relevant government environmental and social management systems; and • Assessment of CLIENT’S environmental and social management systems for consistency with the applicable Core Principles including capacity and enforcement of certain environmental and social measures, was addressed in Section V while environmental and social recommendations was addressed in Section VI. 23 SECTION II: STAKEHOLDER CONSULTATION 58. This section provides a summary of the stakeholder consultation activities undertaken for the ESSA as well as future engagement activities for ESSA disclosure. The ESSA process includes extensive stakeholder consultations and disclosure of the ESSA Report, in accordance with the World Bank Policy and Directive for Program for-Results Financing and Access to Information Policy. At present, the ESSA consultation process is embedded in the Program consultation process. Feedback from stakeholders have been instrumental in designing and revising the Program Action Plan, indicators, and program operations manuals and appraisal documents via providing data and details on the existing situation, management status and priorities of government regarding DRM. 59. Initial consultations held with the government and with a large group of stakeholders over a period led to the formulation of the ARMOR PforR. The outcomes of those consultations are embedded in this Program and influenced its design. Also, consultations were held with the federal government agencies and private sector/ civil society (CSO) groups. The objectives of the consultation were to: • present the ARMOR PforR and the draft ESSA to various stakeholders and get their input regarding the program, the findings of the ESSA, recommendation and program action plan (PAP); • foster a systematic approach to stakeholder engagement that will help Government identify stakeholders and build and maintain a constructive relationship with them, in particular project-affected parties; • provide a means for effective and inclusive engagement with various stakeholders throughout the project life cycle on issues that could potentially affect them. • enable stakeholders’ views to be considered in project design and environmental and social performance; to ensure that appropriate project information on environmental and social risks and impacts is disclosed to stakeholders in a timely, understandable, accessible and appropriate manner and format; and • provide project-affected parties with accessible and inclusive means to raise issues and grievances and allow Borrowers to respond to and manage such grievances. 60. Consultations with federal government agencies were held twice, one on February 7, 2022, while the other was held on February 18, 2022, because the core implementing agencies were not represented in the first consultation. The key output of the consultation was that the key implementing agencies understood the requirement as regards the PAP. Also, the need to carry along the trade organizations so that they can fully understand the program was highlighted. 61. Consultation with private organizations and CSO was held on February 8, 2022. The report of the consultation is in Annex 3. Some key outputs of the meeting were that the private sector organizations and CSO welcomed the project as a good one that would facilitate revenue generation and enhance economic development in Nigeria. They stressed on the need to involve CSO in the program especially in monitoring to ensure that government funds are properly accounted for. They also noted that a good grievance redress mechanism should be put in place so 24 that grievances can easily be resolved as it has a tendency of derailing the program. The attendance list is in Annex 4. SECTION III: DESCRIPTION OF EXPECTED PROGRAM ENVIRONMENTAL AND SOCIAL IMPACTS 3.1 Overview of Program Risks and Benefits 62. Low revenues and weak tax administration undermine the Government’s capacity to finance and implement Nigeria’s national development strategic priorities. Increasing revenues and strengthening revenue administration are necessary conditions for the success of Nigeria’s new national economic development plan. The World Bank is supporting the government of Nigeria through a hybrid program to enhance domestic revenue mobilization to be able to finance her economic development plan through the ARMOR. 63. The PforR component of ARMOR will generate some E&S benefits and risks. Although the environmental impact is expected to be low, the E&S risks of the Program have been assessed and deemed to be Substantial given the expected social risks associated with an increase in taxes. The environmental risks are mainly limited to e-waste giving an increased use of ICT in facilitating an efficient tax system. On the other hand, the introduction of green taxes and ten percent excise on single-use plastics are expected to have some climate co-benefits, especially reduction in greenhouse gas emissions and thus will facilitate the achievement of the emission targets Nigeria pledged in its Nationally Determined Contribution (NDC). The detail of the range of key environmental and social risks and benefits associated with specific DLI in ARMOR PforR is presented in Annex 2. 3.2 Expected Environmental Benefits 64. The PforR program will deliver some direct and indirect environmental benefits. Environmental benefits that will accrue from achieving virtually all the RAs include reduction in carbon footprint and increased climate co-benefits especially due to reduction in greenhouse gas emission. Specifically, increase in revenue from pro-health taxes that will be achieved in DLI3 will discourage the consumption of tobacco and thus reduce carbon footprint and environmental damage of tobacco industry. The tobacco industry is known to cause wide-ranging environmental damage, including deforestation and water pollution from pesticide use and cigarette littering. Also, the introduction of green taxes and environmental surcharge on imported vehicles and the planned excise on single-use plastics that will help reduce greenhouse emission from transportation and single-use plastics and thus deliver climate-co-benefits. This aligns with Multilateral Development Banks (MDB) list of eligible mitigation activities under Category 9.1, that is, efficient pricing of fuels and electricity that will lead to a reduction in carbon emission. Finally, the achievement of DLI 3 will encourage the use of urban mass transit which is known to deliver some climate co-benefits. Urban mass transit aligns with Multilateral Development Banks (MDB) list of eligible mitigation activities under Category 7.1. 25 3.3 Expected Environmental Risks and Impacts 65. The ARMOR PforR has little activities that are expected to impact on the environment. There are no construction or rehabilitation activities under the PforR and environmental impact is expected envisaged to be low. Environmental impact envisaged is the generation of e-waste due to use of ICT facilities that will drive the achievement of many of the DLIs especially DLI 4 and 6. 3.4 Expected Social Benefits 66. The ARMOR PforR has a lot of social benefits that will result from the achievement of the DLIs. The social benefits include increased revenue generation, enhanced economic development and poverty reduction, enhanced health outcomes and reduced corruption including gender-based violence (GBV) due to improved tax filling using e-filling system. The achievement of all the DLIs will lead to increased domestic revenue generation which will enhance government spending in social sectors, especially education, health, and social transfers. In turn, this would help enhance economic development and poverty reduction, especially among the most vulnerable. 67. In addition to increasing revenue, DLI3 would generate health benefits and reduce health care costs. This is because an increase in tax for harmful commodities, for example, tax on cigarettes, will discourage their consumption, thus, reducing health burden/ deterioration in health due to their consumption. The health care cost due to alcohol consumption is estimated at 2.1% of middle-income countries' gross domestic product (GDP)13. 68. The Program prioritizes gender equity in tax administration by taking actions to rectify imbalances in tax compliance between men and women, with specific taxpayer education program for women taxpayers. The program aims to support women to comply with taxes and as such formalize more women-led businesses. This is expected to give women more access to government services and support as well as improve their ability to access credit. Data from the 2019 Survey of Tax and Subsidy Perceptions in Nigeria shows that 36.9 percent of small firms owned by women do not trust the FIRS, compared to 28.6 percent for men. Moreover, 64.3 percent of surveyed firms owned by women consider corruption of tax officials as a major problem in the tax system compared to 59.9 percent among men.14 As part of this PforR, tax and customs DLIs will involve FIRS and NCS in conducting taxpayer outreach to increase voluntary compliance. It will also build capacity for gender impact analysis on revenue policy proposals. Enhancement of online filing will reduce as much as possible physical interfaces between FIRS and female taxpayers, a factor that reduces harassment. Establishment of complaint and redress mechanism and system where women can file complaints related to harassment and corruption will be supported. 69. This operation will help also facilitate trade and improve trade compliance. The implementation of Nigerian Customs Service’s Fast Track 2.0 Program (FT2P) or Authorized Economic Operator (AEO) model under DLI 7 (increased compliant trade flows) will facilitate 13 Rehm J, Mathers C, Popova S, Thavorncharoensap M, Teerawattananon Y, Patra J. 2009. Global burden of disease and injury and economic cost attributable to alcohol use and alcohol use disorders. Lancet 373:2223–33 14 https://www.ictd.ac/dataset/nesg-nigeria-tax-subsidy-perception-dataset/ 26 efficient border processes and thus reduce smuggling and unwholesome practices. With improved inspection and detection of contraventions in DLI8 (increased customs revenues through better risk management and targeted inspections), revenue from NCS will be improved substantially. In addition, the safeguarding of oil revenues, which will be achieved through the activities under result area 3 (DLI 9), will enhance revenue accruing to the federation account and which will be shared by the three tiers of government. This will thus enhance development interventions across the three tiers of government in Nigeria. 3.5 Social Risks and Impact 70. The ARMOR PforR is also associated with some social risks. The reform of the excise duty system especially increasing the excise duty rates on sin and green products or services excise that will be implemented under DLIs 3 could be resisted by vested interest groups who might loose from that reform. As noted in Annex 5, alcoholic beverages and tobacco products are largely consumed by the rich, hence the poverty impact of these reforms will be limited. However, these taxes may lead to reduced sales of the commodities (tobacco and alcoholic products) which cause job losses for workers who manufacture, distribute and sell the commodities15. 71. In addition, with the introduction of green tax under DLI 3, certain interest groups and the elite could resist this action because it will make luxury cars to be slightly more expensive. It could also affect cost of transportation of goods and hence cost of food items given that heavy duty vehicles that the green taxes may apply are used in transportation of goods across the country. 72. The use of on-line e-filing and e-payments in DLI4 as opposed to the traditional face- to-face systems might lead to the exclusion of those who may not have access to the technology. Although the new platforms present opportunities for some social benefits, the transition period could present challenges for people who are not technologically savvy in a situation where e-channels become the only option for taxpayers. An additional risk is that it may result in payment of penalty fees by the people who are used to old methods and may delay tax payment due to challenges in using ICT-based platforms. 73. The summary of the social risks is presented in Table 3.1. Table 3.1: Sources and Description of Social Risks by DLIs and CPs DL# Source and Description of Social Risk Applicable Core Principle DLI 3 Sources: Increase revenue from pro-health and green taxes CP5 &CP6 a. The tax may lead to reduced sales of the commodities (tobacco and alcoholic products) and can cause job losses for workers who manufacture, distribute and sell the commodities b. Certain interest groups and the elite could resist this action because it will make luxury cars to be slightly more expensive. The public could also resist this action as they see it as another way 15Frank J. Chaloupka, Lisa M. Powell, and Kenneth E.Warner . The Use of Excise Taxes to Reduce Tobacco, Alcohol, and Sugary Beverage Consumption. Annu. Rev. Public Health 2019. 40:187–201. https://doi.org/10.1146/annurev-publhealth- 040218-043816 27 DL# Source and Description of Social Risk Applicable Core Principle for the Government to enlarge the inequity within the society and make it more expensive for poor to own a car. DLI 4 Increased on time on-line e-filing and e-payments a. May lead to the exclusion of those who are more accustomed to the old methods and who may not have access to the technology, especially in a situation where e-channels become the only option for taxpayers. b. May result in payment of penalty fees by the people who are used to old methods and may delay tax payment due to challenges in using ICT-based platforms. SECTION IV: OVERVIEW OF RELEVANT BORROWERS ENVIRONMENTAL AND SOCIAL MANAGEMENT SYSTEMS • 74. The government of Nigeria (GON) has several policies, instruments and laws which support environmental and social management and environmental and social impact assessment processes. There are several sectoral policies which provide directives to integrate environmental and social considerations in the decision-making process to avoid or minimize impacts associated with program implementation. This section summarizes the policy, regulatory, institutional and legal frameworks for environmental management Nigeria. • 4.1 The Constitution of the Federal Republic of Nigeria (1999) 75. The basis of environmental policy in Nigeria is contained in the 1999 Nigerian Constitution of the Federal Republic of Nigeria. Pursuant to section 20 of the Constitution, the State is empowered to protect and improve the environment and safeguard the water, air and land, forest and wildlife of Nigeria. In a similar way, social policy in Nigeria also takes its origin from the 1999 Nigerian Constitution of the Federal Republic of Nigeria. Section 17 encourages the state to pursue equality of rights, equal pay for equal work, obligations, opportunities and human dignity for all citizens. In addition, the state shall avoid social exclusion and discrimination of any form including gender, protection of children and vulnerable from any exploitation and moral and material neglect. The state will also promote equal access to facilities including education centers, health services. • 4.2 Policies Relevant to the ARMOR Program • 76. The national policies relevant to the ARMOR PforR is presented in Table 4.1. Table 4.1: Nigerian Policies Relevant to the ARMOR Program Policy Objectives National Overall Policy Goal Policy on the To define a new holistic framework for guidance, management and protection of the environment Environment as well as the conservation of natural resources for sustainable development’ of the country. (Revised Objectives 2016) ▪ Ensuring and securing the quality of Nigeria’s environme nt to support good health and well- being; ▪ Promoting efficient and sustainable use of Nigeria’s natural resources and the restoration and maintenance of the biological diversity of ecosystems; 28 Policy Objectives ▪ Promoting understanding of essential linkages between the environment, social and economic developmental issues; ▪ Encouraging individual and community participation in environmental improvement initiatives; ▪ Raising public awareness and engendering a national culture of environmental preservation; and ▪ Building partnership among all stakeholders, including government at all levels, international institutions and governments, non-governmental agencies and communities on environmental matters. National Overall, Policy Goal Climate The Policy’s overall goal is to promote a low-carbon, climate-resilient and gender-responsive Change sustainable socio-economic development. Policy for Nigeria Objectives (2021-2030) The goal of Nigeria’s Climate Change Policy will be achieved through the attainment of the following objectives:  Implementing adaptation and mitigation measures that promote low-carbon development;  Strengthening capacities and synergies at local, sub-national and national levels and at individual and institutional levels to implement climate change response;  Promoting scientific research, technology and innovations to address the challenges of climate change;  Developing and implementing appropriate strategies and actions to reduce the vulnerability of Nigerians to the impacts of climate change across all sectors;  Mainstreaming gender, children and youth, and other vulnerable groups into all climate change interventions; National Overall Policy Goal Gender The goal of the gender policy is to “build a just society devoid of discrimination, harness the dull Policy potentials of all social groups regardless of sex or circumstance, promote the enjoyment of (2006) fundamental human rights and protect the health, social , economic and political well- being of all citizens in order to achieve equitable rapid economic growth, evolve an evidence based planning and governance system where human, social, financial and technological resources are efficiently deployed for sustainable development�. One of the principles of the gender policy is a general recognition that gender issues are central and critical to the achievement of national development goals and objectives and by extension water, sanitation and hygiene programs. Objectives  Establish the framework for gender responsiveness in all public and private spheres and strengthen capacities of all stakeholders to deliver their component mandate of the gender policy and National Strategic Framework  Develop and apply gender mainstreaming approaches, tools and instruments that are compatible with the macro- policy framework of the country at any given time towards national development.  Adopt gender mainstreaming as a core value and practice in social transformation, organisational cultures and in the general polity in Nigeria.  Incorporate the principles of CEDAW and other global and regional frameworks that support gender equality and women empowerment in the country’s laws, legislative processes, judicial and administrative systems  Achieve minimum threshold of representation for women in order to promote equal opportunity in all areas of political social and economic life of the country for women as well as for men.  Undertake women and men- specific projects as a means of developing the capabilities of both women and men, to enable them take advantage of economic and political opportunities towards the achievement of gender equality and women’s empowerment.  Educate and sensitize all stakeholders on the centrality of gender equality and women’s empowerment to the attainment of overall national development. 29 4.3 Relevant Nigerian National Laws • 77. The national laws relevant to the ARMOR PforR is presented in Table 4.2. Table 4.2: Nigerian Laws that are Relevant to the ARMOR Program S/N Law Description/Summary of Objectives Environmental Acts ▪ The main aim of the Act is to ensure environmentally sound and sustainable development EIA Act - projects. 1 CAP. E12 ▪ To carry out an EIA on all projects likely to have significant impact on the environment. L.F.N. 2004 ▪ Encourage information exchange and consultation between all stakeholders when proposed activities are likely to have significant impact on the environment. ▪ Enforce compliance with national (and international) laws, legislations, guidelines, policies and standards on environmental matters; ▪ Coordinate and liaise with, stakeholders, within and outside Nigeria on matters of environmental standards, regulations and enforcement; ▪ Ensure that environmental projects funded by donor organizations and external support agencies adhere to regulations in environmental safety and protection; ▪ Enforce environmental control measures through registration, licensing and permitting Systems other than in the oil and gas sector; and National ▪ Conduct environmental audit and establish data bank on regulatory and enforcement Environmental mechanisms of environmental standards other than in the oil and gas sector. Standards and Regulations, Some relevant sections include: 2 Enforcement Section 7: Authority to ensure compliance with all of Nigeria’s environmental laws and Agency Act, treaty obligations; and (NESREA) ▪ Section 8 (1) K and Section 27: Authority to make and review regulations on air and water 2007 quality, discharge of effluents and other harmful substances as well as control of other forms of environmental pollution. ▪ The Agency has powers to: ▪ prohibit processes and use of equipment or technology that undermine environmental quality; ▪ conduct field follow-up of compliance with set standards and take procedures prescribed by law against any violator; ▪ subject to the provision of the Constitution of the Federal Republic of Nigeria, 1999, and in collaboration with relevant judicial authorities establish mobile courts to expeditiously dispense cases of violation of environmental regulation. Harmful Waste ▪ Criminalizes all activities relating to the purchase, sale, importation, transit, transportation, (Special deposit, storage of harmful wastes; and 4 Criminal ▪ By this Act it is unlawful to dump harmful waste in the air, land or waters of Nigeria Provisions, etc.) Act 1988 Social Acts ▪ Makes provisions with respect to the formation, registration and organization of trade unions, and the Federation of Trade Unions ▪ It states, "notwithstanding anything to the contrary in this Act, membership of a trade union Trade Union by employees shall be voluntary and no employee shall be forced to join any trade union 5 Amended Act or be victimized for refusing to join or remain a member�. The amended Act, to ensure the 2005 funding of trade unions, empowers employers to make deduction from the wages of every worker who is a member of any of the trade unions for the purpose of paying contributions to the trade union so registered; 30 S/N Law Description/Summary of Objectives ▪ This Act repeals the Workmen Act of 1980. ▪ The objectives of the Act include Provide for an open and fair system of guaranteed and adequate compensation for all employees or their dependents for any death, injury, disease or disability arising out of or in the course of employment; Employees ▪ provide rehabilitation to employees with work-related disabilities as provided in this Act; 6 Compensation ▪ establish and maintain a solvent compensation fund managed in the interest of employees Act (2010) and employers; ▪ provide for fair and adequate assessments for employers; ▪ provide an appeal procedure that is simple, fair and accessible, with minimal delays; and ▪ combine efforts and resources of relevant stakeholders for the prevention of workplace disabilities, including the enforcement of occupational safety and health standards. ▪ The Act makes provisions for the settlement of trade disputes and other matters ancillary thereto. The Act established the National Industrial Court. The Act provides for procedure of settling dispute before it is reported; apprehension of trade dispute by the Minister; reporting of dispute if not amicably settled; appointment of conciliator, etc. Regarding the Trade Dispute procedure before dispute is reported, the Act provides that parties to the dispute shall first 7 Act CAP. T8 attempt to settle it by an agreed means for settlement of the dispute apart from the Act. It LFN 2004 is only when this procedure fails or does not exist that the parties report within seven days and come together to settle the dispute under a conciliator. Notwithstanding this provision, the Minister can apprehend the dispute and decide on the cause of action for the settlement of the dispute. ▪ Act provides for the protection of wages, contracts of employment and terms and conditions of employment as well as recruiting guidelines. It provides for special classes of worker and miscellaneous special provisions. The Act in the different parts made a lot of provisions to ensure that the interest of the worker is protected. For example, under Labor Act protection of wages the Act made provisions to ensure that the worker's dignity regarding 8 CAP L1 LFN wages is maintained. For example, the Act provides in part 1No 2 that no employer shall 2004 impose in any contract for the employment of any worker any terms as to the place at which, or the way, or the person with whom any wages paid to the worker are to be expended; and every contract between an employer and a worker containing any such terms shall be illegal, null and void ▪ Incorporate into its laws all the rights guaranteed in the United Nations’ Convention on the Rights of the Child. The U.N. convention, adopted in 1989, states that: “The child shall be protected against all forms of neglect, cruelty and exploitation. He shall not be admitted Child Right 9 to employment before an appropriate minimum age; he shall in no case be caused or Act 2003 permitted to engage in any occupation or employment which would prejudice his health or education, or interfere with his physical, mental or moral development.� The Act must be ratified by each state to become law in its territory.  The Act was passed into law in a bid to eliminate violence in private and public life; prohibit all forms of violence, including physical, sexual, psychological, domestic, harmful traditional practices; discrimination against persons and to provide maximum protection and effective remedies for victims and punishment of offenders.  The content of the Act is rich in its provisions as it covers most of the prevalent forms of violence in Nigeria today ranging from physical violence; psychological violence; sexual Violence violence; harmful traditional practices; and socio-economic violence. Against  The National Agency for the Prohibition of Trafficking in Persons (NAPTIP) is named Persons 10 as the service provider. (Prohibition)  Under the VAPP Act, the following offences are punishable offences.; VAPP Act o rape, 2015 o spousal battery, o forceful ejection from home, o forced financial dependence or economic abuse, o harmful widowhood practices, o female circumcision or genital mutilation, o abandonment of children, 31 S/N Law Description/Summary of Objectives o harmful traditional practices, o harmful substance attacks such as acid baths, o political violence, o forced isolation and separation from family and friends, o depriving persons of their liberty, o incest,  indecent exposure and violence by state actors (especially government security forces). Revenue Generation Acts ▪ Is the law that control the payment of tax by companies in Nigeria. ▪ The Act consolidates the provisions of the Companies Income Tax Act 1961 and made other provisions relating thereto. Company ▪ The Finance Act 2020 introduced some changes in the Act. 11 Income Tax • One of the changes is that companies making contributions (in kind or cash) to Act complement the effort of the government during pandemics e.g. Covid-19, natural disasters or other exigencies; in addition to the usual allowable deductions are now eligible to claim deductions limited to 10% of their assessable profit. ▪ ▪ The Act provides for the taxation of capital gains accruing on disposal of assets. ▪ It covers capital gains, that is gains accruing to a person on or after 1 April 1967on the Capital Gains disposal of assets. The rate of capital gains taxes as provided in the Act is ten percent. 12 Tax Act ▪ There Finance Act 2020 also introduced few changes to the Act. ▪ One of the main changes is that compensation paid to an employee for loss of an office in excess of N10, 000,000.00 shall be subject to capital gains tax ▪ The Act amends the Capital Gains Tax Act, Cap. C1, Income Tax Act, Personal Income Tax P8, Customs and Excise Tariff Etc. (Consolidated) Act, Value Added Tax Act, Nigeria Finance Act Export Processing Zones Act, Oil and Gas Export Free Zone Act, Industrial Development 13 2020 (Income Tax Relief) Act, Stamp Duties Act, Tertiary Education Trust Fund (Establishment) Act, Federal Inland Revenue (Establishment) Act, Fiscal Responsibility Act, Public Procurement Act, and Companies and Allied Matter Act, 2020. ▪ The Act established the Federal Inland Revenue Service (FIRS) charged with powers of assessment, collection of, and accounting for revenues accruable to the government of the FIRS federation; and for related matters. 14 Establishment ▪ The Act stipulates that the object of the Service shall be to control and administer the Act different taxes and laws specified in the First Schedule or other laws made or to be made from time to time. by the National Assembly or other regulations made there under by the Government of the Federation and to account for all taxes collected. ▪ An Act to impose income tax on individuals, communities and families and on executors Personal and trustees, and to provide for the assessment and collection and administration of the 15 Income Tax tax. Act ▪ ▪ The Act provides for a tax that shall be charged and payable on the supply of all goods and services referred to as “taxable goods and services� other than those goods and services listed in the first schedule of the Act. Value Added ▪ Commencing February 1, 2020, the tax computed at the rate of 7.5% given amendments 16 Tax Act in the Finance Act 2020 indicated above. ▪ In line with the amendment, VAT is no longer charged on services such as commercial airline tickets for airlines registered in Nigeria and hired/rented or leased agro-equipment for agricultural purposes. 4.4 Relevant Nigerian National Environmental Regulations 32 78. The national environmental regulations relevant to the ARMOR PforR is presented in Table 4.3. Table 4.3: Nigerian Regulations that are Relevant to the ARMOR Program S/N Regulation Objectives National Environmental (Permitting The provisions of this Regulation enable consistent application of 1 and Licensing System) Regulations, environmental laws, regulations and standards in all sectors of the economy 2009. S. I. No. 29. and geographical regions. National Environmental (Sanitation To provide the legal framework for the adoption of sustainable and 2 and Wastes Control) Regulations, environment friendly practices in environmental sanitation and waste 2009. S.I. No. 28 management to minimize pollution. 4.5 Nigeria’s Institutional Framework 4.5.1 Federal Ministries Relevant to ARMOR Program • 79. The Federal Ministries whose functions and responsibilities are relevant to the ARMOR PforR is presented in Table 4.4. • Table 4.4: Relevant Ministries and their functions S/N Ministry Relevant Functions and Responsibilities ▪ Secretariat of the Program and houses the in collaboration with the World Bank controls Federal Ministry of disbursement of funds. Program funds will be channeled through the Federal Ministry of 1 Finance, Budget and Finance. The FMFBNP is the main ministry responsible for the implementation of the National Planning Program including its agencies, the FIRS and NCS. The focal ministry of environmental issues in Nigeria. They will lead in implementing Federal Ministry of 2 environmental actions at the federal level as recommended in the PAP. They are also Environment (FMEnv) responsible for oversight and disclosure regarding EIA at the federal level. ▪ Development and promotion of productive employment policies and programs for employment generation and actualization of national employment policies of the Federal Government. ▪ Skills Development, upgrading, certification, placement and empowerment of artisans, tradesmen and applicants in various areas of national needs ▪ Provision of Social Security Coverage, Welfare and Employee’s Compensation to the nation’s workforce The Federal Ministry of 3 ▪ Provision of Labor Protection Services, supervision, enforcement, Education, Promotion Labor and Employment of Social Justice, Ratification, Implementation and Review of National Labor Laws and Policies including collective bargained agreements. ▪ Trade Unions Education and Training ▪ International Labor Diplomacy ▪ Promotion of Occupational Safety and Health under the Occupational Safety and Health Department ▪ Enforcement of the Labor Laws under the Inspectorate Department (INSP) Federal Ministry of ▪ The focal ministry of social issues in Nigeria. They will lead in implementing and Women Affairs, 4 monitoring environmental and social actions at the federal level as recommended in the Community and Social PAP Development ▪ The mandate of the ministry is management of the image, reputation and promotion of the Federal Ministry of culture of the people and government of Nigeria through a dynamic public information 5 Information and system that facilitates access by citizens and the global community to credible and timely Culture information. 33 S/N Ministry Relevant Functions and Responsibilities ▪ Some of the key activities and functions of the ministry include, strategic communication of government policies and programs as well as feedback; building a positive image for the country and promoting national consciousness; providing effective regulatory environment for the media and allied industry; enlightenment on civic education programs and the Nigerian public sector integrity at work project; educating Nigerians against ethnic, religious and sectional intolerance and manipulations; among others. SECTION V: ASSESSMENT OF THE CLIENT’S ENVIRONMENTAL AND SOCIAL MANAGEMENT SYSTEMS 80. This section describes the E&S management systems in place to manage all identified E&S risks associated with the program interventions detailed in Section III, especially adverse impacts and risks. It describes the main elements of applicable client’s systems and provides an analysis of the acceptability of these systems, considering the level of risk and the extent to which Borrower systems and practices are aligned with the World Bank’s 6 core principles on E&S on Performance-for-Results financing. That is, the analysis will show the extent to which the applicable systems are consistent with the core principles and key planning elements expressed in the PforR Guidance Document. It also provides a review of aspects where gaps exist between the two systems. The assessment was done using the following criteria: • An analysis of the strengths of the existing environmental and social due diligence system, or where it functions effectively and efficiently and is consistent with Bank Policy and Directive for Program-for-Results Financing; • Identification of inconsistencies and gaps between the principles espoused in Bank Policy and Directive for Program-for-Results Financing and capacity constraints and gaps in existing capacity; and • Based on the above findings, recommendations to fill gaps and proposed mitigation measures and actions to strengthen the existing system to ensure environmental and social soundness and long-term sustainability in line with the design and implementation and operation of program interventions across the project areas. 81. The summary of the assessments of Federal Government systems in line with the core principles is presented in section 5.1. Information from this analysis and the resulting identification of gaps and opportunities/actions were used to inform the recommendations presented for the program in terms of managing E&S aspects and have informed the preparation of the Program Action Plan (PAP). 34 5.1: Summary of Systems Assessment Core Principle 1: General Principle of Environmental and Social Management Table 5.1: Assessment Core Principle 1: General Principle of Environmental and Social Management Bank Policy for Program-for-Results Financing: Environmental and social management procedures and processes are designed to (a) promote environmental and social sustainability in Program design; (b) avoid, minimize or mitigate against adverse impacts; and (c) promote informed decision-making relating to a program’s Bank Directive for Program-for-Results Financing: Program procedures will: ▪ Operate within an adequate legal and regulatory framework to guide environmental and social impact assessments at the program level. ▪ Incorporate recognized elements of environmental and social assessment good practice, including: ▪ early screening of potential effects; ▪ consideration of strategic, technical, and site alternatives (including the “no action� alternative); ▪ explicit assessment of potential induced, cumulative, and trans-boundary impacts; ▪ identification of measures to mitigate adverse environmental or social impacts that cannot be otherwise avoided or minimized; ▪ clear articulation of institutional responsibilities and resources to support implementation of plans; and ▪ Responsiveness and accountability through stakeholder consultation, timely dissemination of program information, and responsive grievance redress measures. Applicability: YES / NO The E&S team has conducted a screening of initial risks of the PforR. Environmental and social risks are posed due to upgrading of the ICT systems in the FIRS and NCS that may happen for the achievement of DLIs 1, 4, 5, 6 and 8 and . Suggestions to Fill Gaps/Proposed Applicable RA/DLIs Systems Assessment Gaps Mitigation Measures FEDERAL LEVEL FEDERAL LEVEL  Support should be provided at specific  At the Federal level, National Policies, Acts,  The EIA Act only focuses on the environmental project levels and a technical assistance Regulations for environmental management as well as standards. The World Bank standards on social component be used to fill capacity gaps institutional system’s identifying environmental issues is not addressed by the EIA particularly and establish E&S risk management procedures, roles and legislation to be followed in the requirements on stakeholder engagement, labor, systems. country (See Chapter 4) are well defined and are resettlement and land acquisition or ecosystem  There is also a need to ensure that the core consistent with Core Principle 1 of the Bank Policy services. civil servants are able to participate in this RA 1 and Directives on PforR Operation.  At the national level there is no direct/ single process at the project implementation  The national EIA system (EIA Act No. 86 of 1992) ministry that is responsible for the totality of the level and are actively able to gain provides a comprehensive legal and regulatory social sustainability components, that is required knowledge. framework for environmental and social impact by the World Bank Standards. What we have are  There is a need to strengthen the E&S assessment that is broadly consistent with the Core isolated ministries performing isolated roles management capacities of the Federal Principle 1 of the Bank Policy and Directive. related to social concerns. See Chapter 4. Government in terms of management of e-  Environmental Assessment (EA) Department of the  There is no requirement for consulting with local waste, and provision of adequate skilled Federal Ministry of Environment is responsible for communities or vulnerable people in EIA process. human resources. ensuring that the environmental risks are assessed, and  The capacity of the ministry and responsible  Need for e-waste management procedure adequate measures are taken to mitigate and or agency to monitor and enforce environmental for the program to cover e-waste disposal. manage potential project impacts in line with the assessments is weak. Federal Republic of Nigerian EIA Act of 1992.   35   There is the National Environmental (Electrical/Electronic Sector) Regulations, S. I. No 79, 2022 which compels all manufacturers and importers of electrical equipment, e-waste collection centers, and recycling facilities to register with the E-waste Producer Responsibility Organization Nigeria (EPRON)  Nigeria has a climate change policy, 2021-2030, which guides climate action by government. Nigeria is also part of the Paris Agreement. Nigeria equally developed her NDC and pledged 20% unconditional reduction in GHG by 2030 and 47% conditional on international support. NESREA is also empowered to enforce non-compliance with environmental laws and regulations. Core Principle 2: Natural Habitats and Physical Cultural Resources Table 5.2: Assessment Core Principle 2: Natural Habitats and Physical Cultural Resources Bank Policy for Program-for-Results Financing: Environmental and social management procedures and processes are designed to avoid, minimize and mitigate against adverse effects on natural habitats and physical cultural resources resulting from program. Bank Directive for Program-for-Results Financing: As relevant, the program to be supported: ▪ Includes appropriate measures for early identification and screening of potentially important biodiversity and cultural resource areas. ▪ Supports and promotes the conservation, maintenance, and rehabilitation of natural habitats; avoids the significant conversion or degradation of critical natural habitats, and if avoiding the significant conversion of natural habitats is not technically feasible, includes measures to mitigate or offset impacts or program activities. ▪ Takes into account potential adverse effects on physical cultural property and, as warranted, provides adequate measures to avoid, minimize, or mitigate such effects Applicability: YES / NO It is not expected that the Program will have any impact on natural habitats and physical cultural resources since it does not involve any form of physical works. 36 Core Principle 3: Public and Worker Safety Table 5.3: Assessment Core Principle 3: Public and Worker Safety Bank Policy for Program-for-Results Financing: Environmental and social management procedures and processes are designed to protect public and worker safety against the potential risks associated with (a) construction and/or operations of facilities or other operational practices developed or promoted under the program; (b) exposure to toxic chemicals, hazardous wastes, and otherwise dangerous materials; and (c) reconstruction or rehabilitation of infrastructure located in areas prone to natural hazards. Bank Directive for Program-for-Results Financing: ▪ Promotes community, individual, and worker safety through the safe design, construction, operation, and maintenance of physical infrastructure, or in carrying out activities that may be dependent on such infrastructure with safety measures, inspections, or remedial works incorporated as needed. ▪ Promotes use of recognized good practice in the production, management, storage, transport, and disposal of hazardous materials generated through program construction or operations; and promotes use of integrated pest management practices to manage or reduce pests or disease vectors; and provides training for workers involved in the production, procurement, storage, transport, use, and disposal of hazardous chemicals in accordance with international guidelines and conventions. ▪ Includes measures to avoid, minimize, or mitigate community, individual, and worker risks when program activities are located within areas prone to natural hazards such as floods, hurricanes, earthquakes, or other severe weather or climate events. Applicability: YES / NO It is not expected that the Program will have any impact on pubic and worker safety since it does not involve any form of physical works. Core Principle 4: Land Acquisition Table 5.4: Assessment Core Principle 4: Land Acquisition Bank Policy for Program-for-Results Financing: Land acquisition and loss of access to natural resources are managed in a way that avoids or minimizes displacement, and affected people are assisted in improving, or at least restoring, their livelihoods and living standards. Bank Directive for Program-for-Results Financing: As relevant, the program to be supported: ▪ Avoids or minimizes land acquisition and related adverse impacts; ▪ Identifies and addresses economic and social impacts caused by land acquisition or loss of access to natural resources, including those affecting people who may lack full legal rights to assets or resources they use or occupy; ▪ Provides compensation sufficient to purchase replacement assets of equivalent value and to meet any necessary transitional expenses, paid prior to taking of land or restricting access; ▪ Provides supplemental livelihood improvement or restoration measures if taking of land causes loss of income-generating opportunity (e.g., loss of crop production or employment); and ▪ Restores or replaces public infrastructure and community services that may be adversely affected. Applicability: YES / NO The Program does not involve any form of land acquisition; thus, this core principle is not applicable. . 37 Core Principle 5: Social Considerations - Indigenous Peoples and Vulnerable Groups Table 5.5: Assessment Core Principle 5: Social Considerations - Indigenous Peoples and Vulnerable Groups Bank Policy for Program-for-Results Financing: Due consideration is given to cultural appropriateness of, and equitable access to, program benefits giving special attention to rights and interests of Indigenous Peoples and to the needs or concerns of vulnerable groups. Bank Directive for Program-for-Results Financing: • Undertakes free, prior, and informed consultations if Indigenous Peoples are potentially affected (positively or negatively) to determine whether there is broad community support for the program. • Ensures that Indigenous Peoples can participate in devising opportunities to benefit from t h e exploitation of customary resources or indigenous knowledge, the latter (indigenous knowledge) to include the consent of the Indigenous Peoples. • Gives attention to groups vulnerable to hardship or disadvantage, including as relevant the poor, the disabled, women and children, the elderly, or marginalized ethnic groups. If necessary, special measures are taken to promote equitable access to program benefits. Applicability: YES / NO It is expected that vulnerable people will be impacted on given that the Program as there could be financial exclusion of the vulnerable groups due to increase in cost of electronic transfers as a result of increased telecom excise. Note that there are no groups in Nigeria that meet the World Bank's criteria for Indigenous Peoples. However, we followed the third point on Bank Directive for indigenous peoples and vulnerable groups to look at the systems that address the needs of groups vulnerable to hardships, including women, youths and people with disabilities. The applicability in terms of specific DLIs is indicated below. Suggestions to Fill Gaps/Proposed Mitigation Applicable DLIs Systems Assessment Gaps Measures RA 1. FDERAL LEVEL FEDERAL LEVEL  Deliberate efforts to strengthen multi-agency  Chapter IV of the Nigerian Constitution  There is a serious lack of trust in government and coordination e.g. between the National contains a variety of fundamental rights set government ministries and agencies responsible Orientation Agency, Federal Ministry of out in Sections 33 - 44. Of particular for effective communication and engaging with Information and Culture and the Federal relevance is Section 42, which prohibits the people, for example, the National Orientation Ministries of Women Affairs and Social discrimination on the grounds of ethnic Agency, Federal Ministry of Information and Development to facilitate effective origin, sex (gender), religion, or linguistic Culture and the Federal Ministries of Women communication of government policies to the affiliation. Affairs and Social Development lack the citizens, build trust in government and to  There is a Federal Ministry of Women requisite capacity and trust to build social strengthen the social contract, such as actions Affairs and Social Development that deals contract. to tackle corruption and improve the delivery with all gender related issues especially as  There is lack of information and weak of services. Although these agencies are not it concerns the vulnerable especially knowledge of the public especially vulnerable directly involved in the implementation of women youths and People living with groups regarding the issues relating to the ARMOR, the Presidential Oversight Disabilities (PWDs). They have a unit that economy, the need for effective tax system and Committee should ensure this recommendation deals with GBV and discrimination. payment of tax and the benefits of petroleum is achieved. subsidy removal.  The Federal Ministry of Information and  There is weak of capacity in Ministries of  There is also a need to strengthen the capacities Culture has some institutions and agencies Women Affairs and Social Development to of the technical staff of these agencies to under it, for example, Radio Nigeria, tackle the issues of GBV and other issues relating enhance communication of government Nigeria Television Authority and the to gender and youths. programs and build trust with the citizens. National Orientation Agency that are  The government should also invest the tax 38 responsible for communicating government  There is no coordinated strategy for generated especially from tobacco and SSB to programs and building trust with citizens. implementing a broad social inclusion agenda programs that can facilitate job creation and across public services in Nigeria. worker transition to other livelihoods.   Core Principle 6: Social Conflict Table 5.6: Assessment Core Principle 6: Social Conflict Bank Policy for Program-for-Results Financing: Avoid exacerbating social conflict, especially in fragile states, post-conflict areas, or areas subject to territorial disputes. • Bank Directive for Program-for-Results Financing: Considers conflict risks, including distributional equity and cultural sensitivities. Applicability: YES / No Conflicts and grievances may arise during the Program implementation. Suggestions to Fill Gaps/Proposed Applicable DLIs Systems Assessment Gaps Mitigation Measures RA 1. FEDERAL LEVEL  Strengthened stakeholder engagement  The constitution of the Federal Republic of and grievance redress mechanisms and FEDERAL LEVEL Nigeria 1999 (as amended) provides in increased transparency to provide  Lack of a Grievance Redress Section 17 (3) (g) that “the State shall direct its information and communication Mechanism (GRM) for the poor and policy towards ensuring that provision is made avenues for complaints and their vulnerable. Although Nigeria has a for public assistance in deserving cases, or resolutions. justice system with courts where other conditions of need.  Build social contract with the people to people can seek justice, poor and  Federal throughout the country with well- facilitate success of proposed reforms. vulnerable people do not have the trained police and security forces who capacity to seek justice in courts. maintain the rule of law and also provides  The available GRM are weak and ad- security against bandits and other forms of hoc and not properly violent crimes and attacks. institutionalized. This is a need to  The military also provides security against ensure that people’s grievances are armed insurgency and terrorism. properly redressed even when there is  There is also a justice system with courts need to seek further redress if the where people can seek redress. individual is not satisfied with the  The federal government also has the public outcome of existing arrangements. complaints commission where people can  make complaints regarding administrative injustices.   39 SECTION VI: PROGRAM ACTION PLAN (PAP) AND RECOMMENDATIONS 82. This section recommends measures that will be taken to strengthen system performance in line with the gaps and risks identified in section iv of the system assessment section to ensure that the Program interventions are aligned with the Core Principles 1, 5 and 6 of Bank Policy for Program-for-Results financing as briefly discussed below. These actions may be further refined and adjusted during the consultation process and the implementation of the Program. • Assessment Outcomes Core Principle 1: General Principle of Environmental and Social Management: • Assessment Outcome Core Principle 5: Social Considerations - Indigenous Peoples and Vulnerable Groups: • Assessment Core Principle 6: Social Conflict 6.1 Environmental Summary and Recommendations 83. Although Nigeria has a well-defined environmental system that is close to the core principle on environmental assessment, significant gaps remain. For example, E&S capacity and capacity for Greenhouse Gas estimation is still sub-optimal while the EIA process in Nigeria does not cover the social aspects as it should. Often impacted communities and vulnerable groups are not consulted during the EIA process and when even when they are consulted at the beginning, they are not carried along during the review and approval process thus, their concerns may not be reflected in EIA document. Besides, the monitoring of EIA implementation is weak as there is no tracking system to monitor environmental and social risks and performance. However, given the low environmental impact of this project, few recommendations are made as follows: • The project will follow the country’s Harmful Waste (Special Criminal Provisions) Act Cap H1I, 2004 which prohibits the carrying, deposition and dumping of harmful waste on any land, territorial waters and matters relating thereto and national law for electronic waste control following the 5R strategy (Reduce, Repair, Reuse, Recycle and Recover). • There is a need to strengthen the E&S capacity under the project especially in the FMFBNP, the FIRS and NCS that will be responsible for executing this ARMOR PforR. To facilitate this, E&S specialists should be recruited for the Program. • Although there is a national regulation on e-waste, there is also a need to develop an e-waste management strategy to guide e-waste management under the program. The requirements of the E-waste control should be a part of the bidding document under ARMOR PforR. 6.2 Social Summary and Recommendations 84. Although there are lot of social benefits associated with the ARMOR PforR, the Program has social risks associated with it. The assessment of the social systems towards the achievement of the DLIs shows the need to fill the gaps if the DRM objective are to be achieved. Given the identified social issues and weaknesses in the system (Section 5), the following recommendations are made: 40 • The PCU and with support from relevant agencies, should institute specific communication medium and package to effectively communicate the tax reform to the citizens and strengthen social contract. • Following the recommendations, the breakdown of actions to be included in the Program Action Plan (PAP) with indicative timeline, responsibility for implementation and indicators for measuring the completion of such actions are detailed in the Table 6.1 below. Table 6.1: Program Action Plan (PAP) Responsible s/n Action Description Due Date Completion Measurement Party Inclusion of the listed specialist in the team and Dedicate officials maintained throughout the No later than 3 Federal Ministry responsible for ensuring Program implementation; and 1 months after of Finance, E&S PAP Training Module and effectiveness (FMF) implementation Implementation Support Supervision Report of World Bank Task team Hire qualified ENB and No later than 3 Assist the E&S PAP SSI Officers and provide months after Federal Ministry implementation official to 2 capacity building/system effectiveness (will be of Finance, execute the above strengthen program to reported during the (FMF) responsibilities. strengthen their skills first mission ISR) Within one year of effectiveness or Develop e-waste FMF and before the first management strategy for Program E-waste management strategy 3 bidding document for managing e-waste result Coordinating document. equipment from the program Unit (PCU) procurement, whichever is earlier. Communication package Develop a tax reform Three months after including giggles, leaflets, bill 4 communication package FMF and PCU program effectiveness boards etc., in different for citizens engagement Nigerian languages Prepare modified complaints redressal strategic document to Harmonized Complaints address the weaknesses Six months after Redressal Strategy with 5 in the processes for program FMF and PCU clearly identified action handling complaints Effectiveness required from FIRS, NCS and arising from services FMFBNP. available to all categories of taxpayers. 41 SECTION VII. SUPPORTING ANNEXES AND REFERENCE DOCUMENTS Annex 1: Applicability of Core Environmental and Social Principles (CP) to the ARMOR Program Result Area and Disbursement Linked Indicators (DLIs) CP3 CP2 CP4 CP1 Public & CP5 Vulnerable CP6 Result Area DLI Natural Land Environment Worker groups Social Conflict Habitats Acquisition Safety RA 1: Increase revenues DLI1: Increased Not Not Not Not Not Applicable not applicable through implementing tax revenue Applicable as Applicable Applicable Applicable and custom reforms collection from there are no as there are as there are as there are VAT physical works no physical no physical no physical supported by works works works the DLI supported supported by supported by the DLI the DLI by the DLI DLI2: Reduced Not Not Not Not Not Applicable Not Applicable forgone revenues Applicable as Applicable Applicable Applicable there are no as there are as there are as there are physical works no physical no physical no physical supported by works works works the DLI supported supported by supported by the DLI the DLI by the DLI DLI3.: Increase Not Not Not Not Applicable as ESSA especially revenue from Applicable as Applicable Applicable Applicable low income and regarding armed pro-health and there are no as there are as there are as there are vulnerable conflict is not green taxes physical works no physical no physical no physical people may be applicable. supported by works works works affected as However, the DLI supported supported by supported consumption interest groups by the DLI the DLI by the DLI taxes especially and citizens may for SSP affect disagree or the poor more protest against than the rich. the tax reforms There is also covered in this potential for job DLI losses for workers in the sector due to reduced consumption of the products. 42 CP3 CP2 CP4 CP1 Public & CP5 Vulnerable CP6 Result Area DLI Natural Land Environment Worker groups Social Conflict Habitats Acquisition Safety RA 2: Improve tax and DLI 4: Increased This is Not Not Not Not Applicable Not Applicable customs compliance on time on-line e- applicable as Applicable Applicable Applicable as vulnerable filing and e- the as there are as there are as there are people will not payments achievement no physical no physical no physical be affected by of the works works works the activities activities supported supported by supported under this DLI under this DLI by the DLI the DLI by the DLI will generate e-waste. DLI 5: Enhanced Not Not Not Not Not Applicable Not Applicable VAT voluntary Applicable as Applicable Applicable Applicable as vulnerable compliance there are no as there are as there are as there are people will not physical works no physical no physical no physical be affected by supported by works works works the activities the DLI supported supported by supported under this DLI by the DLI the DLI by the DLI DLI6: Improved This is Not Not Not Not Applicable Not Applicable tax audits applicable as Applicable Applicable Applicable as vulnerable the as there are as there are as there are people will not achievement no physical no physical no physical be affected by of the works works works the activities activities supported supported by supported under this DLI under this DLI by the DLI the DLI by the DLI will generate e-waste. DLI7:. Increased Not Not Not Not Not Applicable Not Applicable compliant trade Applicable as Applicable Applicable Applicable as vulnerable flows there are no as there are as there are as there are people will not physical works no physical no physical no physical be affected by supported by works works works the activities the DLI supported supported by supported under this DLI by the DLI the DLI by the DLI DLI 8: Increased This is Not Not Not Not Applicable Not Applicable customs revenues applicable as Applicable Applicable Applicable as vulnerable as there are no through better the as there are as there are as there are people will not physical works risk management achievement no physical no physical no physical be affected by 43 CP3 CP2 CP4 CP1 Public & CP5 Vulnerable CP6 Result Area DLI Natural Land Environment Worker groups Social Conflict Habitats Acquisition Safety and Enhance of the works works works the activities supported by the PCA activities supported supported by supported under this DLI DLI under this DLI by the DLI the DLI by the DLI especially increased use of IT tools and hardware will generate e- waste. RA 3: Safeguard oil DLI9: Enhanced Not Not Not Not Not Applicable Not Applicable revenues transparency and Applicable as Applicable Applicable Applicable as vulnerable as there are no increased oil there are no as there are as there are as there are people will not physical works revenue flow physical works no physical no physical no physical be affected by supported by the or other works works works the activities DLI environment supported supported by supported under this DLI intervention by the DLI the DLI by the DLI supported by the DLI 44 Annex 2: Key Environmental & Social Risks and Benefits Associated with Program Activities Environmental Environmental Result Areas DLIs Social Benefits Social Risks Benefits Risks 1: Increasing revenues through 1. Increased Negligible Negligible Negligible Negligible implementing tax and custom revenue from reforms. VAT 2. Reduced Negligible Negligible a) Increased revenue Negligible forgone from tax will enhance revenues government spending in key social sectors leading to improved economic development and enhanced welfare of the citizens especially vulnerable ones. 3. Increase revenue Increase in tobacco Negligible Increased revenue from The tax may lead to from pro-health and tax will discourage tax will enhance reduced sales of the green taxes the consumption and government social related commodities and thus reduce carbon spending in key sectors can cause job losses for footprint and leading to improved workers who environmental economic development damage of tobacco and enhanced welfare of manufacture, distribute industry. Tobacco the citizens especially and sell the commodities industry causes wide- vulnerable ones. ranging Generate health benefits environmental as increase in tax for damage, including harmful commodities, deforestation and for example cigarettes, water pollution from will discourage their pesticide use and consumption, thus, cigarette littering. reduce health burden/ deterioration in health due to their consumption. 45 Environmental Environmental Result Areas DLIs Social Benefits Social Risks Benefits Risks The introduction of green tax has also some health benefits. There will be a reduction in importation of vehicles that burn fossil fuels and pollute the environment there by reducing the incidence of diseases from air pollution for example, respiratory diseases. RA 2: Improve tax and 4. Increased on time Negligible Possibility of e-waste a) E-filling would likely Negligible customs compliance. on-line e-filing and e- due to the eliminate bribery and payments strengthening of ICT corruption associated systems in Federal with person-to- Inland Revenue person tax filling. Service (FIRS) b) Reduction in gender- based violence (GBV) as e-filling will prevent person- to-person meeting between tax officials and women who sometimes are sexual harassed by tax officials. 5. Enhanced VAT Negligible Negligible Achieving this DLI will Negligible voluntary compliance lead to increased revenue from tax. This will in turn enhance government spending in key social sectors leading to improved economic development and 46 Environmental Environmental Result Areas DLIs Social Benefits Social Risks Benefits Risks enhanced welfare of the citizens especially vulnerable ones 6. Improved tax audit Negligible There is possibility of Improved tax audit will lead a) Negligible e-waste due to the to increased revenue from strengthening of ICT tax. This will in turn systems in FIRS, enhance government spending in key social sectors leading to improved economic development and enhanced welfare of the citizens especially vulnerable ones 7. Increased compliant Negligible There is possibility of The compliant trader Negligible trade flows e-waste due to the program will facilitate strengthening of ICT efficient border processes systems in NCS. and thus reduce smuggling and unwholesome practices. 8. Increased customs Negligible Negligible Increased efficiency of Negligible revenues through inspection will enhance the better risk revenue collected by the management and NCS. This will in turn enhanced PCA enhance government spending in key social sectors leading to improved economic development and enhanced welfare of the citizens especially vulnerable ones. RA. 3 Safeguard oil revenues 9. Enhance Negligible Negligible Improve the oil governance Negligible transparency and will strengthen transparency increased oil revenue. and built trust in the system and also help raise revenues 47 Annex 3: Report of the Consultation on ARMOR with Private Sector and Civil Society Organizations (CSO) Held on 8 February 2022 Opening: The virtual meeting Started at 3pm. Opening Remarks: A representative of the World Bank Mr Samer Matta welcomed all that attended and informed the participants that the aim of the meeting was to consult them on the ARMOR PforR program, specifically, to present the Environmental and Social Systems Assessment (ESSA) and obtain their inputs. Presentation of the ESSA- The summary of the ARMOR PforR program and the ESSA was presented to the participants. The presentation covered the following: context and need for revenue mobilization in Nigeria, key features of ARMOR program, ESSA components (objectives, methodology, systems assessment, proposed program action plan). Response, Comments and Questions from Participants Ismael Ariwa (National Association of Nigeria Traders)- He thanked the World Bank for a good assessment and noted that the program should be designed in such a way that there is a lead agency in Nigeria that one can approach in case some issues arise. He complained about discriminatory/multiple taxes charged and which discourages traders from paying taxes. He also complained that people don’t see the effect of taxes they pay so that are discouraged from paying. Response: In response to the comment, a member of the World Bank team noted that the trusted trader program is one of the means to ensure voluntary compliance and deal with some of the issues raised. He encouraged the traders to get registered to the program when it starts. Onyekachi Okolo (Justice Development and Peace Caritas Nnewi Anambra State)- She noted that her concern was that many CSO are not aware of the ARMOR PforR program. She wanted to know the institutions that will operationalize or implement the program and how the program will be monitored. She indicated that the program would enhance revenue generation if implemented. Response: In response, she was told that the Federal Ministry of Finance and some of its parastatals, the Federal Inland Revenue Service and Nigeria Customs are the main agency responsible for the implementation. Gertrude Akhimien (Nigeria Association of Small-Scale Industries)- She noted that medium and small-scale enterprises experience the problem of multiple taxation. Especially from the States. She wanted to know whether there could be an incentive for state governments to stop multiple taxation. She noted that medium and small-scale enterprises needed infrastructure to deal with key infrastructural challenges facing them. She indicated that government should improve on infrastructure so that business can Thrive. Response: The World Bank team explained that the program was for the Federal Government. It was also noted that the program was meant to enhance revenue mobilization and tax administration. The team noted that another program was being developed that would address the 48 reforms that could be put in place at the State level to reduce impact of taxes on medium small and micro enterprises (MSME). Mr AbdurRahman Abdullahi (Coalition of Civil Society Organization Katsina State/Katsina Budget Awareness) – He noted that there was a need to involve CSO in the program especially in monitoring to ensure that government funds are properly accounted for. He also noted that people are not ready to comply regarding tax because of lack of trust and social contract with the people. He stressed on the need to ensure that money generated is accounted for to motivate the people to pay. He also noted that e-collection of revenue was a key to ensuring remittances as what was generated was not remitted to government. He also noted that the charges by Nigeria Customs Service was high and that reducing the charges would help to make people to comply. Response: He was informed that the program is focused on the Federal Government. He was also informed that digitization and e-collection was a key aspect of the program. Mr Jude Ohanele (Development Dynamics, Imo State) – He thanked the World Bank for the PforR program. He noted that the TTP was a good one. He also noted that the process should be well defined and made very transparent. He also advised that the World Bank should provide technical support to the implementing MDAs to achieve a good grievance redress mechanism. Response: It was noted that the Federal government will implement the program and that there are clear targets that will be paid for after verification by an independent verification agency. Ugochi Ehiahuruike (Host Tax Justice and Governance Platform, Anambra State) – She thanked the World Bank for the program. She observed that the program would enhance tax to service which her organization has been campaigning for. She stated as follows “If we are able to get it right at the federal level, I believe that the states would borrow a leaf from it�. Closing – The World Bank team thanked the participants for being part of the consultation and for perceiving the program as a good intervention that could bring development. 49 Annex 4: List of Participants During the Consultation S/no Name Organization Government participants 7/2/2022 and 18/02/22 1 Adamu Samaila Federal Ministry of Women Affairs 2 Matthew Gbonjubola Federal Inland Revenue Services 3 Dr. Yinka Babalola Special Advisor to the Minister of Finance on Fiscal policy Mme. Omosomi 4 Omomia Special Advisor to the Minister of Finance on revenues 5 Mr. Aflred Okoh Advisor to Director General of Budget Office 6 Mr. Anaynawu Bde ACG, Nigeria Customs Service 7 Mr. Fola Adejumo Advisor to Director General of Budget Office Private sector and CSO participants 8/2/2022 3 Jude Ohanele Development Dynamics Imo State 4 Deborah Ununu BudgIT 5 Onyekachi Ololo Justice Development and Peace Caritas 6 Ayo Adebusoye Nigeria Network of NGOs 7 Adejoke Akinbode BudgIT AbdurRahman Coalition of Civil Society Organization Katsina State/Katsina 8 Abdullahi Budget Awareness 9 Chisom Okechukwu Bill & Melinda Gates Foundation 10 Ishmael Ariwa National Association of Nigerian Traders 11 Kalu Aja Community Foundation of SNOHOMISH County 12 Morris Monye 13 Gertrude Akhimien Nigeria Association of Small-Scale Industries (NASSI) 14 Yinka Omojolaibi Manufacturers Association of Nigeria (MAN) 15 Ugochi Ehiahuruike Host Tax Justice and Governance Platform, Anambra State 50 ANNEX 5: POVERTY INCIDENCE ASSESSMENT ON EXCISE DUTY REFORMS 1. The pro-health taxes proposed affect a relatively small share of the population, with a minimal effect on the poorest. Data from the 2018-19 Nigeria Living Standards Survey (NLSS) show that only 5.7 percent of the population consumes cigarettes or tobacco, with only 3.7 percent of the poorest decile having reported to consume these goods (Figure 2). Similarly, the effect of an increase in prices on non-alcoholic beverages, which excludes raw sugar itself, is likely to affect more richer household given that only 5 percent of households in the poorest decile consume chocolate and sugary drinks as opposed to 80 percent of the richest decile. Finally, richer households are more likely to consume and spend a larger share of their consumption basket to purchase alcoholic beverages.16 While about 11 percent of the population consumes alcoholic beverages, only 3 percent of the poorest group in the population lives in a household that consumes any alcoholic beverage, against 18 percent in the richest group. Figure 2: Pro-health taxes are largely progressive as they impact mainly the rich households which consume these products the most Source: World Bank staff calculations. Note: Estimates exclude Borno. Data are from the non-food consumption expenditure module (Section 7) of the NLSS 2018/19. Item code(s): 101-Cigarettes or tobacco. Sugary drinks are the sum of the annualized value of sugary drinks consumed by the household. Item code(s): 121-Chocolate drinks (including Milo); 153- Soft drinks (Coca Cola, Mirinda, etc.). Total Alcoholic beverages is the sum of the value of items listed in the Alcoholic Drinks (bottle and can) section of the questionnaire consumed by the household. Item code(s): 160-Beer (local and imported); 161-Palm wine; 162-Pito; 163-Gin; 164-Other alcoholic beverages. 2. Similarly, the green excise on vehicles is not expected to have a major impact on poverty, as it is designed to protect the poor and most vulnerable households. Considering that the Nigerian poor primarily rely on small motorbikes and scarcely on cars (Figure 3 and Figure 4), the green excise is structured to exempt vehicles and automobiles with an engine capacity of under 2000 cc (i.e., motorbikes, small cars, and medium-sized cars) as well as mass-transit vehicles for public transport capable of carrying more than 10 passengers. To enhance the tax's progressivity, the excise will be applied and will increase from 2 percent for vehicles with an 16 Alcoholic beverages include beer, pito, palm wine, gin, and other alcoholic products. 51 engine size of 2000-3999 cc (i.e., large sedans) to 4 percent for vehicles with an engine size greater than 4000 cc (i.e., 4x4 vehicles). Figure 3: The poor rely mainly on motorbikes which are Figure 4: Moreover, the poor barely consume cars, exempted from the green excise hence they will not likely be affect by the green excise Source: World Bank staff calculations based on the NLSS 2018/19. 52