LESS THAN ONE PER CENT OF REGISTERED COMPANIES PAY TAXES IN LAGOS â€“ BABATUNDE FOWLER, CEO, LIRS
The Chairman, Lagos State Board of Internal Revenue and ChiefExecutive Officer (CEO), Lagos State Internal Revenue Service (LIRS), Mr Babatunde Fowler, is not happy that less than one per cent of registered companies in Lagos pay their taxes as at when due.
Fowler stated this in an exclusive interview with Daily Sun at the agency's corporate headquarters in Alausa, Ikeja, Lagos.
Specifically, he said only 20 companies out of the numerous firms in the state were remitting taxes promptly to the state government, in the last three years. Besides, he said tax payers owed the state government about N20 billion, noting that the money represented outstanding taxes due to the state.
The LIRS boss informed that the money was discovered through a review of failed taxes, recently conducted by the revenue agency.
On tax evasion, Fowler said those evading various forms of taxes in Lagos State may begin to consider the option of relocating to other states because LIRS has resolved to raise the current level of income generation accruing to the state from N168,763,036 in 2009 to N200 billion this year.
'Though no one in the history of the country has been convicted for tax evasion, adding that LIRS has also started pursuing the criminal provisions of the law, with a view to bringing to book individual officers or directors of defaulting companies responsible for tax evasion,' he said.
He explained that the need to meet up with the mega city status of the state, alongside the provision of the needed infrastructure, informed the decision of the agency to look inwards to see the possibility of providing government with the required funds needed to carry out even and meaningful development across the state.
He maintained that as Lagos State moves towards that line, LIRS will continue to position itself as the major funding arm of the State Government by putting in place structures, policies and implementing strategies that will ensure collection of the proper amount of tax revenue at the least cost.
The revenue officer informed that LIRS being the major funding arm of the Government has taken on the challenge of increasing the Internally Generated Revenue (IGR) of the State through the adoption and implementation of various strategies which have impacted positively on revenue generation and collection, with the total IGR moving from N48, 145,285,674.55 in 2005 to over N168, 763,036.00 in December 2009; a percentage increase of about 350.5 percent.
This, according to him was made possible through far reaching measures among which is the Tax Education and Enlightenment Team (TEET) aimed at ensuring accelerated and full coverage of the state's tax jurisdiction.
'TEET was charged with the responsibility of visiting Companies and Business Establishments within the State to check for tax compliance and educate the tax paying public. To enhance TEET's operations, its fleet of buses was increased from 3 to 40; and its activities have resulted in a tremendous increase in tax payer awareness and compliance' he said.
Enlightenment campaign strategy
We have to go back a bit into history and that will take us to the regime that had been in existence before the coming on board of his Excellency, Asiwaju Bola Ahmed Tinubu, who is the former Governor of Lagos State. Prior to that time, Lagos State used to generate an average of N600 million per month in taxes. And he believed that, that was not the correct figure and that the taxes being paid were grossly understated.
He also believed that we cannot continue to rely on the Federal Government for funding of state projects. And so, he started the foundation of the Board of Internal Revenue whose main objective is to fund the state. But before then, most states not only Lagos State, but most states in Nigeria never had any publicity on the payment of tax. Every state used to rely on going to Abuja once a month to collect cheques due to their respective states from the federation account to fund state projects.
As a first step in our series of re-organization and enlightenment campaign initiatives, we had to first reintroduce tax payments to the people. Though, there have been existing laws because everything had been in place but they were never followed or obeyed. And in a situation where we have both gentle men and ladies, professionals and market women that had not paid tax in more than twenty years and all of a sudden you tell them to start to pay tax.
This may be difficult. But, which is the position of the law because some of them will object; while some will act out of ignorance. So we thought we had to educate everyone both the market women and the professionals.
So we had an enlightenment campaign, which to our mind was one of the largest in the West African coast. It covered radio, television advertisement and a lot of publicity in terms of fliers. We gave out free Digital Video Discs (DVD) which we are still doing at the moment.
And now we have created awareness in the psyche of all by letting everybody know that it is their civic responsibility to pay taxes. And also to make them understand that the state cannot function without the payment of taxes and if we take that a step further, Nigeria itself cannot function without every citizen paying one form of tax or the other.
At the last Chartered Institute of Taxation of Nigeria (CITN) conference in Abuja, the Minister of Planning gave us some figures; in 2009, the total oil revenue that Nigeria received was N3.2 trillion. In 2008, Nigeria received N6.5trillion.So, within the period of one year; the oil revenue went down by 50 per cent. Now, all the states of the federation go to Abuja once a month and rely on that revenue. So, within the period of 12 months, the actual revenue that went to each State Government was reduced by close to 50 per cent including Lagos State.
Essentially, that was the reason for all the entire enlightenment which started some years back. It was just that; from 2005 to 2006 it was stepped up.
It was stepped up because the Board of Internal Revenue became autonomous. And so, we had a bit more funding and the ability to decide the vision and the focus of the board. Prior to now, it was in the Civil Service structure. And under that system, it reported its activities to the State Ministry of Finance and this created some sort of bureaucratic bottlenecks. But as an autonomous agency, we have the opportunity to do things that we think are in the best interest of the agency and also the State.
Impact of double taxation on businesses
Let me say this. And I'll say it with all seriousness. There is no double taxation or multiple taxation as people claim it to be. Now, the Federal laws that govern tax administration in Nigeria has divided government and their taxing powers into three; Federal, State and Local Government. People who have laid claims to be victims of double taxation are not really saying it the way it is because when we investigated some of these claims in the past, we found out that; what they call taxes are sometimes penalties, levies or user charges. And in some cases, they are charges that their own unions or associations charge them but not government. So there is a big difference in some of these claims levied against government by members of the public, especially when you take it down and analyze what they are complaining about.
Now, this is not to say that there may not be some case of double taxation. We also find out that, there are some criminal elements maybe not so much in Lagos anymore but in some other states that will form themselves into revenue agencies and start taxing individuals and small businessmen. And we constantly tell the public that if such situation occurs, they should report the case to my office or to the Special Adviser on Taxation and we will investigate it.
We had a case about two years ago somewhere around Oregun. One of the tax consultants called me and said that that some Local Government Officials are trying to close them down for some sort of tax default which in the first place was not an approved tax by the Federal or State Government. We went there only to discover that they were just some sort of hooligans trying to extort money from innocent resident and businesses around the area because they didn't have adequate information.
To guard against this unfortunate occurrence, we have printed pamplets, books and leaflets detailing and explaining all the approved taxes that can be charged by the Federal, State and Local Governments. And we also want anyone that believes that they are being charged double taxes to bring the case to us and we will certainly investigate such claims on their behalf.
Implications, benefits of self Assessment Taxation
Well, it's been very encouraging. First, it has brought in a lot of good people who will on their own voluntarily go to the bank and pay their tax. But we have also noticed that some of them under access themselves by not declaring their actual income. In such cases, what we do if we detect that people have under declared is just to contact them and tell them to do the right thing. We use this approach because there is a need to encourage those that have willingly come on their own to pay taxes. And we at the board would not want to do things that will scare them away.
Though, at a point in time, we had a challenge. Ideally, under the self assessment scheme, you should get your tax card within 72 hours. But in the process we experienced some slight delays in the sense that, sometimes the tax card is sent back to the bank and the tax payer in some cases don't bother to go back to the bank to collect it. And sometimes the card may not be actually ready within the 72 hours period. But apart from that, we dint encounter any other problem.
VAT collection amongst the tiers of government
Let me give you the position of the Lagos State Government. The position of the State Government is centered on two points. First, the constitution of the Federal Republic of Nigeria states that all Federal Government revenue should go to the Consolidated Federation Account. Note that VAT does not go to that account. This already tells one that, it is not the business of the Federal Government to collect VAT because they also do not have an account for that purpose.
Secondly, according to the states, the issue of Sales tax or Consumption tax is a tax that is the prerogative of the State Government to charge. It was during military government that VAT was introduced by a decree. And the feeling is that, once you are in a civilian government, the constitution holds power just the same way when the military takes over by coup, the first thing they do is to suspend the constitution of the country. Now, since we are operating a civilian regime, all military decrees still in operation and not in line with the constitution should equally be suspended. And that basically is the position of the State Government.
Tackling touting in the tax collection process
Let me start first with touting. About four to five years ago, touting was a serious problem in Lagos State. Presently it's not too much of a problem because we have educated people and also let them know that they can walk into a bank and handle their own tax matters within 30 to 60 minutes. The problem then was that, if you had a tax issue and you saw that it was going to take a whole day and you just don't have the time and you have someone who says I will take care of it for you. But the danger there is that, you are handing over a simple responsibility that can be taken care of you to the wrong person.
And in the process a good number of people get defrauded because they later discover that the money given to the third party (tout) do not eventually get into the State coffers. And because we run a system that is highly computerized, anytime you make payment we can cross check from the system and actually detect if payments are made or not.
So, this development has greatly limited the activities of touts to a great extent within Lagos State. Although in some States touting still holds sway.
The other major challenge we have within Lagos State is that people and organizations still under declare and reduce the amount of taxes deducted from their income. To give actual figures, last year, when the board did a review of failed taxes, we were able to realize close to N20 billion of under remitted and unlimited taxes.
So that's the major challenge. We have a lot of people paying but we also have a number of organizations that are not deducting and remitting the correct amount to government as at when due.
It may interest the public to know that only 20 companies out of the numerous firms in the state were remitting taxes promptly to the state government in the last three years. This means that; the 20 companies represented less than one per cent of the registered companies in the state. And this makes the ugly trend worrisome because of government's huge investment on enlightenment and the sincerity of the government in the use of generated revenue.
Let it also be on record that about 75 per cent of the state's revenue was being generated internally. And that is why the government is bent on harnessing its internal revenue sources to enable it meet its responsibilities to the citizenry because the current lull in the economy, most states are handicapped, as evident in their inability to award meaningful and developmental projects.
Let me put it this way; nobody is allowed to collect revenue on behalf of the state. The tax law even says no individual or organization apart from the Board of Internal Revenue can collect revenue. Now, Lagos State has even gone a step further by saying that only some designated banks in Nigeria are allowed to collect revenue on behalf of the State. So, no staff of the agency is allowed to collect taxes in cash or cheque. All our revenue goes straight to the bank.
Now on the issue of the professionals. Sometimes, we use consultants to get information and gather information from tax payers and this is what we use for our analyses and final assessment. Though, there are some of these consultants that go out and misbehave. But when such situation occurs, all we do is to delist them and take appropriate measures against them.
Decentralization of tax collection/increase in taxable income
Well, there was a call by the Governors Forum for the decentralization of tax collection processes alongside an increase in taxable income. Although, I am not a member of the Governors Forum but I attended a session where I represented Governor Babatunde Fashola in the area of tax administration. At that point in time and based on the dwindling revenue from the federal allocation, all the state governors' knew that they had to increase the Internally Generated Revenue (IGR) in their respective states in order to be able to meet recurrent expenditure.
At that session, some of them had the feeling that one way of achieving a balance was to increase the tax rate. Some also believed in other measures. But, there are some bills currently before the House of Representatives awaiting approval which may change the rate and way tax administration is done in Nigeria.
But, until those bills are approved, we have to continue to operate the current laws on grounds which are already outdated.