‘Government Can Significantly Grow Tax Revenue with well-wrought Ideas’ – Nestoil’s Stanley Ezekobe
Growing Nigeria’s revenue base through taxation has been a recurring challenge. It has become more evident in the face of COVID-19 disruptions leading to budget deficit. STANLEY EZEKOBE, Nestoil’s group tax manager in this interview with Businessday’s TEM
Nigeria’s overreliance on eroding oil revenue to grow its tax base has increasingly proven unsustainable under the reign of COVID-19 pandemic. What innovative and efficient means do you think tax revenue can be maximized to grow the country’s economy?
We have seen now that oil revenue is like a blessing and a curse at the same time. But we now need to zoom in and focus on taxation like everybody else in every part of the world. The first step is to maximize collection and maximize the use of what has been collected in order to be fully effective. You now need to be accountable to those who have collected the revenue in the first place. When we talk about taxation in any amount of space, we are looking at the taxpayers, tax administrators, and the leadership of the country who are the decision makers who decide what is used with the tax revenue that is collected. These three stakeholders need to be in full alignment for tax revenue or government revenue to be effectively maximized.
Let us look at the statistics of what has been collected in the past as tax revenue. I’m aware that in 2018, the then Federal Inland Revenue Service (FIRS) chairman stated that the tax revenue collected was about N5.5 trillion, which is short of the budget of N8.1 trillion for the year. In essence, there are challenges with why tax revenues cannot be collected to a maximum here in Nigeria.
Can you expatiate on challenges you consider to be clogging the wheel of tax pooling?
The first is leadership. What is the quality of the leadership of these collection organizations? What is their background? What is their knowledge of taxation? How effectively do they know how our economy works? How accountable are they? What level of integrity do they have? That’s one of the first major challenges that we face as a nation when it comes to the collection of government revenue.
The second is the most popular, which is the base of tax collection in Nigeria. The people who pay taxes are those who are in the formal sectors of the economy and by that, I mean those who work for the 9 am to 5 pm employment labor space and those who work in the civil service. What about those in the informal sector? The formal sector workers have their taxes deducted from its base with the workers not knowing what is actually remitted to the government coffers. It is worse for the civil service because
even what is deducted from their salaries is not effectively reported to the government. So, from statistics, you have a base of about eight or nine percent of Nigeria’s population in the tax net. The highest number we had was 13 percent in 2015.
What that tells us is that it’s just a very few number of people that are contributing to the tax net here in Nigeria. So, what happens to the rest of the informal sector or formal sector yet to get into the tax net? So, the tax base is a major problem. This is the collection process. What is the staff strength, the quality of the staff within these organizations that are charged with the responsibility of collecting taxes in Nigeria?
In other climes, you have the best graduating students from prestigious universities working for government agencies like the HMRC in the U.K. What of Nigeria? In Nigeria, the system is where senators and legislators have a quota for people to get in, get employment within tax administrative offices. These kinds of things have to change if we are to maximize government revenue from taxation.
Do you agree with the argument that tax compliance can be encouraged when evidence of projects done with tax revenue is visible?
There’s merit in that argument. When we want to tax the people, we tell them that their taxation is either based on company income tax for companies, income tax for individuals.
Other areas of taxation on goods and property like capital gains tax and taxes that are collected at source like withholding tax, and the most famous of them all, which is Value Added Tax (VAT) because that is the tax you pay on all the transactions that you acquire.
There’s merit in that argument. When we want to tax the people, we tell them that their taxation is either based on company income tax for companies or income tax for individuals.
Other areas of taxation on goods and property like capital gains tax and taxes that are collected at source like withholding tax, and the most famous of them all, which is Value Added Tax (VAT) because that is the tax you pay on all the transactions that you acquire.
So the taxpayers know that they are supposed to be taxed and they know when they are supposed to pay the tax and in most cases, how much they are supposed to pay or they get to the tax agencies to calculate for them how much they are supposed to pay. But what the government doesn’t do is to notify them of what has been done with that tax. What the government does not do is show practically what has been done with the tax revenue. So that makes the people back off and say, the government is not even accountable to me on what it has done with the tax. In countries like China, Brazil, and Peru, the tax authorities publish an account of all the revenues that collected from all the tax jurisdictions within the country every quarter.
It cascades down to even all the local provinces, like local governments, and each local government is expected to also publish what the local market reaps from levies, fines, and fees with detail of all it has collected.
What strategies do you think the government can apply to effectively gain the informal sector into its tax brackets?
The first apart from accountability is for government to be able to create a system where for everything an average Nigerian does, it requires evidence of tax compliance. Five years ago, companies could bid for contracts in government, companies could do whatever they liked without any evidence of tax compliance. High net worth individuals travel in and out of the country signing global deals without any compliance. But if they need to comply in other countries, they actually comply. But in the past five years, the government has been consistently requiring companies to have their tax clearance certificates before they can bid for government contracts. That in itself has forced a lot of companies to now be tax compliant.
Many companies fail to remit tax deductions. And even the staff do not have tax identification numbers to show they are compliant. What’s your take?
The question is what is the motivation for them to remit? Who is supervising them? There should be consequences for such actions and they need to be immediate. If a company supposedly pays tax 10 days after the end of the month, it means that the government should have a synchronized structure whereby at the end of the month it will be alerted if the company is yet to pay when it is due and immediately it flagged them. It should also have an automated system where it’s able to send reminders to these companies whether by email, whether by text messages to the contact numbers of those organizations, or whether by physical visits. Then by law, there should also be a system or a structure where there’s an agreed timeline or maybe a three call process where you have three strikes or three reminders and direct consequences that are agreed or known by all taxpayers, and those consequences are implemented properly.
How can multiple taxations be tackled, especially considering the happenings in banking transactions and beyond?
Multiple taxation is the major problem every tax administrative body faces, because it’s something that motivates the taxpayer, unfortunately. From the standpoint of the tax administrator or from the leadership of the government, they are trying to raise revenue and they are trying to create different avenues or streams with which they can raise revenue. So, the reason why multiple taxation exists is because there’s a clash between the government trying to raise more revenue on one hand and those streams of revenue being paid by the same people, or the same taxpayers, on the same assets. So how does the government achieve its objective of having streams of revenue but still not from the same taxpayers or from the same assets? I would say that the first way is clarity. If there is clarity as to what’s the tax responsibilities of everyone before they engage in any form of moneymaking venture, there will be fewer incidences of multiple taxation on streams of income, because at times it’s a misconception where the taxpayer doesn’t even know that what he’s paying is based on the applicability of the law or what he’s paying is based on ignorance.
There are other sources of tax that the government has not tackled, such as tax on fuel, tobacco, car, alcohol which are consumption taxes. What actions should go in this direction?
It is a very good thing to do. Other countries as well do it, but the difference is accountability in those countries. You’ll see instances where there’s a high tax on beer, alcohol, cigarettes. But what government does is that they also report the revenue they have recognized or they have earned from these areas of taxation. They also report the jurisdiction from where they have earned it. And they also make sure that the impact of government is felt in these jurisdictions. For example, in an area in Brazil, where they get high revenue from tobacco, what the government does is to invest significantly in production and subsidized seeds, and agricultural stuff for farmers. So that way, when people are paying the tax on tobacco, the slang they use is that they are planting plantations. So, they don’t say they are paying tax or say they are giving money to the government. But they say they are planting the plantation because they can trace where the money is going. Things like that can be done, it will help.
What’s your view on taxing the entertainment industry, and it appears that some industries are more taxed than others, such as the telecoms that have over 42 different taxes? How can this be addressed?
Revenues from the telecom sector can be easily tracked. Not so easy with the entertainment industry. Most of the players go under the radar when they are earning revenue. Most of them that perform over the weekend perform in places where the government is unable to trace them. Most of them prefer to collect their monies in cash without getting them transferred into an account and so many other tricks that people working in the entertainment industry use to hide their revenue. I mean, I can go on and on, but what needs to be done? Put a structure in place that you are able to collect data; where for every entertainer that has to entertain somewhere, somehow that information is captured. Those appointed to the board of the federal government revenue can come up with ideas to make it work.