There is No Hiding Place for Tax Defaulters
registration and now the Land Use Charge. Don’t you think the burden is too much for residents in the state?
You know why the fee at the Lekki toll gate was increased? Unlike most of the expressways that are tolled, there are a lot of special services that are provided around that Lekki toll gate. If your vehicle breaks down on that Lekki expressway, even at midnight, once you call a number, within 15-20 minutes, you will get help and your car would be towed away at no cost. Then all the street lights must work and there is constant maintenance of the roads. So, somebody must pay for all these.
Do the massive projects in the state go through the Procurement Bureau?
We have a public procurement bureau and every expenditure must go through it. Even our expenditure here goes through it.
A few years ago, the Ogun State Government said Lagos was owing it monies said to have been collected by Lagos as PAYE from workers resident in Ogun, but working in Lagos. Has that matter been finally resolved?
There is a lot of dialogue going on between the two state governments. If I come down to our own level here at the LIRS, all our staff that work here, but live in Ogun State, the LIRS remits to Ogun State. Now, what you are talking about is that there was an accumulation at some point. But currently, there is a lot of payment that is going to Ogun State. The JTB, which is a body that harmonises disputes between the states has been involved in the whole process. So, a lot of things need to be verified and so we need to be very careful. But it is an ongoing exercise. Lagos is alive to its responsibilities.
Can we know the exact amount that is outstanding?
Unfortunately, I cannot give you the exact amount that is outstanding. It is outside my purview. It is actually the state treasury office and the Commissioner of Finance that can answer that. But to the best of my knowledge, I know there is ongoing dialogue and I know that a lot of resolutions had been made and I know that a lot of payments have been made.
Tell us what you are doing to bring the large percentage of Lagosians that are in the informal sector into the tax net?
The management of that informal sector has been very challenging. In fact, in most nations, the informal sector has been very difficult to manage, more so in Nigeria where we don’t have credible data. The key problem with the informal sector is that of data. Secondly, a lot of those in the informal sector are highly mobile. They are here today, and within three months they are off to somewhere else. And we don’t have a national identity card scheme. Take for instance, in South Africa, the moment you are born, you get a Tax Identification Number and you use that for life. If we have such a system here, it would really help us. But we don’t have the necessary data. That notwithstanding, under my administration, we are doing a lot of studies and we are doing a lot of work. We are about to start the implementation of a plan whereby we are also going to leverage on a lot of technology and we are also going to work with some partners. That is, we are also going to work with some private sector professionals so that we can increase our level of enumeration and bring a lot of these hitherto non-taxpayers into the tax net. We have also applied other strategies such as the presumptive tax regime, which is like a penetrative strategy to bring them into the tax net. Under this strategy, we agree for them to pay a fixed amount, let’s say about N4,000 or N5,000, just to bring them into the tax net and subsequently we are supposed to be able to profile and assess them based on their real income. Already, we have started seeing a little bit of results as collections from the informal sector has started to climb up a bit. By the time we bring our full plan to bear this year, we are going to see the numbers really increase.
You said earlier that right now PAYE accounts for 75 per cent of total taxes, so what makes up the remaining 25 per cent?
PAYE brings in about 70-75 per cent of total LIRS collections. In total, it brings in 55 per cent of the state’s IGR. Direct assessment brings in another five percent which are the high net worth individuals (HNIs). It is not as if the HNIs do not pay taxes, but a lot of them hide under the umbrella of their corporate organisations. They prefer to remit PAYE rather than to be assessed directly. Now, we don’t have a problem with them coming under PAYE, but we expect them to complete our Form ‘A’ and declare all their sources of income such as rental income and investment income. These are supposed to be captured as part of their income. So, what they tend to do is just to file under PAYE. Going forward this year, we are seriously going to change that. There is going to be a paradigm shift in that regard and we are going to compel every resident in Lagos to complete the Form ‘A’. Part of the initiative which I should have told you earlier is that we are digitising the process of getting the Form ‘A’ so that people can go online, complete the form and they would get an acknowledgement in the form of a receipt. In addition, we also have about five per cent coming in from tax audits. Every year, almost every company operating in Lagos is visited for tax audit and from that we assess the true amount that they ought to have remitted, with penalties imposed on those that appear to have underpaid. So, that makes up five per cent of our collections now. Then we have stamp duties, withholding taxes and the capital gains tax. So, all those again would account for about five per cent or thereabout. So, that makes up the composition.
There is always this highhandedness on the part of LIRS officials who are always in the habit of shutting down the companies of tax defaulters. With the current state of the economy, is that the right approach and shouldn’t there be some flexibility?
If you look at it historically, Lagos used to be engaged in sealing off defaulting companies. But under administration of Mr. Akinwunmi Ambode, he brought a different angle to it, saying because we are trying to build a mega city, we should not be seen to be stifling growth. Quietly, he has advocated against these closures. But we are starting to look at it because all over the world, nobody wants to pay tax, especially within our enclave. So, the state government and my regime brought in a lot of dispute resolution mechanisms. We have been calling people who even in our books are owing the state for five, six and seven years. Even the ones that have cases in court, we have tried to approach them and urge them to try and settle out of court by sitting down with them to reconcile the amounts. Now, in terms of sealing off, it is only the extremely recalcitrant debtors that are affected, and you cannot do that without a court order, so that it is lawful and it is legal. All over the world, enforcement is a major part of tax administration. In America, people go to jail for not paying their taxes. We can’t send everybody to jail, but maybe when we get one or two defaulters, then others would start to sit up. The statistics are woeful. How can PAYE account for almost 75 per cent of collections? Which informed why the federal government and the states initiated the Voluntary Assets and Income Declaration Scheme (VAIDS). It is all about telling all the defaulters: okay, lets go back six years. All those that have under-declared or have not paid their tax before, come in under an amnesty programme. Before the VAIDS programme came up, the LIRS was actually putting together an amnesty programme. But when we got wind of the initiative by the Federal Minister of Finance, Mrs. Kemi Adeosun, we decided to suspend our own. Now, at the end of the day, we expect that tax culture would grow and Nigerians would see the need to pay tax. It is a social contract. People must pay their tax and expect the government to play its part.
Still on the VAIDS, are you in talks with the federal government on the implementation of the initiative?
It is a partnership between the Federal Ministry of Finance, the Federal Inland Revenue Service and all the State Internal Revenue Services. We were all there and we were involved from the inception of the whole process. We are still dialoguing constantly. It is something that we all need to cooperate on because the corporate bodies report to the FIRS and all individuals report to the LIRS or other State Inland Revenue Services. So, we cannot but be part of it. I am urging all taxpayers to take advantage of the VAIDS because it is a time-limited opportunity. It ends on 31st of March and there has been a lot of response from members of the public.
A recent report by the Minister of Finance showed that Lagos has the highest number of HNIs in the country, with VAIDS has that number increased?
It was about 213 in total, out of which only 20 were not resident in Lagos. The VAIDS programme started very slowly, but from January, there has been a lot more activity going on. For instance, somebody made an application today (Monday) and has openly declared about N270 million underpayment over the years and he has subjected himself to an audit. We are going to look at the application, we are going to review the correctness or the adequacy of his payments and then we would respond to the applicant. So, there are lots of people coming forward. Some are coming to declare N1 million, some are declaring N100 million, some N20 million, so it is going to be a successful programme. But there is more traction now than what we had at the beginning. In the past four months, there were lots of enquiries, but people were a bit undecided and didn’t know which way to go. Definitely, people are not supposed to look at taking their chances because there is a very high possibility of most of the HNIs being caught up in this programme and being penalised at the end of the day. That is because there is a lot of data mining that is going on presently. There is what is called the lighthouse project that is going on, which involves looking at the data at our disposal. For instance, the National Financial Intelligent Unit (NFIU) has mined all payments of above N10 million and they are to be reported to the NFIU by all the banks. Also, you cannot tell us that your total income for the year is N2 million and when we look at the NFIU report, your turnover is N2 billion. Yes, it might not be a profit and might not be your income, but at least, it gives an indication that that N2 million was a gross under-valuation. Then, there is the exchange of information agreements that have been signed between a lot of the Organisation for Economic Cooperation and Development (OECD) countries, and at the end of the day, countries like the United Kingdom, the United States, the United Arab Emirates, etc, which are favourite spots for Nigerians to buy property, we are going to get information on all the property owned by Nigerians in all those regions. Also, all the Nigerian contractors that had obtained huge contracts from the federal government and from the states, the data is also being mined. You know, previously, everything was operating in silos. But we are not starting to put everything together and all those big contractors, we are going to see what they have done over the years and we are going to show them what they have declared. And of course, part of the benefits of VAIDS, is that you will get exempted from penalties and interest payments. But after the programme has closed, people would be penalised. Then there is other information that is being mined through the Corporate Affairs Commission (CAC). All the states will also turnout data on key properties to the Ministry of Finance. So, they have records of all the land owners in the states and they are going to look at the income and make a comparison between their income and the tax they pay. So, there is no hiding place for tax defaulters and there would be no sacred cows. Everybody should just be encouraged to complete their VAIDS forms. One can download it from the website of the LIRS.
So, who needs a VAIDS form?
Any resident of Lagos who has in the past under-declared or not declared income at all should avail themselves of this opportunity by declaring their income in the past six years. Part of the information on the VAIDS form is the information on all properties owned by such persons.
The target under VAIDS was to generate $1 billion by the end of the amnesty period. Do you think this will still be met?
Well, feelers from the FIRS show that a lot of money has come in. We are hoping that the target would be met. In the different countries that had embraced the amnesty, their tax system has always been better off. Apart from the target to be collected, it is for us to grow the tax culture which hitherto has been very poor. Our tax to GDP ratio is six per cent, whereas we have neighbouring countries and South Africa with more than 20 per cent. So, we are hoping that through this programme, a lot of people would start to understand that social contract better and see the need to contribute their own quota. Apart from being a civic obligation, it is the law. Everybody is expected to pay taxes. So, the social contract says we should pay our taxes and the government is expected to judiciously expend those taxes so that people get benefits. In Nigeria, we call it dividends of democracy, especially through developmental programmes and the provision of key social services.
With increased taxes, levies and charges, the people would now hold the government more accountable and they would be certainly more demanding, wouldn’t that be the case?
That will be good for the nation, because in the past when the price of crude oil was high, there was a lot of money coming into the purse of the federal government. But before oil came, we had strong taxation programmes and the government was able to get a lot of money to fund the free education, free healthcare services and others in the past. So, it took the drop in global oil price for us to realise that IGR is very key to our development.
So, what has been you experience since you assumed this position?
Personally, it has been very fulfilling. My background is accounting and I am a Chartered Accountant. When I was a practitioner, I had a lot of arguments against the the tax administration system. But now that I am on the other side, it has become very interesting. All my frustration as a tax practitioner, I am bringing it to bear to ensure that people have seamless services. We have a lot of training here on ethical behaviour and good relationship management, which is very dear to me. We make sure that we have police that monitor the policemen here too, to make sure that all the sharp practices are reduced, if not completely eliminated. So, it has been a very fruitful experience for me and I am enjoying the job tremendously.