Lagos loses N600bn annually to tax evasion – LIRS chairman, Subair

Executive Chairman, Lagos Internal Revenue Service, Ayodele Subair, tells Alexander Okere what the agency is doing to increase revenue generation amid the challenges occasioned by tax defaults, COVID-19 pandemic and the aftermath of the #EndSARS protest

On February 5, Governor Babajide Sanwo-Olu inaugurated a seven-member State Joint Revenue Committee, which you head, to implement the decisions of Joint Tax Board and harmonise tax administration. What are the specific terms of reference of the committee, especially the loopholes the government aims to address?

In the last one year, revenue generation has been faced with major problems from the global shutdown of economies due to the raging COVID-19 pandemic, to the devastating effects of the #EndSARS protests, which further impacted on Lagos State negatively. Nonetheless, the government continuously has the painstaking task of providing security, infrastructure and economic stability for all citizens despite these hindrances. It is on this premise that Mr Governor graciously approved the inauguration of the JSRC, which shall, among other objectives, actualise the harmonisation of taxes and levies at both state and local government levels, pursuant to the powers conferred by the Personal Income Tax Act 2004 (as amended). This would ultimately ensure a seamless tax and revenue administration process at both levels of government as there currently exists a rather unexplainable dichotomy between the state and local government revenue generating authorities. There must, therefore, be a synergy in the tax administrative system at all tiers of government to achieve a holistic and effective tax administrative system in the country. The effect of this would be the implementation of effective tax policies by government at all levels as required by law in the interest of all stakeholders. The primary functions of the committee are to harmonise all collectable taxes, levies and rates in Lagos State and address public perception of multiplicity of taxes within the state. The misconception that there is multiplicity of taxes in the state must be corrected as taxpayers need to be educated and sensitised that levies, charges and rates are different from taxes. They are administrative charges for the provision of specific services as opposed to taxes for which there are no direct benefits. Rates of taxes are known and certain. Also, the taxpaying public must know that LIRS is the only revenue authority charged with the collection of taxes pursuant to extant laws.

The LIRS recently issued a statement for all taxpayers in the state to file their individual annual tax returns before March 31, 2021, to avoid sanctions. How would you assess the compliance rate?

As part of the commitment of LIRS to ensuring optimal collections of taxes while incurring the least cost possible as well as our desire to promote the ease of compliance with tax obligations in the state, we introduced the E-Tax Solution. This is a digital platform which taxpayers can conveniently use to complete tax transactions from the comfort of their homes or offices via the web. E-Tax is an integrated digital tax administration platform that captures all aspects of taxation from end to end. It offers a multi-channel tax and levies payment solution. Its self-service feature reduces the turnaround time for tax processes as well as human interaction with the tax administrative process. This platform, we believe, would ease and improve the compliance rate within the state. So far, it has been impressive and we believe that before the end of the moratorium granted for compliance, we would record more compliance with the statutory obligation of the filing of annual income tax returns pursuant to Section 24(f) of the 1999 Constitution of the Federal Republic of Nigeria and Section 41, PITA 2004 (as amended).

How many corporate bodies or individuals have been sanctioned for violating the policy and how much has been imposed as penalties on defaulters?

We are currently compiling a list of defaulters i.e. employers who failed to perform their obligation of filing their annual returns under the PAYE stream, which statutorily ended on January 31, 2021, but was extended by LIRS until 14 February, 2021. The list would be reviewed and the appropriate court processes filed at the Magistrates’ Court where we shall be seeking the conviction of these defaulters. Section 81 PITA 2004 (as amended) has prescribed a penalty of N 500,000 for defaulting corporate entities and N50,000 for sole proprietors upon conviction. We shall be doing the same for individuals who fail to file their annual income tax returns under Section 41 PITA 2004 (as amended).

In July, 2020, the LIRS said it commenced the implementation of tax relief for taxpayers to cushion the effect of COVID-19. How much did this cost the agency and what is the estimated number of beneficiaries?

Despite the fact that the moratorium of the palliative ended on 31 December, 2020, we are still reviewing applications that were submitted and payments made by that date. We are working on a comprehensive report of the palliative relief materials granted by the state. There were approximately 80 applications from 80 entities and these were all granted.

How much, in financial terms, has COVID-19 impacted Lagos IGR and what are the recovery strategies of the LIRS?

It may be difficult to quantify in specific financial terms how much the COVID-19 pandemic has impacted the state’s IGR. You would recall that the state had to readjust its budget, making a 21 per cent cut to the initial budget, which was passed by the House of Assembly. This implies a huge financial implication on the state’s IGR and ultimately unquantifiable implication on infrastructural development within the state. Towards the end of March, 2020, when it became obvious that both the federal and state governments were likely to start the implementation of movement restriction orders as an integral part of measures to tackle the crisis caused by the pandemic, LIRS proactively designed and implemented a business continuity plan to ensure the continuity of its operations during and after a possible lockdown of the state. The BCP was outlined in four stages: operational impact analysis, strategies in place for recovery, testing of the plan, and implementation of the recovery plan.

Many organisations were affected by the October 20, 2020 #EndSARS protest in Lagos. How much IGR did the state government lose to the disruptions?

As stated above, it may be impossible to give in specific financial terms how much the state lost during the #EndSARS protest. This is largely because collection is continuous, which means if there is a dip in collections due to the occurrence of an event, such collections or remittances can be recovered in subsequent months. Also, such losses must be weighed in terms of infrastructural deficit occasioned by the event and the damage to existing infrastructure. For example, imagine the number of hospitals or healthcare centres that could have been built; also, look at the number of BRT buses that were burnt and many government offices that were torched. All of these need to be replaced by the government with taxpayers’ money as part of government’s functions of maintaining security as well as social and economic stability.

Tax evasion is a major problem for many states. How has this affected Lagos, in terms of revenue loss?

Tax evasion is a crime. In my opinion, the offence is tantamount to economic sabotage with the toughest punishments prescribed to deter other taxable persons who may be considering the exploit against the state. Currently, defaulters exploit the lack of credible corroborating database within the state and the country, which is essential in assisting the relevant tax authority to identify taxable persons and profile them to determine the proper amount of tax due from them. Lagos State being the commercial hub of the country has suffered tremendously from the activities of these defaulters. To determine how much money is lost to tax evasion, we must compare the current collections of the state to the GDP ratio of the state, which is currently estimated to be around N32tn. Applying the average expected tax to GDP ratio of about 3.4 per cent, this gives a rough calculation of about N1trn, compared to the annual collections of about N400bn. This potentially gives a deficit of about N600bn annually being lost to tax evasion in Lagos State.

We are constantly working hard to close the deficit and minimally reduce tax evasion by implementing policies that are geared towards continually growing the tax base. Almost all transactions that involve citizens and the government require the provision of a tax clearance to determine the level of tax compliance of such citizens. We are convinced that tax evasion shall also be drastically reduced once the synergy between the governments at all levels has been adequately established. For example, we are considering the possibilities of keying into established data base systems, such as the ongoing National Identification Number registration system.

Which sector of the economy is the most culpable?

The informal sector has continued to cause some form of concern for the agency. This sector consists of taxpayers without structured book keeping records, who fall in the category of market women, tradesmen, mechanics, artisans and others. These niches of taxpayers have their own peculiarities in terms of language and education barrier and usually operate within associations and cooperatives. To aid with administering the sector, we created a special unit, Tax Enlightenment and Education Team, under the directorate, to ensure taxpayers in the sector are better enlightened (via visitations to the markets and various organisations periodically) on the new reforms and their required obligations. Records also reveal that the high net worth individuals within the state have been lagging behind in fulfilling their constitutional obligation of declaring their income honestly and paying tax due to the state. We have constantly had issues of refusal of access into gated estates to deliver the statutory notices to these individuals. On this issue, we are working closely with the necessary authorities to ensure that this hurdle is overcome to ensure the smooth flow of administration on this class of individuals.

In addition to the continuous sensitisation of the sector, we have concluded the implementation of the IBILE Hub Platform which is similar to the e-Tax stated above, but it relates to the informal sector. It shall largely help with enumeration and organisation, as well as with collections in this sector. It also takes into account the requirement of ease of compliance as these taxpayers can easily make payment via the payment channels available on the platform. Furthermore, we have embarked on a major revamp of our intelligence unit for extensive information gathering that would aid in our administrative duties, correctly identifying and assessing taxable persons within the state. We shall also explore the use of proper enforcement mechanisms to bring defaulters to book, irrespective of their social status in the state.

What are the other major challenges facing the agency?

The task of tax administration in the state, despite recording various strides through innovative and efficient administrative policies, is met by challenges which have continued to hinder the process of optimal collections. Some of these challenges encountered by LIRS include the continued misconception by taxpayers of ambiguity of tax laws and the unending worry of multiplicity of taxes within the state, lack of seamless access to credible third-party data to validate taxpayers’ returns filings, apathy of taxpayers to register on the enterprise tax platform (e-tax) and the intransigent behaviour of taxpayers to the disclosure of Bank Verification Number for registration on the e-tax platform, despite the fact that BVN is only required for its unique identifier position, since it is based on biometrics.

Others are bottlenecks in the enforcement process, like obtaining orders from the judiciary; absence of dedicated revenue courts for effective and seamless tax adjudication, inadequate collaboration and harmonisation of data by ministries, departments and agencies.

What is your reaction to the decision of the Central Bank of Nigeria on restrictions in the use of cryptocurrencies by banks?

My opinion is divided, though I can identify with the position of the CBN. The economy was beginning to suffer from the dark side of cryptocurrencies. Citizens were taking out money from their bank accounts for money laundering and other sinister reasons, thus, putting the country at a heavy security risk. The inherent difficulty in tackling and tracing beneficial owners of cryptocurrency assets negates the call and strident steps towards better global fiscal arrangement being canvassed by the tax authorities to tackle illicit financial flow. On the other side of the argument, it could also have been efficient for the authorities to understand the system better and put in place measures to regulate it in a better manner, let it create wealth to enable better and proper taxation avenues, as well as help the unemployment statistics.

Lagos is considered as one of the highest revenue-generating states in the country. What is the state’s current monthly internally generated revenue?

The state generated N41.47bn and N40.72bn in January and February, 2021, respectively, out of which LIRS accounted for N35.30bn and N33.57bn, respectively.

What sector of the economy is the largest contributor to the state’s IGR?

The energy sector (oil and gas sub-sector inclusive) remains the biggest contributor to the state’s collections.

What other sectors do you regard as big contributors?

Financial services and manufacturing also contribute largely to the state’s monthly collections.

What specific strategies are you deploying to increase the contributions by other sectors to the IGR?

As a necessity, the agency has drawn up the following strategies or initiatives for improved revenue generation: adoption of an effective data collection and analysis methodology from internal and external sources to assist in increasing the direct assessment database, information gathering for accurate profiling of economic and financial activities of the rich and wealthy individuals in the state for appropriate assessment, establishment of a robust intelligence unit to ensure data capturing, analysis and exchange within the agency, between the agency and other MDAs and the organised private sector, using available cutting-edge technology. The major objective of the unit shall be to review and evaluate the use of data mining and exchange of information techniques which would be used to reduce tax evasion and avoidance within the state, and advocacy on the effective deployment of a universally-accepted tax identification number. This is funded by the federal and state governments but supervised by the Joint Tax Board. It is an electronic system meant to store the information of taxpayers and helping to facilitate real information sharing and data exchange among tax authorities and stakeholders such as the Nigeria Customs Service, Central Bank of Nigeria, Corporate Affairs Commission and others.

What is the projected growth in the state’s IGR in five years’ time?

The state government, through its various MDAs, is currently working on growing a unified database that allows for harnessing useful information or data on its citizens as well as exchange of such information to aid in service delivery of government services across the state. This would go a long way in assisting us at LIRS in making more realistic financial projections as to collections and aid in improving collections especially with the digital technology constantly deployed by the agency to ease compliance with tax obligations. With the above and proper infrastructure in place, as well as GDP growth projected from various measures being undertaken at the centre, collections can be optimised from the current collections of about N35bn monthly to about N70bn monthly.