“With the introduction of ERA, Lagos State is expected to generate, internally, between N800m and N1b every month on Consumption Tax.”
Bimbola Oyesola
In recent times, Lagos State government, with passion for economic empowerment, has initiated several tax reforms in order to meet up the expectation of its citizens.
According to the Chairman of Lagos Internal Revenue Service (LIRS), Ayodele Subair, there has been concerted efforts in the state for strategic thinking outside the box to ensure the realization of economic diversification to develop the non-oil sectors.
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In this interview, he speaks on the level of tax compliances and how the state is leading in the deployment of technology to support tax collection.
LIRS operations
It has been a good experience so far. We have tried to improve our services and gives a good delivery.
What we have done is taking it further, trying to see, improve the collection process, assessment process. We have been trying to simplify the areas of filing of reports and trying to simplify the area of tax payment as well. We have also been trying and retraining our members of staff to ensure that they acquire the best skills that are required for the job, in line with international best practices. And then, we have also initiated a lot of checks and balances and internal controls with a view to ensuring that all loopholes and leakages are blocked, more particularly with the introduction of Treasury Single Account(TSA). We have tried to strengthen that aspect with strong internal controls and checks and balances, so that whatever that is meant for the government is remitted accordingly.
Land Use Charge
You see, about 86 people enter into Lagos every hour. These people will demand or are entitled to good infrastructure such as good roads, electricity, among others . We need to provide good life for people by bridging the infrastructural gap. If everybody was paying income tax, lots of money will be put together. So, we have to look at ways of sourcing for money and one of it is to think of property charges. Look at Victoria Island and Ikoyi, it was a residential when it was started, but everything has been converted to commercial without good tracking. All these we need to look into it.
Well the extent of tax compliance is still quite low. We have about 5 million taxpayers registered with us. Lagos is supposed to have within 20 million. The state assumes it’s 22 million and of this, we have an estimate of 8 million minimum taxable persons. A taxable person is anybody whose engaged in an economic activity. The level of compliance is quite high compared to many other states, but we still have not reached where we want to be and this is largely because of the informal sector. The informal sector is the biggest problem for us. For example, in South Africa, you get your tax ID from when you were born as your birth certificate is being issued, you are also issued a tax ID and that is the tax ID you are going to use for life and by that, you are within radar and you are monitored. But in Nigeria, it’s not as easy as that. In the informal sector, we have people who are highly mobile in the sense that they change residence so often and many of them don’t probably have bank accounts and a lot of them are involved in activities where they are paid on a daily basis and many of them are paid cash and that keeps them beneath the radar. Over time and with everybody embracing it, it’s getting more and more popular to have bank accounts and payment cards which is also why the Governor of Lagos State, Akinwunmi Ambode, has said that going forward, all payments coming to the state must be done electronically. And the positive side of that throws up more economic activities.
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Electronic tax payment
Yes, it is call the Electronic Revenue Assurance System (ERA). It’s a sort of electronics way of recording transaction. It has to do with the efficient way of recording transaction in the hospitality sector. And when I talk about hospitality, this comprises hotels, restaurants, event centres, bars, nightclubs and so on.
Basically, we are saying that when the people in the public go to any of these places for goods and services, or leasing or renting of space, they are charged with five per cent on their invoice. This five per cent, in most cases does not reflect in their books. But with ERA, there will be transparency, accountability because everything will be done electronically.
This hospitality group serves as agents of the government for the purpose of remittance of five per cent consumption tax collected from customers through the LIRS new technology, ERA.
We have stated at the commencement of the new system that the LIRS officers will be visiting hospitality places to install the software and train their staff on the use of the new device.
This Electronic Revenue Assurance System is a software application/device that issues invoices and receipts to consumers bearing a unique code. The receipt will also contain detailing of the items and/or services ordered and an embedded automation of Consumption Tax remittance in real time.
Basically, most big organization in some foreign countries have adopted this system and Lagos is no exemption. The system is on going in both developed and developing countries. Even here in Africa, many countries are using it. And Lagos State, been a leader, we want to improve on the efficiency of collecting taxes. So, we have decided to leverage on the technology approach. We have not been totally efficient in collection of taxes, remittances due to sharp practices by the hotel owners and other operator.
So, in order to increase efficiency, and reduce leakages, we have decided to apply technology, and that’s why we are bringing in this initiatives .
As for the level of compliances, we have gotten a good response. As you know that we just launched it, and we have also met and still meeting with the stakeholders.
We are still educating them, giving them training , most especially the collecting agents , because some of these operators still serve as the collecting agents.
So, we first have to engage them. Although, it was a little bit strange at the initial stage for most of them. At the moment, we are installing this software into their system and nobody has resisted this.
Revenue
On a monthly basis, before the introduction of the technology, we generates between N200 million to N300 million.
With the introduction of ERA, Lagos State is expected to generate, internally, between N800m and N1b every month on Consumption Tax. And we still hope to increase it in the future.
As you know taxation is one of the ways in which government is able to finance its activities. Funds are required to enable government to actualise its objective of provision of adequate infrastructure and services for the residents of the state at levels expected within a mega city. Our objective is to rely less on federal funding and more on self-funded. That is why we are leveraging on technology to drive economic growth and development.
N800m tax loss
Definitely, the state has been losing lots of revenue due to lack of efficiency administration and this is mostly coming from insincerity of the hotels and other operators.
For instance, you as an hotel operator keeps two book. One is the management and the other is for the tax agents. So, when we come to you, you show us just one book. Also, you are operating four bank accounts, but you show us only one. Your consumption tax is N10 million and when we come you only declare two million and you even swear by it. These are some of the things that have been happening.
But, I assure you , these will stop now. A lot of things are going to change now. The governor issued an executive order recently, that as from April 1, all tax payment must be made electronically. This will help tracking financial transaction, it will ensure transparency. Even, if an operator has other bank account, we will know it. There might be other thing like collusion with our officers, this will stop.
New technology
You see , we have to sacrifice one for another. If it is something that is going to increase efficiency, manage our time, increase revenue and ensure transparency, we have to go for it. For example, look at the issue of reconciliation and many other things, we have a lot of inefficiency, challenges that has to do with human factor. All this will be addressed. And I want to also tell you that more hands will need to come in. For instance, we will need people to operate, manned and ensure the smooth running of the system. We will need people to monitor the environment. So, lots of people will be involved.
Benefits
Of course , there are lot of benefits on the side of consumers, administrator, property owners, collecting agents.
On the part of the collecting agents, it will ensure accountability , transparency and efficiency. For instance as a CEO, you can monitor the transaction anywhere you are. No matter, where you are, all you need to do is to open your system and view the transaction.
On the side of the consumers, there is going to be a raffle draw every week, every month and annually. LIRS is determined to give back to loyal consumption taxpayers who request for their receipts generated from the ERA System for an opportunity to participate in a draw and win attractive prizes. We want consumers and customers of hospitality places in Lagos State to always demand for the ERA system receipts in the overall interest and benefit of all.
Your entry ticket is the invoice that you are going to use. Every receipt has a unique ID number. That ticket will get you an automatic entry for the raffle draw and Lagos State lottery board is the supervising agent. Also lot of prices such as motor car, travelling ticket both inside and outside the country will be won.
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As for the tax authority, of course it helps us to block the leakages. It will increase our revenue. The amount of time we spent in reconciliation will be reduced. In order words, everything will be more efficient. So, we can view every transaction through our system. For instance, if there is drop in the revenue, we will know instantly and we will be able to track it down immediately. So, it’s a win win situation.