Complex tax procedures drive Nigerian SMEs away from paying taxes – Taxmingo CEO
Richard Ojo, CEO, and Founder of Taxmingo, in this interview with BusinessDay’s FRANK ELEANYA, explains why Nigeria’s tax to GDP ratio is at 6.3% and why many SME shy away from paying tax. He also talks about what his company Taxmingo is doing to address the challenges.
What is the implication of 6.1% tax to GDP on the growth of the Nigerian economy and where are we compared to peers in Africa?
If you look at the tax contribution to GDP in Nigeria, it is 6.3 percent in 2018 and about 6.1 percent in 2020 which is the lowest in the world. It is very low compared to other countries in Africa. Take, for instance, in the Niger Republic, the tax contribution to the national GDP is about 11 percent. The average in Africa is about 34 percent. Ghana and Mali do about 14 percent but Nigeria and Equatorial Guinea are still at 6 percent, which is very low. The potential is there. We have a large economy; we have a population.
But we have not really tapped into this potential compared to other countries. If you look at the level at which people are paying taxes in Nigeria, it is very low compared to other African countries, much less the rest of the world. So many factors are responsible for this. And because of the recent crash in the oil price which makes it appear that Nigeria now seems to rely heavily on tax revenue to fund the government expenditures both at the federal and state levels, that is not a good thing for our economy.
What are the factors responsible?
So many factors are responsible for this. There are some that are within the power of consultants like us which we can help them to work on, but the rest are beyond us. Businesses do not pay taxes in Nigeria for reasons that include the unfairness of the tax system. They will also say the system is fraudulent and they do not know what the government is doing with their taxes. That discourages many of them to pay tax unlike when you see what your tax money is being used for, you will be encouraged to pay. Another reason is multiple taxations. There are so many taxes in Nigeria. In fact, the businesses are confused and do not even know which one to pay and which one not to pay. The cost of compliance also contributes to tax apathy by businesses.
What do I mean by cost of compliance? When you look at what it takes to comply with a tax in terms of paying your taxes timely and also filing your returns in Nigeria, it is discouraging to small and medium-scale businesses. Some of these businesses cannot even afford the fee to pay the consultants to do it for them. In many cases, the cost of compliance is even higher than the actual tax they are asked to pay. For instance, a business whose annual tax is N500,000 and the cost of engaging a consultant to do that for them runs to about a million, that is discouraging.
Another factor responsible for why businesses are not paying taxes in Nigeria is the ambiguity in tax law. The tax law keeps changing from time to time. And it is not all the taxpayers in Nigeria that has the knowledge of the tax laws and you cannot say because you want to pay tax, you have to go back to school and study taxation. So the ambiguity also contributes to why businesses do not pay tax.
There is also the complexity of tax procedures. The process of complying with tax is too complex for so many businesses. For instance, there are some taxes you are to pay on a monthly basis, and the process of getting this done in most states in Nigeria is too cumbersome. Lagos and FIRS are like the exemptions. You can file your tax online in Lagos and also with the Federal Inland Revenue Commission (FIRS). But in some states, you still have to go through paperwork and through the states’ internal revenue services before you pay your tax or file your returns. These complexities don’t help.
What is Taxmingo doing about these issues?
Taxmingo basically is solving the three major problems that small and medium-scale enterprises are facing. The first is the ambiguity in the tax law. We want to simplify that for them. The second is the cost of compliance which I have mentioned before. With Taxmingo you can enjoy the services of our professional chartered accountants and tax practitioners for as low as #7,500 to take care of your tax affairs. The third is the complexity of procedures in complying with tax payment. With Taxmingo, you don’t have to worry about all these. We will help you to efficiently comply with your tax obligations easily and affordably. Once you subscribe to our platform, you do not have to bother yourself about the three major problems. We take responsibility. All you have to do is to sign up and subscribe to any of our packages that suit your business, upload some of your company information, and on a monthly basis, with your phone, you can just snapshot your invoices, your receipts, and other required documents online and we will do the computation, advice you on what to pay and do the filings for you online. You do not bother yourself about the ambiguity of tax laws anymore. You won’t need to think about the tax laws changing and you have to get along with it.
At the same time to engage a tax consultant is more expensive for so many businesses in Nigeria but with just about #7,500 on a monthly basis, you can have access to the service of professionals who are chartered accountants and chartered tax practitioners. They take care of your tax affairs for you. You also do not need to bother yourself about going to the board of internal revenue every month or going to the bank every month to make the payment or to file your tax returns. Taxmingo does that for you. And you can access your documents and evidence of compliance from our cloud-based storage online anytime, anywhere, whenever you need it.
Are the chartered accountants employed by you or they work independently?
They are our employees. They include associates and fellow chartered accountants and chartered tax practitioners. They are members of both the Institute of Chartered Accountants of Nigeria (ICAN) and the Chartered Institute of Taxation of Nigeria (CITN).
Is there a process that allows clients to upload and also file their returns themselves?
Our system is very simple. At any point in time during the month, you can log in with your account details on our platform and upload whatever document you want to upload. At the end of the month, the consultant assigned to you will calculate your tax payable and advise you on how much to pay. When paid, we do the filings for you, share the evidence with you, and back the evidence up into our cloud-based storage and it is accessible to you anytime and from anywhere. This will also prevent the loss of your tax compliance documents and evidence.
How secure is the Taxmingo platform?
Documents that are uploaded on Taxmingo are very secure. We subscribe to the services of the technology companies that help us to back up the documents of our clients and to make sure that their documents are very safe. That is why at the point of subscribing to our platform there is a privacy and confidentiality agreement that we sign with our clients for them to ensure that their documents are very secure.
What do you think is holding back other states in addressing the tax issues they have?
They understand that the problem is there, but they have not done enough to address it. But in all sincerity, they have been trying but it is not enough. It is Lagos that is taking the lead among the states in Nigeria. If you also pay attention, you will also discover that it was when the former executive chairman of the Lagos State Internal Revenue Service (LIRS), the person of Babatunde Fowler became the chairman a lot of things changed in Lagos. The same happened when he went to the FIRS. He took the idea of what is happening in Lagos to FIRS and it made a lot of impacts and changes. Hence, Lagos has been the pacesetter for other states in Nigeria. You can also see so many innovative ideas of the present chairman, Ayodele Subair which has put the state at the forefront of others. Some states are trying to catch up now. There are quite a number of board of internal revenues that have gone online. For instance, in Cross River and River State, you can pay your taxes and file your returns online.
What kind of policy should be in place for there to be harmonisation of taxation?
The government will need to liaise with all the stakeholders in the industry. The list of stakeholders includes the government, the taxpayers, the consultants as well as the regulatory bodies and professional institutions like the Chartered Institute of Taxation of Nigeria (CITN) and the Institute of Chartered Accountants of Nigeria (ICAN) as well as all tax authorities in Nigeria, both the state and federal levels. These stakeholders can come up with the best solutions that will address taxation problems and issues of difficulties that are associated with tax compliance once and for all.