Recently, the Lagos State Internal Revenue Service (LIRS) reaffirmed March 31 deadline for filing individual annual tax returns in accordance with provisions of the Personal Income Tax Act (PITA) Cap P8 2011 (as amended), the Lagos State Internal Revenue Service (LIRS). It notified all individual taxpayers, including self-employed persons and employees under the PAYE Scheme to file their Annual Tax Returns on or before 31st March 2022. In this exclusive interview, TOKUNBO AKANDE, the special adviser to Hamzat Ayodele Subair, the executive chairman, LIRS, spoke to ZEBULON AGOMUO on the need for the sensitisation; what would happen to defaulters, among other issues relating to taxation in Lagos State. Excerpts:
As an individual in a paid employment; do I still have to file individual annual tax return and why?
Yes, because the constitution of the Federal Republic of Nigeria puts that obligation on every citizen of this country, and to truthfully declare, when you are filing all your income from every source. Whether it’s from employment, whether it’s from investment, you have to declare everything. And then, because our system is based on self-assessment, it also says that you should go pay from your own estimation, what you think you owe the government; that does not absolve you of further assessment from the agency.
But you first assess yourself, you pay, and then the government now confirms that well, what you have paid is adequate or not. But the essence of it is that you must truthfully declare all your income but not all those income are taxable. So, it’s for the tax authorities to say, this one is tax-exempted.
As a high-net-worth individual, when am I supposed to file my tax return?
Now, that will go to a law, which moves away from the Constitution. The Constitution has provided the bedrock for the law. So, the law that guides that is Personal Income Tax. So, you are expected as an individual whether high-net-worth or low-net-worth except if you earn 30,000 or less, you don’t have to file. So, you have to file within 90 days of the New Year because we are reporting on what you have earned in the previous year. Your previous year because our financial year in Nigeria has changed; when we were growing up, it used to be 1st of April to 31st of March, but it is now 1st of January to 31st of December. So, it means by the 31st of March, you must file but that does not stop you from filing on the 2nd of January, because by the 2nd or 3rd of January, you already know all that you earned. So, you don’t have to wait till the 31st of March. So, I think that’s where we usually have everybody coming around 31st of March to file.
You know all your income from January last year to December, and nothing really stops you from filing your returns by the 2nd week after the festivities and you have washed out all the jollof rice of December and you pay what you owe to the government.
LIRS has been bullish in sensitising people to file their tax returns. What are the requirements? How do people go about it?
The administration of tax in LIRS is focused on making it convenient and easier for people to comply with the law in terms of registering as taxpayers, filing these returns, in terms of payments of taxes and in terms of doing reconciliation of disputes. What we have done is to digitise the process of filing returns and we have a platform called e-tax platform that makes it very, very easy for everybody. Because we understand the demography of Lagos, not everybody is tech savvy. So, what we have done, we have created in all our tax stations, 40 of them, dedicated desks for people who cannot do this, where they are assisted to log onto that platform, register them, and then, file their returns.
Are there penalties if I fail to file my returns, and what are they?
The law provides for penalty but as an individual, if you don’t file on time, it’s just N50, 000 on conviction, but the stigma of being found guilty is more than even the penalty itself. So, that’s why I think it goes beyond just the amount that you’re paying. But the fact that they say you have been found to be non-compliant, is a stigma on you.
I don’t think any respectable citizen of this country whether is high-net-worth or not will want that kind of stigma because it’s just not good. So, this is like it’s not something that you can really contest; any judge whether at magistrate level or whatever, will just convict you because you have failed to do the right thing despite all efforts that the tax agency has put in place to ease your compliance. You have paid your taxes. Why don’t you want to file? So, it is just something that I think it’s a culture we must develop; we must build.
There are allegations that there are some companies that do not even remit taxes of employees. How does an employee, who found him or herself in such place, go about filing his tax?
Because you know that your employer has deducted your money and has paid you net, when you file your returns, you have given the tax agency ammunition to go after them. So, that we now say, yes, Mr. A claims that last year, you deducted so much money from him, but there is no record of it. So, where is the money that you took from him, and you have taken government’s money? So, that’s why the penalty for the employer is more than that of the individual.
What are the documents needed for the tax returns to be filed?
Since it is now electronic, you need some data and not necessarily documents. For us to know that you are Tokunbo Akande, you must do biometric registration, which can be validated and verified on the e-tax platform. So, that’s why and the more reliable in Nigeria is the NIN and the BVN. So, you have a choice of using either of the two to register on the e-tax platform. The e-tax platform will generate for you a unique PID that identifies you so that nobody else will use that number. So, once you get there, from my employment, I collected this much or a N100 and because of the house that I built, my tenant paid me N50, I put it there. So, this system also helps you to calculate the tax due. Of course, you can now put that my employer collected from me the payer tax, so you put it in there as well. And then, when my tenant paid me the N50, I remember to remove N5 or N2.50, which is the 10 percent as the withholding tax and that I have the receipt for it. So, those are the things that you need to upload. Just scan and upload, which of course, the phones’ scan devices do now. I can’t remember the last time I went to a bank to be honest with you because I do everything on my phone. So, it’s more of you being able to provide information and then, in some cases, like you have income from other sources, valid documentation can support such like if we have paid like I said, tax receipts that you already have, which is a kind of credit notes to you. You just scan and upload them in the system automatically.
Some people are at a loss as to why they will file another tax return if they are working somewhere and they have been taxed already, and their side ‘hustle’ is also being taxed. Why must they declare another tax apart from their paid employment?
That is what applies in every clime all over the world. You are a Nigerian and you have a stake in this country. The system is one that has created a kind of infrastructure for you to be able to do that side hustle. For you to have a peaceful environment to do it, you wouldn’t say it is only when it is not that, that you realise that. It is somebody that makes sure that people are not disturbing you on the road. It is some people like the soldiers that are ensuring that our territorial integrity is not compromised. So, we have an obligation and that’s what the constitution says that we must declare income from every source.
The beauty of taxation is that money made from sewage, doesn’t smell. So, from people in taxes, income from all sources, it doesn’t matter where it’s coming from, whether it’s over the table or from the sea, from the air, you must declare everything because you are part of that socio-economic ecosystem. We don’t appreciate something until it goes wrong. Now, we are in this room, for instance, it is cool, okay and there is light. If not for today that one guy came from admin to check my AC. I just come in the morning; take it for granted. I wouldn’t know that people come in regularly to check on things. I take things for granted. I’m able to work but if this room is too hot or whatever, we won’t be able to work. So, will I be able to do some of these side hustles if I am not sure if I go out there whether I will be able to come back home?
For the security infrastructure that the state has put in place for you to be able to do your side hustle, you owe something to the state. I always tell people that if you belong to a club, you will subscribe to that club. See your tax as your own contribution to the sustenance of that society which you are. So, whichever economic activity that we are able to do within that territorial space, it means whether we like it or not, somewhere, somehow some of those things, notes that you have within that society, are actually enabling us to be able to do that economic activity and if you make if you make loss on it nobody will bother you. But if you make profit out of it, then do your own bit, and contribute.
There is this belief that many of those at the high echelon of society, particularly the elite, do not pay taxes. How do you handle such cases in Lagos?
In Lagos, what we have done is to segment the tax payable population. For the people under employment income, they are broken into two. We have a dedicated unit that actually reports to the chairman through this office, which I supervise, that handles top 1,500 in Lagos. The other companies now report to the Director of Personal Income Tax. If you do the Math, that unit we call it RMU contributes close to 65percent of collection. So, that tells you the Pareto Principle 80:20 just the top 1,500. Now, for those people that are not in paid employment that are subjected to direct assessment, are broken down into three segments because it’s a wider market. So, we have the lower end, which is overseen by informal sector we have a Directory of Informal Sector that handles that. So, then we have the PIT as well that has those medium size people.
At the top end, we have what you call the High Net-worth Unit. So, we have a dedicated unit that zeroes in on this high net worth people. In Lagos, if you check the last time when the Federal Minister requested for taxpayers that paid N10 million, N20 million and above, if you check that record, you will find out that it is only in Lagos. In fact, only one person that is from Ogun State, the 2000 plus were from Lagos. But as of today, now, the net-worth is focused on sweeping into the net in something in the range of between 5,000 to 10,000 people, and to support them because this net worth people like you rightly said, it is not always that they don’t want to pay, but they also have the capacity to employ very knowledgeable consultants to find the way because there’s room for avoidance. So, there’s a very thin line.
Morally, what we have been preaching globally now is that even avoidance is not morally right. If a low earner like a vulcanizer is paying adequately. What right does a billionaire has not to pay adequately? One thing I always tell people is that Nigeria has one of the lowest tax rates regimes in the world. We don’t pay more than N19 on every N100. In some places, people pay as high as N55 out of every N100. But here, even to pay that N19, people will still find it difficult.
What we have done is to have a special unit we’ve just created as part of our reforms, which Mr. Governor has graciously approved for us, is to reform our Intelligence Unit because tax is about the law and data. If you don’t have information about that person, there’s nothing you can do. But if we can monitor, trace and track all your financial and economic footprints, then, we are good. So, all we need to do is to say, well done sir and congratulations. You did this and that last year. But we have not seen it in what you filed to us, please explain. And don’t forget, this country has done well to allow people to come voluntarily to declare or not sin anymore. Unfortunately, of all the states in Nigeria, it is only Lagos that has an appreciable recovery because we did a lot of sensitisation and advocacy. So, it is the same push that we are now placing on the high net worth individuals.
I said, we have reformed our Intelligence Unit and it’s going to be proper Intelligence Unit with cool facts that you cannot dispute which will put in front of you and then, we will now tell you this is how much you owe the state. We also try to make it easy for them. Once we have established that this is what you owe the state, whether at the corporate or individual level, cooperate well. We don’t want your business to go down.
We can sit down and say have a payment plan so that it can be easy and then you continue to do your ‘side hustles.’ With this you can still have enough money to oil your side hustles and also your business because the more business you do, the better for the state. So, essentially that’s what we do. We just want to make life easier for you.
Take us through the payee-operators concept?
For high-net-worth individuals, they have grown into 10,000. The payee operators and corporate entities have their own tax obligations to the Federal Inland Revenue if they make profit but they have obligation to us in the states to help us collect pay as you earn.
So, the 1,500 of them is what I said was to be able to provide good service to them because as we said, we are not just tax collectors, we are actually providing revenue service to the taxpayers that is the way we see it. We have created a specialised unit to handle that for those top operators.
Last year Lagos launched what is called service charter; can you tell us so far what you have been able to achieve with that platform?
What we have is actually a customer Care Centre. It is a 24/7 customer care centre that is fully functional. The service charter says this is what we promise to do for you because this is what we expect from you; so, if for any reason there is something that is not clear to you, then we have a customer care line that you can call LIRS.
Once you call the lines, you can be sure that you have a positive response to whatever inquiries that you have, and it will address any issue. If you have a dispute, they will set up the kind of meeting that you can always come to.
Lagos State used this platform effectively during the lockdown; that was why Lagos didn’t experience a massive drop in revenue collection during the lockdown. We were able to keep our heads above water. In fact, in Nigeria, Lagos State was the only state of all the states that was able to have appreciable revenue collection during the lockdown.
Finally, talk about the deadlines. I believe there should also be deadlines for filing and probably what happens at the end of the deadline?
March 31st is the deadline; so, if you fail to file by then, like I told you, it is a strict liability. It means that you are already on the wrong side of the law. Now, the agency and by extension the state can now decide that it wants- to prosecute the defaulters. However, depending on magnanimity of Mr. Governor and the executive chairman of LIRS they can decide to serve as deterrents to some other people, we focus on those people in these particular sectors, and then prosecute and then they will be fined.
Like I said, it is strict liability. The law says file by 31st, and there is no force majeure, there is no Covid-19, there is no Ukraine war, so the defaulters know that there is no dispute to it. So by the time they are taken to court, you can be sure the judgment will be against that person and the law also provides the penalty to pay.
But like I said, more than the penalty that you pay, the stigma of being a convict now comes into place, which I think everybody should guard against. So, our platform is robust enough to accommodate anybody and if you have challenges, as I said in accessing this thing, just go to the nearest tax station to you; there is a dedicated desk to assist you to do these things seamlessly without any trouble whatsoever.
Quote: For the security infrastructure that the state has put in place for you to be able to do your side hustle, you owe something to the state.
Nigeria has one of the lowest tax rates regimes in the world. We don’t pay more than N19 on every N100. In some places, people pay as high as N55 out of every N100