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00:00 Lagos State Internal Revenue Service has deployed
00:02 an upgraded electronic process for the collection
00:04 of hotel occupancy and restaurant consumption tax
00:08 in the state.
00:09 How efficient is this process in driving revenues?
00:12 Theo Emuwa, our partner at A-Lex,
00:14 joins me now for this discussion.
00:17 Thank you so much for your time, Theo,
00:19 and let's get your take on the development
00:21 in Lagos State here.
00:22 - Hello, good day, Kenneth.
00:26 Well, I mean, it's, what I say,
00:30 it's something inevitable,
00:31 and it's not unprecedented.
00:35 The federal government, FRS, has already been doing this
00:38 with regard to VAT collection from supermarkets.
00:41 So the big supermarkets are connected electronically
00:45 to the FRS's database, and so the FRS can track
00:49 the VAT that's been collected for each sale over the month.
00:54 So at the end of the month,
00:56 FRS knows how much is due to it as VAT collection.
01:00 When you think about it, a supermarket sells,
01:03 you know, a thousand different things in a day,
01:05 1,000 out of this, 2,000 out of that, small, small amounts.
01:10 Now, if you want to audit that manually,
01:12 it can be quite time consuming.
01:14 And so if you say, okay, let's do it the old way,
01:17 which is an auditor comes and looks at your monthly records
01:21 and tries to calculate everything,
01:23 you know, it's, especially when you remember
01:27 that not every item in the supermarket is subject to VAT.
01:31 Some things are not subject to VAT, some are.
01:34 So you can't just simply take a percentage of all sales.
01:38 You have to identify item by item.
01:40 So if you do it electronically,
01:42 it means that it's easier at the end of the month
01:44 for both sides to know, okay, this is how much is due,
01:46 just send us the check.
01:48 So Lagos State, you know, has learned from that,
01:50 and is saying, well, let's do the same thing in this area
01:53 because it's, you know, we're collecting
01:55 the same sort of tax.
01:57 Let's make it, you know, electronic,
02:01 and therefore both sides know how much to pick up
02:03 at the end of the month.
02:04 - So let's look at the likely impact
02:06 in terms of IGR for Lagos State,
02:07 and also how easy or difficult is it
02:10 for other states to emulate this?
02:12 - Well, I mean, it's certainly because, you know,
02:19 of increased efficiency,
02:20 you're now collecting more efficiently.
02:22 You get certainly increase your,
02:24 I don't know whether the total volume will go up
02:28 because total volume is dependent on the economy,
02:31 but your loss as a fraction of total possible collection
02:36 will reduce.
02:38 So the leakages will reduce.
02:39 That's, you know, certain.
02:42 Now, whether other states can emulate it,
02:46 it's a question of having,
02:47 being prepared to make the investment
02:49 because you must make an initial investment
02:51 in, you know, infrastructure, electronic, or otherwise,
02:55 in order to capture this data.
02:57 If you don't make that investment, it's not possible.
02:59 So Lagos State, yes, has been the leader
03:01 in many of these areas.
03:02 Even in the collection of personal income tax,
03:06 they've been, you know,
03:07 they've been using an electronic system for a long time.
03:11 If you've paid your tax in Lagos State,
03:13 they stopped giving paper-based tax credit certificates
03:16 a long time ago,
03:17 and they started giving a chip-based card.
03:20 You know, many other states still do it manually on paper.
03:25 - But when you look at the country as a whole,
03:28 and even looking at the sub-nationals,
03:29 and look at the drive to increase efficiency
03:32 in tax collection, and even internally generated revenue,
03:35 well, what would you say are some likely trends
03:37 that you've noticed, and how can things be done better?
03:40 - Well, when you talk about things being done better,
03:43 at the end of the day, if you don't have data,
03:45 you cannot tax people.
03:47 You see, you have to have the data, you know?
03:49 And regardless of the size of your economy,
03:55 you know, in each state, you can do it gradually,
03:59 but you must have a plan.
04:01 And I think for many states,
04:02 they don't yet have a plan for taxpayer identification,
04:07 whether identifying individual taxpayers,
04:10 or identifying property for which tax should be paid.
04:15 - Yeah, because when you look at the challenges here
04:18 of either collecting efficiently, or even collecting at all,
04:22 one of the key areas in terms of,
04:24 because looking at some recent figures put out
04:26 by Tawee Edele, the chairman of that commission,
04:30 talking about Nigeria losing quite a lot,
04:31 about 26 trillion in terms of gaps that were seen play out.
04:36 A huge part of this is due to tax evasion.
04:42 And I would say that looking at a country like Nigeria,
04:45 it's harder, because like you rightly mentioned,
04:48 data is a key part of this.
04:49 And also understanding how to tax emerging industries
04:52 is also problematic.
04:54 - Yes, I agree with you.
04:56 Emerging industries, you know, that's problematic.
04:58 But existing and old industries
05:02 have not been properly taxed.
05:04 And if you haven't solved that problem,
05:06 you know, to begin to talk about
05:08 how you can solve the problem
05:09 with regards to emerging industries, it's a bit ambitious.
05:11 Now, let's look at another thing
05:13 that Lagos State has recently done.
05:15 Traffic regulation.
05:19 In the old days, you had to have a LASMA officer
05:23 would stop you and say, "You're in violation.
05:27 "You must pay, take your car to the pound.
05:30 "You can't get your car until you pay the fine, et cetera."
05:33 But what do they do now?
05:35 They have cameras.
05:36 So you violate, you know,
05:39 commit a traffic offense.
05:41 The camera captures you,
05:42 and email or whatever is sent to your address
05:45 because your details are in the system.
05:48 And you're told that you're owing Lagos State 20,000 now.
05:51 They don't come after you.
05:52 When you go to renew your vehicle license
05:54 or do anything else with Lagos State, it pops up.
05:56 They say, "Oh yeah, by the way, you're owing us money.
05:58 "You know, you have to pay before we can process you
06:00 "or whatever you've come for."
06:02 And so again, collection becomes more efficient.
06:06 So at the end of the day, data is the key.
06:10 Without data, you cannot, you know,
06:12 know what you're losing.
06:13 You see, you think you're collecting a lot,
06:15 but you're losing, you won't know how much you're losing.
06:17 And so when the UN says we're losing 26 trillion,
06:19 yes, you can talk about tax invasion,
06:22 but truth is, if you don't try to enforce,
06:25 it is not in the best of the possible worlds.
06:30 Not everybody will come forward honestly and, you know,
06:34 and say, "Here, I'm here to pay my tax."
06:37 Or, "I've committed a traffic offense.
06:39 "I'm here to pay the fine."
06:41 - Yeah, because even educating the tax collectors as well
06:44 is also important because when you look
06:45 at emerging industries, a lot of young people
06:47 are making money from streaming content online, you know,
06:50 and even having the government understand
06:53 that model enough to tax them is also areas
06:57 the government should be looking at.
06:59 - I agree with you, but the government needs to find a way
07:03 to understand these industries and then set up a system
07:07 for monitoring what is going on.
07:09 If you don't monitor it, it's difficult to collect that tax.
07:13 People will not voluntarily come forward.
07:15 It's not just in Nigeria, anywhere in the world.
07:18 I'll give you an example.
07:19 Many years ago, you had what they call
07:22 secret bank accounts in Switzerland.
07:24 And the American government was concerned
07:26 that many Americans were keeping money
07:28 in Switzerland and evading taxes.
07:31 They went to the Swiss banks and said,
07:34 "We need this information."
07:35 The Swiss bank says, "Well, no, there's a bank
07:37 "in Switzerland, we can't give you the information."
07:39 But eventually they made it a big issue
07:41 and the banks eventually gave them that data.
07:43 And with that data, they were able to go back to America
07:47 and say, "Well, Mr. Sissons, so you have this money
07:49 "in Switzerland, you never declared it.
07:51 "We need to come up and pay our tax."
07:53 In other words, without that data,
07:55 they would never have collected that tax.
07:57 So it's not just a matter of Nigerians,
08:00 it's all over the world.
08:01 Collecting tax requires you to proactively enforce.