How technology can help address tax gaps in Nigeria

Guardian Nigeria

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00:00KPMG believes that technology has become indispensable as tax regulations evolve

00:05and become more complex. And now, how can technology close these tax gaps in Nigeria?

00:09Olufemi Babem, a partner and tax technology lead at KPMG at Nigeria, joins me for this

00:14conversation. Thank you so much for your time today, Olufemi. And I'd like to start by first,

00:18you know, assessing the lay of the land to get a full understanding of what we're seeing play out

00:22here. We know that definitely over the years we've seen quite a number of systemic issues in our tax

00:27issues. Issues with complexity, compliance, we've seen issues with multiple taxation, overlapping

00:32levies, transparency, quite a number of issues to deal with here. But I'd like you to speak to,

00:38you know, how the lay of the land is looking and the role technology can also play in addressing

00:42this. Okay, thank you very much, Ken. And I think the way to start this is to consider the fact that

00:48the focus of government at every level now is actually to increase tax collection.

00:55We see efforts made by government at every level to close a lot of the gaps that we currently have

01:00by way of policy, by way of processes, and technology has been a key part of that.

01:05There's a positive correlation based on evidence locally that for governments and tax authorities

01:11that have implemented or have put technology at the forefront, there's a positive correlation

01:15between them or the results that they get and the level of technology adoption that we've gone

01:21through. So take Lagos State, for example, that has hit the one trillion mark in terms of

01:26collection. Take FRS also, for example, that has exceeded the budget that was set for themselves

01:33in 2024. So that positive correlation shows clearly that for tax authorities that want to

01:39improve tax collection, for states that want to improve collection, technology has to be a key

01:44enabler and a leverage to be able to achieve that. Yeah, because when you look at what's

01:49playing out here, first the government is also going to carry out some reforms right now. We

01:55understand that there's a public hearing that is about to happen on Monday. Quite a number of

01:59contentious bills already to be discussed in that space and a lot of conversation around also how

02:04you get the informal sector properly captured in the tax net. I'd like you to speak to this as well.

02:09Sure. So, I mean, the benefit of the bill is that there are a number of provisions that

02:15provide some sort of circle for small companies. And many of the small and medium-scale

02:22enterprises you are talking about will fall within that bracket. But for them to benefit,

02:28part of the requirement is for them to register. So we are giving them like the carrots, you know,

02:34to provide them the carrots to encourage them to register and then get them within the net. So

02:39using that sort of initiative would also help in covering those that are not currently within the

02:45net. And technology really helps because then they're able to register without necessarily

02:49having to come to visit the tax office fiscally. And you can consolidate revenues across the

02:56different types of taxes using technology as well. So let's look at what's on board here now with

03:02KPMG. I understand that you have this system called the Tax Orbit here. Yes. I'm trying to

03:06understand that a little more in terms of how, yes, technology is definitely used to improve

03:12outcomes. You're saying that. But then I'd like you to talk about how that is going to address

03:18challenges both at the individual level and also at the corporate level. Okay. So what we've done

03:23with Orbit is to take the feedback that we receive from the market. So what we see with taxpayers is

03:28they have challenges with compliance. They have challenges with managing audits. They have

03:33compliance with even providing the data, right, and being able to analyze, show value to the

03:38business. And so taking that feedback, we've developed the Tax Orbit solution that does

03:43compliance management, that manages tax audits, and that manages document, helps them with document

03:48management together with workflow. So how it enhances compliance is that for companies now

03:55when you go through audits, a lot of companies struggle to provide the documents or even respond

04:00on time. It also helps in terms of improving the quality of the returns that you filed

04:04because you have data that is available, you can show analysis, you can provide,

04:09it improves your reporting to the board as well. So Orbit helps both from the taxpayer side and

04:14even reporting to all the stakeholders, helping to close out audits on time, provide, improve the

04:19quality of audits because in management of the audit, you have the document and you have the

04:24reporting processes, ensure that you are within time and can conclude on time. Yeah, but looking

04:29at the lay of the land here in Nigeria, we're dealing with a very decentralized system here.

04:33We have federal government, state government and local government regulators to deal with in terms

04:37of how you handle your tax obligations here. And I'd like you to speak to, you know, how then this

04:45handles those issues, dealing with the inconsistencies between tax regulations across

04:50board from federal, state and local governments. So I know that part of what the tax bill or what

04:57the presidential committee will or is planning to work on is harmonizing all of these taxes, right?

05:03Harmonizing taxes has to be a legislative issue. There's little or nothing that you can do from

05:09a process point. So legislation has to try and bring them together. But what we have done with

05:15Orbit is to allow companies to report all your compliance. So whether it's corporate taxes,

05:19personal income taxes, value added tax, you have one system where everything can be tracked and

05:23then managed, right? But from the public side, legislation has to come together. You know, one of

05:30the things I have said when I looked at the tax bill is that the major reason why you have multiple

05:36taxes really is the Taxes and Levies, the Approved Taxes and Levies Act that unfortunately hasn't

05:42been amended and will not be amended yet. So taxpayers, companies will still struggle a bit

05:47with multiple taxes, even with the new bill. But we expect that as, you know, amendments begin to

05:53come in, we'll begin to look at how to, you know, merge, remove some of the taxes and then improve

05:58the system overall. So what about issues with integration and compatibility? I can imagine that

06:05many businesses already have their legacy infrastructure already in place in terms of

06:09how they're going about taxation. The systems are already in place. How would they handle this

06:15integration process or make it more seamless? So one something the FRS has done well, Ken, and I

06:21think even the Legal State Board, is they moved from fiscalization, which was where we all started

06:28from, where they tried to attach something directly or a software or try to connect directly

06:34to your systems. But right now, now the FRS is thinking about launching the e-invoicing. And so

06:41that next phase, for example, doesn't need them to connect directly to your systems. They would use

06:46an API. So the API opens the port, you're able to connect, they extract the data inside, and this

06:51aligns with the practice in many of the advanced jurisdictions, where you submit the

06:57documents, they provide an API, you submit the documents, and it's minimally invasive.

07:03Yeah, but for non-tax professionals or organizations that don't have an in-house tax expertise

07:08available, then how then can they navigate this seamlessly then? So the first thing is for companies

07:14who don't have a tax function in-house, you definitely have to invest in, you know, upskilling

07:22whatever the tax function that you have in-house is. If you can't leverage, you know, try and outsource

07:28some of the work, you have to upskill your teams. Beyond that is you have to acquire the right

07:33technologies. The way tax is going, you can't operate using Excel. You can't, it's not going

07:39to be sustainable. So you have to think of acquiring QuickBooks or any of the smaller

07:45software solutions. If you're a small business, as you see, you have to equip your tax function.

07:53You have to equip both in terms of the capacity, the knowledge, and then in terms of technology as

07:58well. So equipping is going to be extremely important, and as you equip, the tax function

08:03will then be able to deliver the value to the business. All right, quite a lot to look forward.

08:07Thank you so much for your time today. We'll be looking out for the Reform Conversations

08:12on Monday. Olufemi Babem, Data Partner and Tax Rep Technology Lead at KPMG Nigeria.

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