How automation can drive tax collection process

Guardian Nigeria

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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.

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