Engendering a healthy_tax_culture

ENGENDERING ENGENDERING A HEALTHY TAX CULTURE A HEALTHY TAX CULTURE

IN THE GRASSROOTSIN THE GRASSROOTS

ENGENDERING ENGENDERING A HEALTHY TAX CULTURE A HEALTHY TAX CULTURE

IN THE GRASSROOTSIN THE GRASSROOTS

A presentation byTunde Fowler

Chief Executive OfficerLagos State Internal Revenue Serviceat the Workshop on Positioning Local

Government as a Hub for National Transformation held at the International

Conference Centre, Abuja.13th – 15th May 2013

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OUTLINEOUTLINEChapter 1:Overview of Tax Administration in Nigeria 3

1.1 General Perception of Tax in Nigeria 4

Chapter 2: Practical Issues with Tax Culture and Administration in Nigeria 5

Chapter 5: The Lagos State IGR Trend Analysis 28

Chapter 3: The Need for Reform & The Reform Strategies 7

(The Lagos State Experience) 4.1 Political Will/Human Capital Development

8 4.2 Human Capital: Organizational Restructuring

9 4.3 Process Reengineering / Simplification Of Assessment

12 and Payment Process 4.4 Facility Upgrade

13 4.5 Engaging the Stakeholders

14 4.6 Collaborations

18 4.7 Advocacy, Enlightenment and Education

19 4.8 Enforcement

22 4.9 Highlights of Other Strategies

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Chapter 4: The Harmonization of Levies and Charges at the Local Government (The Lagos State Model) 25

Appendix 40

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Overview of Tax Administration in

Nigeria

CHAPTER 1CHAPTER 1

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The National Tax Policy (NTP) identified tax as a very important tool for national development and growth in most societies. One of the major indices by which development and growth can be measured in any society is the amount of wealth which is created by economic activities undertaken in that society.

Nigeria did not consider taxation as a sustainable source of revenue, during the 1970s and late 80s as a lot of attention was focused on oil revenue. During this period, all the States in the country relied earnestly on proceeds from the Federation Account.

In 2008 at the turn of the global recession which saw a sharp fall in oil prices and by extension reduced proceeds from the Federation accounts, The overdependence on the above stated revenue created an imbalance in the implementation of some of the fiscal policies.

Governments (Federal, State, and Local) began to look inwards focusing on Internally Generated Revenue (IGR) as a sustainable means of funding as bankruptcy loomed among the States. (see appendix: Paying Taxes 2010 – The Global Picture)

General Perception to Tax in NigeriaGeneral Perception to Tax in Nigeria

Overview of Tax Administration in Overview of Tax Administration in NigeriaNigeria

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Practical Issues With Tax Culture

and Administration In

Nigeria

CHAPTER 2CHAPTER 2

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Lack of required facilities for the Board to carry out its functions.

Low remuneration/morale and Lack of skills comparable to those of taxpayers. Under assessments, Arbitrary assessments and Non-assessments. Non-Remittance of taxes and Diversion of Revenue/Sharp Practices.

Inconsistencies in the application of enforcement standards. Loss of Revenue due to the State Government.

A presentation by The Executive Chairman 6

2.1 Practical Issues

The Need for Reform & The Reform Strategies:

(The Lagos State Experience)

CHAPTER 3CHAPTER 3

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3.1 Political Will/Human Capital Development

The Administration of Asiwaju Ahmed Bola Tinubu, Governor of Lagos State(1999-2007), initiated the State Revenue Administration reform process. Part of his reform strategies were:

•Autonomy of Lagos State Internal Revenue Service: the Autonomy has given LIRS the powers to; hire the professionals, who have the technical know-how as regards tax issues and administration.

•Funding: Adequate funding is continuously made available to ensure the smooth and efficient administration. Providing the revenue authority with modern day technologies.

•Evasion & Avoidance: Lagos State is the fully implementing and enforcing the provisions of the tax laws and its regulations. The State has effectively clamped down on companies who evade or under remit taxes.

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• Development and adoption of vision and mission statement

• Harmonization of the operational directorates.

• Carrying out a full re-appraisal of the appointment and operational procedure for Tax Audit Monitoring Agents with a 90-day turn-around programme which ensures that tax audits are carried out more efficiently

• Establishment of a virile operational procedure that ensures proper and timely coordination of activities between the assessing and enforcing arms of the Board

• Members of staff who opted to remain in the civil service were transferred to other Ministries and Departments. Others who are keen to pursue a career in taxation administration were offered employment by the autonomous LIRS and disengaged from the civil service

• LIRS recruits as the need arises, professionals in relevant fields and offer them competitive remunerations

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3.2 Human Capital: Organizational Restructuring

• Creation of new units; Religious , Judiciary, Professional, Informal Sector, LASTMA, Self Assessment Review Units, Public Sector, Strategic Audit, Relationship Management Units, Distrain unit

• Capacity building: LIRS has in operation a

well equipped and functional training school. Regular in house training are organized to enhance staff skill

• Staff are also exposed to the best practice

in tax administration through participation conferences, seminars, off shore training. LIRS currently sponsors Staff who are members of the Chattered Institute of Taxation of Nigeria (CITN) for both Tuition and Examination Fees

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Executive Chairman

Director Finance &

Admin

(2) Deputy DirectorsPersonal

Income Tax

Director PIT Director Tax Audit

Director LegalServices

Director Accounts

Regional Co-ordinator

Mainland

Regional Co-ordinator Lagos Island

Regional Co-ordinator

Ikeja

Deputy Director

Special Duties

Deputy Director

Chairman’s Office/ Head

RMU

Board Secretary

Legal Advisory Litigation Collections Fund Mgt Salary

Logistics &Transport

Compliance Unit

Premises & Assets

Recruitment & Training

Research Unit

Commission Unit Field Unit

Correspondence

IT Support Audit

Audit Report Unit

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LIRS Organogram – Abridged Version


• The full implementation and use of e-TCC to further assisted the blockage of general revenue leakages

• Accelerated Tax Audits of Back Years. Over 1500 tax audits in 2006 , 3500 in 2007 and 4000 in 2008 and over 6,000 in 2011 were concluded and tax audit liabilities paid. 1000 Professional Accountants and Tax practitioners were engaged to collate tax audit data and assist in Tax payer Enumeration

• Direct Bank Lodgment- Linkage of over 1200 branches of banks on line; Automated Revenue Receipts.

• Close Monitoring of revenue through the generation of

timely management reports- creation of accounts relationship management unit that monitors remittances based on industry

• Accounting and Reconciliation- Fast reporting and month-

end closing analysis. • Enhanced Internal Control • Continued enumeration of tax payers

3.3 Process Reengineering / Simplification Of Assessment And

Payment Process

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• Self Assessment Scheme: LIRS introduced Self Assessment Filing System for individuals, the first of its kind in Nigeria and indeed black Africa, to make tax payment convenient, boost the State’s IGR and expand the tax payers’ list. In partnership with collecting Banks, an individual tax payer can conveniently pay his tax at any of the over 1200 branches of these banks and LIRS 37 Tax Stations.

• Minimum Tax for those in the Informal

Sector.

• Establishment of Mini Tax Offices in over 40 Major Markets, as a means of bringing tax assessment and collection closer to the taxpaying public .

3.3 Process Reengineering / Simplification Of Assessment And

Payment Process

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• Renovation of Tax Offices • Deployment of IT infrastructure in all

tax offices • Installation of Generators • Procurement of new utility vehicles • Relocation of some tax offices to

more spacious and business friendly environment

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3.4 Facility Upgrade

The Lagos State Internal Revenue Service (LIRS) has continued in its efforts to provide effective and efficient service delivery to tax payers. The Lagos State Government has continued to experience marginal improvement in her Internally Generated Revenue (IGR), growth largely attributable to increased tax base and increasing compliance level especially in the Organized Private Sector and the Informal Sector such as the professionals, markets, artisans etc.

The effects of the Personal Income Tax (Amendment) Act 2011 affected tax rates as they were reviewed downward and tax bands increased. The State relied less on the revenue from the Federation Account while focusing its attention on the Informal Sector (Professionals) and Direct Assessment, recognizing that there is still room for improvement. In achieving 100% Tax Compliance, stakeholders’ have been engaged in the following events:

3.5 Engaging the Stakeholders

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PRESS BRIEFING ON THE PROSECUTION OF TAX DEFAULTERS IN LAGOS STATEOn Tuesday, the 15th of January, 2013, the State Government held a press briefing where it intimated the press and the general public of its intention to commence prosecution of tax defaulters. This became necessary owing to the inequitable position of the taxpayers in the State whereby about 4 Million out of an estimated 8 Million income earners still do not pay taxes.

REWARD FOR TAX COMPLIANCE AND TAX PAYERS ENGAGEMENTThe 6th Annual Taxation Stakeholders Summit which was held on the 24th of January, 2013 was a testament to the State Government’s continuous efforts to reward good citizenship. During the event the attendance and engagement from different stakeholders surpassed the previous years. His Excellency, the Governor of Lagos State Mr. Babatunde Raji Fashola (SAN), recognized the awardees who had achieved 100% tax compliance within the individual and corporate categories.


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INFORMAL SECTOR (MARKETS) AWARDSThe Agency also recognized compliant taxpayers in the Informal Sector (Markets and Artisans), this included; The Textile Dealers, Association of Taxi Drivers, Automobile Technicians, and Glass Dealers. They were recognized for their high level of tax compliance. (see appendix)

STAKEHOLDERS’ CONFERENCE FOR INFORMAL SECTOR (PROFESSIONALS)The level of non-compliance especially in the Informal Sector (Professionals) in Lagos State has deprived government of the Revenue needed to continue in its efforts to provide necessary infrastructures and amenities that befits a megacity status. The Agency in the year under review organized a special stakeholders’ conference for professionals in the Informal Sector with a view to addressing the low level of tax compliance in this sector. The meeting hosted by His Excellency, Governor Babatunde Raji Fashola (SAN), appealed to the conscience of the recalcitrant taxable residents of Lagos State who have refused to fulfill their civic duty to do so before the 12th of April, 2013.

• LIRS partnership with Banks ,which is mutually beneficial, has reduced the turnaround time between tax assessment and payment.

• Nigeria Employers’ Consultative Association (NECA) in collaboration

with LIRS organized an interactive session for the Organized Private Sector on the Challenges Faced by Tax Authorities in discharging their duties at the Lagos Airport Hotel on 21st of May 2008.

• LIRS continue to collaborate with the State’s MDA through

mandatory confirmation of tax compliance status of Individuals transacting business with the State Government. Presently, LIRS has assessment desk in the offices of Land Bureau , LASTMA and the State’s High and Magistrate Courts.

• Collaboration with other Revenue Agencies

3.6 Collaborations

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• Tax payers’ education and enlightenment on the need to pay taxes have been sustained through unprecedented tax campaigns in Prints, on Radio and Television.

• LIRS took its tax campaign to the Traditional rulers thereby co-opting them into the tax drive

• Testimonial Adverts by notable and respected citizen of the State - religious leaders, celebrities etc

• Tax awareness road shows in collaboration

with Not –for- Profit Organisations • Participation in events and shows

3.7 Advocacy, Enlightenment and Education

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• Participation in Trade Fairs

• Tax Education and Enlightenment Team (TEET) Activities : To ensure accelerated and full coverage of the state’s tax jurisdiction, LIRS commenced Task Force operations (with 3 teams), charged with the responsibility of visiting Companies and Business establishments within the State to check tax compliance and educate the taxpaying public. The activities of the task forces have resulted in increased tax payers’ base and compliance. The Task Force teams have been increased from 3 to 45.

ADVOCACY, ENLIGHTENMENT AND EDUCATION

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ADVOCACY, ENLIGHTENMENT AND EDUCATION • Publication of Frequently Asked Questions on various tax issues. • LIRS sponsored Television Programme ‘Tax Talk ‘ is aired weekly on 3 Television Stations .

• Sponsored page in the Financial Nigeria.

• Distribution of Fliers

•Publication of Employers’ Guideline

• Functional website www.irs.lg.gov.ng , with up to date information and downloadable forms

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http://www.irs.lg.gov.ng/

• When every other effort fails to recover tax assessed from defaulting tax payers and after due process, we have had cause to and will continue to invoke the distrain power of the Board as contained in the relevant sections of the Personal Income Tax Act.

• The LIRS has the full support of the State Government and the office of the Governor of Lagos State to enforce the Law which includes the power to distrain defaulters.

• We ensure that all the required notices are given and it is only when no response is received from the defaulter that we take enforcement action.

• We have also started pursuing the criminal provisions of the law with a

view to bringing to book individual officers or directors of tax defaulting companies.

• Necessary machinery has been put in place to ensure quick prosecution of tax defaulters which will act as deterrent to future defaults.

3.8 Enforcement

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• Establishment Of Criminal Prosecution Unit: part of the strategies of the LIRS aimed at ensuring that all Income earning residents of Lagos State pay taxes, the Agency established the Criminal Prosecution Unit. The Prosecution of tax defaulters is being handled by the office of the Lagos State Attorney General.

3.8 Enforcement

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• Addressing the practical issues highlighted above.

• Putting in place a dynamic and proactive Revenue Administration.

• Ensuring effective and efficient collection of all tax revenues due to the Lagos State Government under the relevant Federal and State Laws.

• Vigorously pursuing programmes that will lead to widening the tax net and ensuring that all tax payers pay the adequate tax as and when due.

• Ensuring sustainable IGR to meet the ever increasing expenditure profile of the State thereby making the State less reliant on allocations from the Federation Account.

3.9 Highlights of Other Strategies

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CHAPTER 4CHAPTER 4

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The Harmonization of Levies and Charges at the Local Government

Level (The Lagos State Model)

The Harmonization of Levies and Charges at the Local

Government (The Lagos State Model)



On April 10, 2010, His Excellency, Mr. Babatunde Raji Fashola, SAN signed into Law the Local Government Levies (Approved List For Collection) Bill. This Law gives vital information to the public by prescribing the levies that may be collected by Local Government Authorities in Lagos State, and making explicit provisions for the publication and administration of such levies. In the Schedule to this legislation is a list of levies that could be legally charged and collected by local government authorities in the State. By virtue of section 1(3) of the Law,

“No levy shall be collected by or on behalf of any Local Government Authorities in Lagos State unless it is specified in the Schedule to this Law.”

The provisions of the Law also include the regulation of the appointment of revenue agents, prohibition of roadblocks or other obstruction for purpose of tax collection, and required use of identification badges by revenue officials of local governments.

The approved List of Levies must also be pasted at a conspicuous place in all revenue offices of the Local Government Authority to ensure hat adequate publicity is given to the people.

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Conclusion

27A presentation by The Executive Chairman

Taxation is key to promoting sustainable growth and poverty reduction.

It provides for a stable and predictable fiscal environment to promote growth and help Government finance their social and physical infrastructural needs.

Combined with economic growth, it reduces long term reliance on aid and ensures good governance by promoting the accountability of governments to their citizens

As highlighted in this presentation we have seen the graphs discussed above, Lagos State has witnessed phenomenal infrastructural and social development in the past years, most of which were and are still being financed with taxes.

Through the social contract process citizens accept and comply with the tax laws in exchange for government providing effective and efficient service delivery.





The Tenement rates, Neighbourhood Improvement Charges and Ground Rents have been consolidated into the Land Use Charge which is only payable annually.

It is worthy of mention that all levies collected by local government council on consignment of goods passing through their respective areas have all been consolidated into one charge called the Wharf Landing Fee . This fee is chargeable only at a single point near the port of entry.

The above consolidation of levies has automatically abolished multiple payment of user charges within the State.

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CHAPTER 5CHAPTER 5

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The Lagos State IGR Trend Analysis

LAGOS STATE IGR TREND 2006 - 2012

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Source: Report of the Accountant General Financial Statements (2006 - 2011)2012 figures as reported by the Lagos State Ministry of Finance

2005 % 2006 % 2007 % 2008 % 2009 % 2010 % 2011 % 2012* %

TOTAL IGR 48,145,289,674.55 100 66,874,438,807.69 100 94,854,379,863.51 100 156,093,785,351.38 100 178,464,758,761.40 100 173,447,725,478.21 100 199,948,592,939.22 100 219,321,009,806.81 100

LIRS 34,389,664,035.07 71% 50,166,358,602.39 75% 68,344,401,762.18 72% 109,987,437,244.87 70% 139,141,615,253.03 78% 148,445,170,551.38 86% 167,463,534,675.95 82% 172,160,428,552.23 80%

OTHERS 13,755,625,639.48 29% 16,708,080,205.30 25% 26,509,978,101.33 28% 46,106,348,106.51 30% 39,323,143,508.37 22% 25,002,554,926.83 14% 32,485,058,263.27 18% 47,160,581,227.58 20%

LAGOS STATE BUDGET SIZE VS INTERNALLY GENERATED REVENUE 1999 - 2011

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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

BUDGET SIZE 17.884 42.942 48.915 58.235 62.653 77.407 112.729 224.232 274.762 403.401 405.000 411.571 445.180

I.G.R 14.636 11.607 17.885 20.776 27.537 33.998 42.283 61.684 83.020 129.563 178.100 173.447 199.948

Source: Report of the Accountant General Financial Statements (2006 - 2011)

GRAPH INDICATING THE LEVEL OF EACH STATE'S FINANCIAL DEPENDENCE ON FEDERAL ALLOCATION (IN % TERMS) - 2007

Note: Data not available in respect of Delta, Kaduna, Kwara and Sokoto StatesSource of Data: Joint Tax Board


GRAPH INDICATING THE LEVEL OF EACH STATE'S FINANCIAL DEPENDENCE ON FEDERAL ALLOCATION (IN % TERMS) - 2008

Note: Data not available in respect of Delta, Kaduna, Kwara and Sokoto StatesSource of Data: Joint Tax Board


Appendix


Schedule Levies to be collected by the Local Government Authorities - As Harmonised by the Lagos State Government

1.Shops and kiosks rates.2.Approved open market levy.3.Tenement rates (only on properties not yet assessed for Land Use Charge).4.Licensing fee for sale of liquor. 5.Slaughter slab license fee in abattoirs under local government control.6.Marriage, birth and death registration fees.7.Street naming registration fee.8.Motor park levy (including motorcycles and tricycles).9.Parking fee on local government streets or roads as may be approved by the State Government.10.Domestic animal licence fee (excluding poultry).11.Licence fees for bicycles, trucks, canoes, wheelbarrows and carts (other than a mechanically propelled trucks).12.Radio and television licence fee (excluding radio and television in motor vehicles, transmitters and other communication equipment).13. Public convenience, sewage and refuse disposal fees. 14.Cemetery and burial ground permit fee.15.Permit fee for private entertainment and merriment in public places (excluding roads and streets).16.Wharf Landing Fees (administered by a central collection agency).

Appendix


LIST OF APPROVED TAXES FOR EACH TIER OF GOVERNMENT PART 1 – TAXES TO BE COLLECTED BYTHE FEDERAL GOVERNMENT Companies Income TaxWithholding tax on company, residents of the Federal Capital Territory, Abuja and non- residents individual.Petroleum Profits taxValue added taxEducation tax Capital gain tax on residents of the Federal Capital Territory, Abuja, bodies corporate and non-resident individualsStamp duties on bodies corporate and residents of Federal Capital Territory, AbujaPersonal income tax in respect of(a)members of the Armed Forces of the Federation; (b)members of Nigeria Police Force; (c)Residents of the Federal Capital Territory, Abuja; and; (d)Staff of the Ministry of Foreign Affairs and non-resident individuals.

Appendix


PART 11 – TAXES AND LEVIES TO BE COLLECTED BY THE STATE GOVERNMENT

1. Personal income tax in respect of (a) Pay-as-you-earn (PAYE); and (b) Direct taxation (Self assessment) 2. Withholding tax (individuals only)3. Capital gain tax (individuals only)4. Stamp Duties on instruments executed by individuals5. Pools betting and lotteries, gaming and casino taxes6. Road taxes7. Business premises registration fee in respect of- (a) Urban areas as defined by each state, maximum of- (i) N10,000 for registration, and (ii) N5,000 per annum for renewal of registration. (b) rural areas (i) N2,000 for registration, and (ii)1,000 per annum for renewal of registration Development levy(individuals only)not more than N100 per annum on all taxable individuals.Naming of streets registration fees in the State Capital .Rights of Occupancy fees on lands owned by the State Government in urban areas of the state.Market taxes and levies where state finance is involved.

Appendix


PART 111- TAXES AND LEVIES TO BE COLLECTED BY THE LOCAL GOVRNMENT

Shops and kiosks ratesTenements ratesOn and Off liquor license feesSlaughter slab feesMarriage, birth and death registration feesNaming of street registration fees, excluding any street in the State CapitalRight of Occupancy fees on lands in rural areas, excluding those collectable by the Federal and State Governments.Market taxes and levies, excluding any market where State finance is involvedMotor park leviesDomestic animal license feesBicycle, truck, canoe, wheelbarrow and cart fees, other than a mechanically propelled truckCattle tax payable by cattle farmers onlyMerriment and road closure leviesRadio and television license fees(other than radio and television transmitter)Vehicle radio license fees(to be imposed by the Local Government of the State in which the car is registered)Wrong parking chargesPublic convenience, sewage and refuse disposal feesCustomary burial Ground permit feesReligious places establishments permit feesSignboard and advertisement permit fees

Appendix


Mr. Tunde Fowler (Executive Chairman, LIRS) presenting Award Plaque for compliance with the Law with respect to Personal Income Tax to Alhaja Abibat

Mogaji ( Iyaloja General)

Appendix


‘Nigerians who do not have the tax culture are now responding positively to tax payment’. ‘I enjoin every

resident of Lagos State to pay their taxes to ensure continued and unhindered development in Lagos State.’

excerpt from the Address delivered by Comrade Akeem .A. Kazeem, The Chairman Trade Union Congress Of Nigeria

(TUC) Lagos State Council at The 2013 Centenary May Day Rally Onikan Stadium, Lagos.

40Paying Taxes 2010 – The Global PictureInternational Finance Co operation and PriceWaterHouse

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41Paying Taxes 2010 – The Global PictureInternational Finance Corporation and PriceWaterHouse

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THANK YOU!

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Engendering a healthy_tax_culture

Education

Transcript of Engendering a healthy_tax_culture