In Two Years Lagos Will Start Having Uninterrupted Power Supply

0

The Executive Chairman of the Lagos State Internal Revenue Service, Mr. Ayodele Hamzat Subair believes that the only way Lagos can bridge its huge infrastructure gap, in view of the drop in revenue from the Federation Account, is to raise its internally generated revenue. In this interview with Obinna Chima, he defended recent efforts by the government to improve its IGR through the revision of levies such as the Land Use Charge, initiatives by the LIRS to enhance tax administration in the state, and bring more residents into the tax net

You have been on the saddle for about 18 months. Can you take us through some of the initiatives you have taken to improve revenue generation in Lagos State?
Primarily, the initiatives we have taken here since I came on board have centred around leveraging on technology and the key thing has been for us to digitise and make the recording of consumption taxes electronic. In the past, consumption taxes were not remitted on time or under-remitted, so we have started to correct that. Then, we have introduced a contact centre, because we need to carry all tax payers along. So, we have a full-blown contact centre that is in place and it is very interactive. Taxpayers can come in to get better enlightenment and good service delivery. Along with that, we have looked at the introduction of end-to-end tax administration solutions to make operations much more efficient. We have also embarked on a lot of media advocacy and enlightenment. That might not be a new initiative, but we have tried to deepen it though the production of documentaries and short clips which we have sent out through the various social media platforms. There are a lot of social media interactions that are ongoing right now. On many other initiatives, I am not re-inventing the wheel, but I have been trying to improve efficiency.

So, in terms of revenue generation, we can say most of the things are basically on auto-pilot and you are carrying on from what your predecessor achieved.
A lot of things are on auto-pilot.

Unlike other states in the country, the state was able to buck the trend in the sense that despite the recession it still grew its revenue. How was this achieved and what are your revenue targets for this year and next year?
In terms of how we have achieved to maintain and even increase revenue generation, it has been a lot of hard work and team effort. Basically, we improved our rate of efficiency through serious re-engineering of our operational processes and that way, we were able to interact more closely with high net worth and key tax payers and that has helped us to move the numbers up a bit. In terms of generation for this year and the previous year, for the previous year, in total, LIRS alone generated about N285 billion. Whilst if you add some of the other revenue generating sources, everything came to about N340 billion to the Lagos State Government. Now, for this year our target for the LIRS alone is N440 billion and for the state, it is about N720 billion.

Was that why you introduced the draconian Land Use Charge?
et’s look at it historically. Lagos has a huge infrastructure gap and we know we have to reduce that gap and through the workings of the government, the only way you can do that right now is through IGR, especially with the crash of global crude oil prices. There is not much the government can get from FAAC. So, basically, we have to try and raise our taxes within the state. The Land Use Charge is just one of the various types of charges that have been introduced. Now, if we start to catalogue what the state needs to expend in terms of developmental projects, it is huge. And already you can see under the administration of Governor Akinwunmi Ambode, he is very eager to try and turn things around in Lagos. There has been a lot of neglect over the past and it has built up for so many years. There is serious under-investment on infrastructural projects. So, to bridge the gap a little bit, we have to diversify the types of taxes and the charges. Unfortunately, a lot of people confuse taxes and levies. Taxes generally are compulsory payments that are made by residents and they don’t have to get a direct benefit from these taxes. On the other hand, the charges and levies are payments that they make, for which they have direct benefits. But in the long-run, the key issue here is that the old land use charge was a bit defective by the way it was computed. You would see different buildings of similar description having wide-ranging disparities on the charges. So, there was the need for the increase. Again, the Land Use Charge hasn’t been renewed for about 16 years. So, the government deemed it fit to try and review the law.

By between 300 and 400 per cent?
Not necessarily. In the past, a lot of property was seriously undercharged. You could see a house on Queens Drive, Ikoyi, that is paying N18,000 and the house is worth probably hundreds of millions of naira or even billions. But now, the formula for computing Land Use Charge has been totally simplified. The only difference is that there is now a market valuation that comes with it. And people are even allowed to carry out self-assessment on the Land Use Charge. The formula is very easy to follow, and market value can be obtained from real estate agents or surveyors. Residents are encouraged to try and work out the Land Use Charge by themselves and pay.

Will that be acceptable by the LIRS?
It will be acceptable. One can self-assess and pay ahead of the demand notice. And if you have self-assessed, you will qualify for the discount because you paid ahead of time. The good thing about this Land Use Law again, is that everybody has the right to appeal. You can appeal it if you feel that it is an unjust amount. It is very easy. There is a Help Desk at the Lagos State Ministry of Finance and they are willing to listen to everybody. At the same time, there is going to be an appeal tribunal. So, anybody who feels aggrieved can write to the tribunal and get justice.

And within that period none of your men will seal off the property?
Nobody will seal off your premises within that period. The tribunal almost acts as a court of competent jurisdiction. So, the moment that you file an appeal, everything is put on hold.

But still the increment is astonishing?
Again, it is not always good to look at percentages because if something had been very low for many years and then you try to increase it, if you will look at percentage, you might say it is 400 per cent. But if you look at the quantum itself, it might not really be that great. So, let’s not look at it in terms of percentages.
Again, the timing is worrisome considering the level of unemployment in the state. From an economics perspective, in an economic downturn, you instead reduce taxes to encourage private sector investment, employment, manufacturing and that way, the state makes more money from the firms and individuals. So, what is the justification for the increase?
Like I said earlier, at times we seem to confuse taxes for charges and levies. Now, no new taxes have been introduced. All taxes are legislated at the federal level. The state doesn’t really legislate on taxes. Perhaps, we say industries and individuals are being overtaxed in Lagos. But, it is not entirely true. Generally, if you look at the profiling of our IGR and take it down to what is generated by LIRS, the salaried workers are the ones that are really paying taxes. Seventy to 75 per cent of our numbers come in from Pay-As-You-Earn (PAYE) and direct assessment. PAYE alone is between 70-75 per cent, while direct assessment which is usually what the high network individuals pay, is about five per cent of our total collection. So, we can see that it is a bit lopsided and really and truly, there has to be other means of this type of taxation. You mentioned that the Land Use Charge. Yes, at the end of the day, the ultimate person who bears the brunt could also be the tenant, but it is really the property owners that we are looking at.

But you surely know the property owners would transfer it to the tenants. So, I am wondering if the objective is here to make people homeless or deter investors from establishing businesses in the state?
That is not the objective. But like I said, we cannot run away from the fact that we have an infrastructure gap. We are not raising revenue to put up infrastructure, there is also provision for social services. There are all sorts of social services that need to be overhauled. It is a total regeneration as far as the administration is concerned over this issue of infrastructure. Really, if you look at the performance of this administration in the past two years, there have been a lot of investments in infrastructure. If you go to Lagos East and Lagos West, there is a big impact on the lives of people. If you go to Alimosho, Iju, and several other areas, a lot of roads are being built there, a lot of streets that never saw tar in 20 years are now under construction. This is all about opening up rural and urban areas so as to attract commerce to these areas. Now, in terms of bridges, at Ajah, everybody that lives on the axis can see what happened with the Ajah bridge. It came up in record time in under 18 months and really the traffic time has gone down from between two and three hours, to about 30-35 minutes. There is also the Abule-Egba bridge, there is a Pen Cinema bridge that is coming up. For decades, people who live around Agege, Ogba got home at midnight after closing from work at between 4-5pm. So, by the time that bridge is ready, it is going to free up a lot of the congestion. Then, talking about water, there are a number of water treatment plants that are actually coming up. If you visit the website of the Lagos State Water Corporation, you will see all the good news about what is going on right there. I am sure you have also heard about the embedded power project that is coming up in Lagos. It is estimated at 3,000 megawatts. In under two years, you are going to see the full effect of that. According to all the plans and engagement now, in two years’ time there is going to be uninterrupted power supply in Lagos. That is the promise of the administration and we hope it will be fulfilled. That is because once you can get power, it is going to really transform the whole economic landscape for us. It is going to provide the opportunity for self-employment for welders, vulcanisers, tailors, traders and others to do their work. So, it is not just about generating revenue for Lagos State, it is about creating the enabling environment for businesses to thrive and for the Gross Domestic Product of Lagos to grow. Presently, we are the fifth largest economy on the African continent and the target is to try and get to the third largest. Now, these initiatives would always have a multiplier effect all over Lagos and the dividends will abound. In healthcare, there is a lot of work going, the sale with education and security. In many other states, you can’t even go out after 6pm. That is not the case for Lagos. In almost every major street corner, you will see patrol vehicles. All these facilities are provided by the state and it is mainly from the IGR. Also, there is the street lightening project, with street lights all over Lagos. It makes my work easier here when we have a very progressive and active government headed by a very astute administrator.

Overall, does this increase and multiplicity of levies not affect the Ease of Doing Business policy in the state?
We all know that there is a conscious effort by the federal government on this Ease of Doing Business. In fact, the indices are measured by Lagos and Kano States. And we are very particular about Ease of Doing Business. A lot of the processes have been reviewed and a lot of the processes have been reduced. You talked about multiple taxes, that is under the purview of the Joint Tax Board, of which Lagos State is a member. And there is a serious effort towards the harmonisation of taxes. In terms of duplicity, the real issue here is that Nigeria is a federal state and we have three tiers of government. There is an approved list of taxes and levies which dictates where everybody goes. We at the states cannot overtly influence the work of the local governments. But the state government still dialogues with them all the time, so as to make sure that they are not duplicating the taxes and levies. So, on the part of Lagos, the Ease of Doing Business is very dear to us and we are looking at our processes and some of the charges.

Firstly, the government increased the fee at the Lekki toll gate, increased the fee for vehicle registration and now the Land Use Charge. Don’t you think the burden is too much for residents in the state?
You know why the fee at the Lekki toll gate was increased? Unlike most of the expressways that are tolled, there are a lot of special services that are provided around that Lekki toll gate. If your vehicle breaks down on that Lekki expressway, even at midnight, once you call a number, within 15-20 minutes, you will get help and your car would be towed away at no cost. Then all the street lights must work and there is constant maintenance of the roads. So, somebody must pay for all these.

Do the massive projects in the state go through the Procurement Bureau?
We have a public procurement bureau and every expenditure must go through it. Even our expenditure here goes through it.

A few years ago, the Ogun State Government said Lagos was owing it monies said to have been collected by Lagos as PAYE from workers resident in Ogun, but working in Lagos. Has that matter been finally resolved?
There is a lot of dialogue going on between the two state governments. If I come down to our own level here at the LIRS, all our staff that work here, but live in Ogun State, the LIRS remits to Ogun State. Now, what you are talking about is that there was an accumulation at some point. But currently, there is a lot of payment that is going to Ogun State. The JTB, which is a body that harmonises disputes between the states has been involved in the whole process. So, a lot of things need to be verified and so we need to be very careful. But it is an ongoing exercise. Lagos is alive to its responsibilities.

Can we know the exact amount that is outstanding?
Unfortunately, I cannot give you the exact amount that is outstanding. It is outside my purview. It is actually the  state treasury office and the Commissioner of Finance that can answer that. But to the best of my knowledge, I know there is ongoing dialogue and I know that a lot of resolutions had been made and I know that a lot of payments have been made.

Tell us what you are doing to bring the large percentage of Lagosians that are in the informal sector into the tax net?
The management of that informal sector has been very challenging. In fact, in most nations, the informal sector has been very difficult to manage, more so in Nigeria where we don’t have credible data. The key problem with the informal sector is that of data. Secondly, a lot of those in the informal sector are highly mobile. They are here today, and within three months they are off to somewhere else. And we don’t have a national identity card scheme. Take for instance, in South Africa, the moment you are born, you get a Tax Identification Number and you use that for life. If we have such a system here, it would really help us. But we don’t have the necessary data. That notwithstanding, under my administration, we are doing a lot of studies and we are doing a lot of work. We are about to start the implementation of a plan whereby we are also going to leverage on a lot of technology and we are also going to work with some partners. That is, we are also going to work with some private sector professionals so that we can increase our level of enumeration and bring a lot of these hitherto non-taxpayers into the tax net. We have also applied other strategies such as the presumptive tax regime, which is like a penetrative strategy to bring them into the tax net. Under this strategy, we agree for them to pay a fixed amount, let’s say about N4,000 or N5,000, just to bring them into the tax net and subsequently we are supposed to be able to profile and assess them based on their real income. Already, we have started seeing a little bit of results as collections from the informal sector has started to climb up a bit. By the time we bring our full plan to bear this year, we are going to see the numbers really increase.
You said earlier that right now PAYE accounts for 75 per cent of total taxes, so what makes up the remaining 25 per cent?
PAYE brings in about 70-75 per cent of total LIRS collections. In total, it brings in 55 per cent of the state’s IGR. Direct assessment brings in another five percent which are the high net worth individuals (HNIs). It is not as if the HNIs do not pay taxes, but a lot of them hide under the umbrella of their corporate organisations. They prefer to remit PAYE rather than to be assessed directly. Now, we don’t have a problem with them coming under PAYE, but we expect them to complete our Form ‘A’ and declare all their sources of income such as rental income and investment income. These are supposed to be captured as part of their income. So, what they tend to do is just to file under PAYE. Going forward this year, we are seriously going to change that. There is going to be a paradigm shift in that regard and we are going to compel every resident in Lagos to complete the Form ‘A’. Part of the initiative which I should have told you earlier is that we are digitising the process of getting the Form ‘A’ so that people can go online, complete the form and they would get an acknowledgement in the form of a receipt. In addition, we also have about five per cent coming in from tax audits.  Every year, almost every company operating in Lagos is visited for tax audit and from that we assess the true amount that they ought to have remitted, with penalties imposed on those that appear to have underpaid. So, that makes up five per cent of our collections now. Then we have stamp duties, withholding taxes and the capital gains tax. So, all those again would account for about five per cent or thereabout. So, that makes up the composition.

There is always this highhandedness on the part of LIRS officials who are always in the habit of shutting down the companies of tax defaulters. With the current state of the economy, is that the right approach and shouldn’t there be some flexibility?
If you look at it historically, Lagos used to be engaged in sealing off defaulting companies. But under administration of Mr. Akinwunmi Ambode, he brought a different angle to it, saying because we are trying to build a mega city, we should not be seen to be stifling growth. Quietly, he has advocated against these closures. But we are starting to look at it because all over the world, nobody wants to pay tax, especially within our enclave. So, the state government and my regime brought in a lot of dispute resolution mechanisms. We have been calling people who even in our books are owing the state for five, six and seven years. Even the ones that have cases in court, we have tried to approach them and urge them to try and settle out of court by sitting down with them to reconcile the amounts. Now, in terms of sealing off, it is only the extremely recalcitrant debtors that are affected, and you cannot do that without a court order, so that it is lawful and it is legal. All over the world, enforcement is a major part of tax administration. In America, people go to jail for not paying their taxes. We can’t send everybody to jail, but maybe when we get one or two defaulters, then others would start to sit up. The statistics are woeful. How can PAYE account for almost 75 per cent of collections? Which informed why the federal government and the states initiated the  Voluntary Assets and Income Declaration Scheme (VAIDS). It is all about telling all the defaulters: okay, lets go back six years. All those that have under-declared or have not paid their tax before, come in under an amnesty programme. Before the VAIDS programme came up, the LIRS was actually putting together an amnesty programme. But when we got wind of the initiative by the Federal Minister of Finance, Mrs. Kemi Adeosun, we decided to suspend our own. Now, at the end of the day, we expect that tax culture would grow and Nigerians would see the need to pay tax. It is a social contract. People must pay their tax and expect the government to play its part.

Still on the VAIDS, are you in talks with the federal government on the implementation of the initiative?
It is a partnership between the Federal Ministry of Finance, the Federal Inland Revenue Service and all the State Internal Revenue Services. We were all there and we were involved from the inception of the whole process. We are still dialoguing constantly. It is something that we all need to cooperate on because the corporate bodies report to the FIRS and all individuals report to the LIRS or other State Inland Revenue Services. So, we cannot but be part of it. I am urging all taxpayers to take advantage of the VAIDS because it is a time-limited opportunity. It ends on 31st of March and there has been a lot of response from members of the public.

A recent report by the Minister of Finance showed that Lagos has the highest number of HNIs in the country, with VAIDS has that number increased?
It was about 213 in total, out of which only 20 were not resident in Lagos. The VAIDS programme started very slowly, but from January, there has been a lot more activity going on. For instance, somebody made an application today (Monday) and has openly declared about N270 million underpayment over the years and he has subjected himself to an audit. We are going to look at the application, we are going to review the correctness or the adequacy of his payments and then we would respond to the applicant. So, there are lots of people coming forward. Some are coming to declare N1 million, some are declaring N100 million, some N20 million, so it is going to be a successful programme. But there is more traction now than what we had at the beginning. In the past four months, there were lots of enquiries, but people were a bit undecided and didn’t know which way to go. Definitely, people are not supposed to look at taking their chances because there is a very high possibility of most of the HNIs being caught up in this programme and being penalised at the end of the day. That is because there is a lot of data mining that is going on presently. There is what is called the lighthouse project that is going on, which involves looking at the data at our disposal. For instance, the National Financial Intelligent Unit (NFIU) has mined all payments of above N10 million and they are to be reported to the NFIU by all the banks. Also, you cannot tell us that your total income for the year is N2 million and when we look at the NFIU report, your turnover is N2 billion. Yes, it might not be a profit and might not be your income, but at least, it gives an indication that that N2 million was a gross under-valuation. Then, there is the exchange of information agreements that have been signed between a lot of the Organisation for Economic Cooperation and Development (OECD) countries, and at the end of the day, countries like the United Kingdom, the United States, the United Arab Emirates, etc, which are favourite spots for Nigerians to buy property, we are going to get information on all the property owned by Nigerians in all those regions. Also, all the Nigerian contractors that had obtained huge contracts from the federal government and from the states, the data is also being mined. You know, previously, everything was operating in silos. But we are not starting to put everything together and  all those big contractors, we are going to see what they have done over the years and we are going to show them  what they have declared.  And of course, part of the benefits of VAIDS, is that you will get exempted from penalties and interest payments. But after the programme has closed, people would be penalised. Then there is other information that is being mined through the Corporate Affairs Commission (CAC). All the states will also turnout data on key properties to the Ministry of Finance. So, they have records of all the land owners in the states and they are going to look at the income and make a comparison between their income and the tax they pay. So, there is no hiding place for tax defaulters and there would be no sacred cows. Everybody should just be encouraged to complete their VAIDS forms. One can download it from the website of the LIRS.

So, who needs a VAIDS form?
Any resident of Lagos who has in the past under-declared or not declared income at all should avail themselves of this opportunity by declaring their income in the past six years. Part of the information on the VAIDS form is the information on all properties owned by such persons.

The target under VAIDS was to generate $1 billion by the end of the amnesty period. Do you think this will still be met?
Well, feelers from the FIRS show that a lot of money has come in. We are hoping that the target would be met. In the different countries that had embraced the amnesty, their tax system has always been better off. Apart from the target to be collected, it is for us to grow the tax culture which hitherto has been very poor. Our tax to GDP ratio is six per cent, whereas we have neighbouring countries and South Africa with more than 20 per cent. So, we are hoping that through this programme, a lot of people would start to understand that social contract better and see the need to contribute their own quota. Apart from being a civic obligation, it is the law. Everybody is expected to pay taxes. So, the social contract says we should pay our taxes and the government is expected to judiciously expend those taxes so that people get benefits. In Nigeria, we call it dividends of democracy, especially through developmental programmes and the provision of key social services.

With increased taxes, levies and charges, the people would now hold the government more accountable and they would be certainly more demanding, wouldn’t that be the case?
That will be good for the nation, because in the past when the price of crude oil was high, there was a lot of money coming into the purse of the federal government. But before oil came, we had strong taxation programmes and the government was able to get a lot of money to fund the free education, free healthcare services and others in the past. So, it took the drop in global oil price for us to realise that IGR is very key to our development.

So, what has been you experience since you assumed this position?
Personally, it has been very fulfilling. My background is accounting and I am a Chartered Accountant. When I was a practitioner, I had a lot of arguments against the the tax administration system. But now that I am on the other side, it has become very interesting. All my frustration as a tax practitioner, I am bringing it to bear to ensure that people have seamless services. We have a lot of training here on ethical behaviour and good relationship management, which is very dear to me. We make sure that we have police that monitor the policemen here too, to make sure that all the sharp practices are reduced, if not completely eliminated.  So, it has been a very fruitful experience for me and I am enjoying the job tremendously.