Enhancing Tax Compliance

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With the 2020 Finance Act in force and the federal government’s drive to increase revenue tax experts and policy analysts are advocating for more amicable way of resolving tax disputes to encourage voluntary compliance to
by citizens and corporates, writes Peter Uzoho

Over the years, taxpayers and tax authorities in Nigeria have always been enmeshed in squabbles and antagonism arising from alleged inability to pay or the feeling of injustice and oppression. There have been cases where tax authorities accused taxpayers of dodging payment of taxes- a statutory obligation, through several methods. Such feeling of disobedience often pushes tax administrators to visit alleged defiant taxpayers with drastic actions that most times result to litigations.

On the other hand, taxpayers have accused tax authorities of taking illegal actions against them in the name of enforcing tax rules. On many occasions, taxpayers have been arrested, detained, had their businesses shut down, over-taxed, double-taxed or multi-taxed. This leads to long feeling of distrust and prolonged animosity.

Although, the courts have for years been used as avenues to settle disputes arising from tax, cases have shown that even the courts have not adequately take care of the situation.
However, in recent years, countries that value tax as a major source of their national revenue, have devised means of ensuring that tax matters are given a human face, especially when disputes arise, so that taxpayers truly feel obliged to comply rather than compelled to do so.

As taxpayers, they are treated as truly the hens that lay the golden eggs. While their human dignity is respected and appreciated, their sources of livelihood, their businesses are also supported to make them grow, rather than trying to bring them down.

For such countries, Alternative Dispute Resolution (ADR) have become a game-changer in settling matters emanating from taxation. In Nigeria, some states have adopted it and are recording improvements in their tax disputes resolutions. Lagos State is a good example.
However, the Issuers and Investors Alternative Dispute Resolution Initiative (IIADRI) has been in the vanguard of promoting and deepening ADR in Nigeria to bring lasting solution to the animosity existing between tax authorities and taxpayers.

The IIADRI through its annual symposia, brings tax experts, policy analysts as well as relevant tax authorities to have a conversation on how best to improve the nation’s tax system using ADR.

At the second IIADRI symposium/policy dialogue held in Lagos recently, with the theme: “Nigerian Tax Laws: Matters Arising”, participants emphasised the need to enhance voluntary tax compliance using peaceful dispute settlement channels provided by ADR.

The speakers, who brought to light the nexus between the implementation and realisation of the Finance Act 2019 and the disposition of taxpayers to comply with their tax obligations, stated that there was need to entrench ADR in the tax system for uptimal result.
According to them, a responsible citizen will feel obligated to pay due tax in an environment where he feels and sees justice being done, especially where his right to fair hearing is respected.

In his presentation, titled: “The Roles of Alternative Dispute Resolution Processes in the Resolution of Tax Disputes”, the Vice President, Marketing, Institute of Chartered Mediators and Conciliators (ICMC), Mr. Chidy Lasbrey, harped on the urgent need for alternative processes to be used in countering the challenges associated with the court system.
This, he explained, was necessary especially as it relates to the world of commerce that is moving at a pace that demands that tax and justice system succumb to change in order to be relevant in today’s borderless world.

Lasbrey said: “ADR mechanisms therefore refers to a range of processes other than litigation and to a reasonable extent arbitration which involves third party intervention with the sole aim of assisting the disputing parties in finding amicable solution to their dispute.
“It can also be said that ADR is the collective term for those dispute resolution processes and techniques which allow disagreeing parties to come to an agreement short of litigation and resorting to the courts. In situations where reputational risk, confidentiality, flexibility of process, business secrets, speed of resolution and cost control play increasingly significant roles in their approach to business and decision making, ADR has become the preferred option.

“ADR can also be referred to as amicable dispute resolution processes. This captures the friendly nature and atmosphere of the processes. An atmosphere that is less adversarial in nature, accommodating, built on trust, good faith, tolerance and the willingness to make concessions, confessions and sacrifices where and when necessary.

“Yet again, ADR could also mean appropriate dispute resolution. In today`s parlance, this serves as an all-inclusive understanding of what ADR means and what it should stand for. This understanding is predicated on the fact that the very litigation which we are designing alternatives for, is also an appropriate dispute resolution mechanism.

“It provides a paradigm shift from seeing litigation as problem that is being fixed by ADR, to seeing litigation as part of the options available to parties to a dispute.”

While highlighting the benefits of deploying ADR in tax dispute resolution processes, Lasbrey advocated for a change of approach to tax management and resolution strategies of tax disputes in Nigeria.

He said organisations often neglect to activate the business component of the law that set them up, adding that tax administration if well managed would bring about economic boost, an area he suggested should be of focus to tax administrators.

He added: “Tax administration that is properly managed can lead to employment generation, higher rate of compliance, improved relationship between tax authorities and tax payers. Improved tax management will attract investment both foreign and indigenous.
“Good tax management and improved investment climate can reverse capital flight. It can also discourage divestment to other economies. More individuals and corporate bodies will be brought into the tax bracket thereby increasing government revenue.

“With the deployment of negotiation, mediation skills and other hybrid processes, the informal sector can also be brought on board to pay their tax.”
In his goodwill message, the President of the Institute of Chartered Accountants of Nigeria (ICAN), Mr. Nnamdi Okwuadigbo, said the symposium and its theme was introducing a new dimension to a topic that might be assumed over-discussed.
Okwuadigbo noted that the Nigerian tax laws had undergone various experts’ critique in recent weeks, enjoying both commendations and criticisms of almost equal measure.

According to him, the debate on the country’s tax system became more intense after the signing of the Finance Bill 2019 into law.
He said: “A discussion of this nature that emphasises the need to address issues surrounding Nigerian tax laws through the lens of ADR is both timely and somewhat novel.

“Over the years, tax compliance and enforcement procedures have generated legal issues between tax authorities and taxpayers. This has led to protracted litigation processes hampering tax collection and business growth generally. As noted by PricewaterhouseCoopers UK, ADR is suitable for a wide range of disputes across different taxes, particularly those which relate to transfer pricing, capital versus revenue or valuation issues. It may be particularly useful for use in long-running disputes where positions on both sides have become entrenched, with litigation or one party conceding appearing to be the only options”.

Speaking on the topic, “Effect of Multiple Taxation and Coercive Enforcement Procedures: The Way Forward,” Lead, International Tax and Regulatory Services, Deloitte, Mrs. Asiata Agboluaje, stated that inappropriate taxation of taxpayers deters local and foreign investments, causing a decline in the ease of doing business.

This, she noted, creates opportunity for unauthorised persons to get involved in the collection of taxes and levies and that the amount demanded were usually arbitrary and without recourse to the provisions of the law.
Agboluaje, advised that, “as government seeks to raise revenue principally through taxes, the question as to whether it has built sufficient ‘trust capital’ whereby the taxpayers can see their tax action becomes relevant.

“Also, the social contract between the government and the taxpayer should be cordial. An unusually aggressive tax collection process may provide more revenue in the short run but may cause long term damage for businesses.
“Tax system should be simplified. Again, laws should be updated year in year out. Voluntary compliance is key. We should be accountable in the use of tax revenue as this motivates taxpayers to continue paying taxes.”

Similarly, the Manager, Tax, Regulatory and Company Services, KPMG, Mr. Ademola Idowu, who spoke on “Tax As an Instrument of Corporate Growth and Economic Prosperity of A Nation”, said: “Citizens and corporates should ensure timely compliance with relevant tax laws to avoid penalty, interest, loss of productivity, bad publicity and prosecution.”

He maintained that with increased drive for tax revenue, tax risk management should be a top agenda item for businesses.
According to Idowu, there is need to administer and enforce tax in accordance with tax laws, respect taxpayers’ rights and promote stakeholder engagement.

On his part, the Executive Secretary, Financial Reporting Council of Nigeria , Mr. Daniel Asapokhai, stressed the need to rebrand Nigerian tax laws, organs and image, pointing out that the rebranding should start from individual perception and orientation about taxation in particular and morals in general.

Asapokhai, who was represented by the council’s Deputy Director, Directorate of Accounting Standards (Public Sector), Mr. Iheanyi Anyahara, also emphasised the need to support the government in the fight against corruption.
He stated that it was expedient that tax authorities streamline tax payment process and collection, noting that tax policies must be able to attract more investors into the country.

He added: “I will like to use this medium to encourage the tax authorities and the Nigerian taxpayers, especially the corporate entities to embrace the concept of Alternative Dispute Resolution to resolve any tax misunderstanding.
“This is because in ADR, the needs of both parties will be taken into consideration while the outcome is more likely to suit the needs of everyone involved. This will therefore help to preserve the existing cordial relationships between the tax authorities and the Nigerian taxpayers reduce the pressure on our currently overcrowded courts”.

However, the Vice President of the Lagos Chamber of Commerce and Industry (LCCI), Mr. Gabriel Idahosa, who spoke on the 2020 Finance Act and its impact to businesses, said there were efforts to address so many contentious issues relating to tax, through the Act.
According to him, the Finance Act is for everyone because it has something for everybody.
Idahosa also joined his voice to the calls to deepen ADR in the settlement of disputes between taxpayers and tax authorities.

Also, the Director General of the Securities and Exchange Commission (SEC), Ms Mary Uduk, said the Finance Act has removed bottlenecks such as tax on manufactured dividends which had been a major disincentive to securities lending.

Uduk, who was represented by the Deputy Director, Lagos Zonal Office, SEC, Mrs Hafsat Rufai, said the regulatory agency was delighted at the initiative of IIADRI in organising annual symposum aimed at enlightening the public on various issues.

In his address, the Chairman of IIADRI, Mr. Moses Igbrude, explained that the theme of the symposium was carefully selected to address numerous complaints raised by corporate organisations on the administration of taxes in Nigeria, such as multiple taxation, enforcement procedures, dispute resolution mechanisms, and endless audit cycles, among others.

He further explained that the programme was intended to provide platform for stakeholders in the Nigerian tax value chain to dialogue and articulate ways of fostering mutual understanding between tax authorities and tax payers.

Igbrude added that it also aimed at engendering good working relationship that would result in mutual benefits to all parties.

“We believe a co-operative approach in tax administration in this country will promote ease of doing business as well as enhance more robust economic growth and development in Nigeria,” Igbrude declared.