In this interview with, the President and Chairman in Council, Chartered Institute of Taxation of Nigeria, Mr Adesina Adedayo, speaks on tax issues in the country
Tax compliance is still low in the country. What is responsible for this?
The issue of tax compliance and enforcement, as I keep saying over the years, has to do with the fact that one, education is critical to people towards their compliance level. Some people find it difficult, for example, to separate themselves from the business they are running and that requires knowledge about how tax laws operate. Secondly, some people expect more from the government and therefore feel that their compliance is of no essence if the level of governance is not good enough in some areas. So, that is number two. Number three, the enforcement aspect requires us to realise that when it comes to tax, you are considered guilty until you to prove yourself innocent. If we have tax intelligence at all, and part of the tax intelligence means that you are aware somebody is making N200m and if he is making N200m, this should be in tax bracket. If you have that information, then you can easily ask relevant questions. That is tax intelligence. The challenge now is, how many people are going to enforce this issue of compliance vis a vis the population of the country? With two hundred million plus as the population of Nigeria, what is the number of administrators who can be deployed to enforce these areas? This is important because you don’t just wake up and look at somebody and tell them to pay this tax simply because they are driving a Lexus car or Jeep.
You don’t know how he made the money. So, if you do not have that information, you cannot use suspicion as the basis of taxation. You must know from the realm of knowledge, so these are the challenges that border on the corporate level. At the individual level, you also need to be sure that the person whose income you’re trying to tax did not make his income by collecting dividends from a company or did not make his income by selling the father’s inheritance. or You do not just assume that because you saw somebody driving this particular vehicle, he must have made his money this way. I know morality in taxation, but then you must know the source of the income of the person in order to say that you are taxable to this level. And that is where tax intelligence comes in. So, the level of compliance and enforcement is a combination of education and intelligence gathering. That is the challenge we have as of today as a country and it is about database. It is about the data that is available for the tax man to do his work.
This is election season and political parties are presenting their candidates. Do you feel tax compliance should be considered as a criterion for elective positions, the way it is done in advanced countries?
Talking strictly about the position that was held when I was in the National Tax Policy Review Committee. It is on record and it was endorsed by the Federal Executive Council in February 2017. And part of the recommendation was that the issue of tax should be a critical factor to consider when you are looking for an elective office. Elective office means we are asking you to go and represent us, either in the form of presidency or as governor or as legislator. You are there on the basis of the fact that we asked you to go. Now, the next question should be, what are you contributing to the common purse as a person? If you do not believe in tax compliance, how can you go there and ask people to do tax compliance? How can you go there and say that people are not paying taxes? The question is, how much of it are you paying yourself? Are you paying the right amount of taxes? Do you believe in tax payment itself? Those are questions we believe are important on moral grounds before we even talk about the legality of it. You need to show evidence that you are also fulfilling your part of it and that is the morality part. Now, talking from the perspective of what is happening in other countries, simple morality dictates that you do not aspire to the highest office if you do not show that you are also complying with what it takes to operate at that level. And tax is a critical part of what must be a necessity for anybody who wants to aspire to the highest office. Prove it by what you do and we will believe in you. So, I believe that tax status is a critical path for anybody aspiring to any office in the country. Whether it is even at counsellor level or presidential; it is a necessity.
Since COVID-19 started, revenue has suffered setbacks and experts have said it is important for the government to look inwards in terms of revenue generation. How can taxation be developed in this regard?
Let me say it this way, during the COVID-19 era, what we had was business disruption. What happened in most cases was that all of a sudden, businesses were now made to invest more in technology. That is what led to the disruption. Investing more in technology means acquisition of new technology. There is the utilisation part to that technology. People are gradually moving beyond the brick-and-mortar model into the virtual model. And you have a situation where government on its own side now needs to see that the business model has changed. How will the administrative system be able to annex its income from this new business model? That is the first line of disruption. Now, talking about issues of our resources, vis a vis our populations it is common knowledge that we are unable to absorb all our graduates as they are coming out from the universities. It is also common knowledge that the existing workforce are not getting the level of income they need in order to have what is called sustainable living. So, all these are challenges putting pressure on governance itself.
So, what we now need to make our economy move to the next level is to actually do a review, a reappraisal. Where is our money going to? It is that priority that not makes us who we are as people who can think and review and reflect. As a country, how have we reviewed and reflected relating to the type of education we are giving our children. Is it in line with the development model we want to see in the country? Are they reading the right type of courses that can add value to us? In terms of health, are we spending more money going for treatment outside of the country? And how can we deploy that level of resources back within the system and be able to utilise them without travelling out. You talk about the infrastructure, are we building the type of manufacturing hub we want or we are so busy earning income that we are not ready to build an economic base on? If we do not answer those questions, then we have not started. The real test of intelligence is the quality of the questions we ask. Our population will be growing. At 200 million, 35 years from now, it will be about 500 million. How well do we intend to utilise this? So, our challenge actually is not the fact that you keep taxing those who earn income. What if the number of people earning income is diminishing? We have a serious challenge.
So, I believe that our first priority is to actually create income sources. When we create income sources, then for every income source, we improve our task administrative system in order to be able to take a big bank from every income model we have as a country, including the digital world, including the disruptive world, including the virtual world. All these are areas of income we can leverage in order to build the desired economy we want.
Let’s also put it in context. When people make money, people also introduce what I would call the economic inputs. If you bought a bag for N200,000, you must have bought the bag at a cost. How do you determine that cost? You must have a cost and income in order to determine profit. That’s number one. Number two, when you are talking about a virtual thing, you need to start asking where the economic base is. When you determine where the economic basis is, it is now a question of strengthening the administrative machinery in order to get it done.
Do you think states are putting in adequate structures to develop their tax systems?
Now, if you look at it from the perspective of those who are not in the formal economy, a person making money, for example, it means that at that point in time, it is in the realm of the states’ internal revenue services. Now, the developmental models of all our states’ internal revenue services are not on the same footing. You cannot compare Lagos administrative structure, for example, in terms of tax collection, with another state in another part of the country because of the level of investment and the level of capacity-building being deployed by Lagos.
There are some other states that are yet to invest critically in the human capacity of the people that are working in their tax administrative systems. That is the structure of our federalism. You can’t take that way. Our educational system reflects that lopsidedness; our infrastructure system reflects it; a lot of things reflect that. So, we need to have this common standard in order for us to say that this is what we should do. If you don’t build capacity, people will be transferring themselves from the area of high level of capacity building to those areas where they know that the people are not well capacity-utilised in terms of tax. I agree it is a peculiar one, but it is something that we are growing out of overtime as we keep exchanging notes between one state and the other.
The Federal Government signed the Finance Act 2021, which took effect in January this year. What major impact is it having on the tax system?
Without necessarily going into specifics because I realise this is a question that has been recurring since 2019, 2020 and 2021. It is even good that we are talking about the Finance Act because it is addressing almost all areas on annual basis. It keeps testing how effective what is being addressed is. Now, we have the area of the small and medium enterprises. And this is an area where even though tax is not the only consideration that comes in, when you look at business submission, so many things come into play. But from the level of tax, a lot of people find themselves within the SMEs.
Even the SMEs have exempt incomes based on the fact that their turnover is at the level where the government feels that look, we need to go beyond this before we start recognising that they should come into serious tax brackets. But it is subject to review. Why it is subject to review is that one, our exchange rate and so many other things keep sliding every day. This means that what we called N25m, for example, three years ago vis a vis the dollar, when you look at the N25m now and convert it to dollars, it is lower in value compared to the same amount six years ago. So, these are all areas that make the Finance Act a continuous review. I can tell you that as of today, the Federal Government, on its own, is busy listening and the institute is playing a major role.
Credit: PUNCH Newspapers