27th September, 2010
The Special Adviser to Lagos State Governor on Taxation and Revenue, Mr. Ade Ipaye, replies critics of the state’s tax policy and why the policy must remain. He spoke with newsmen recently.
The former Minister of State for Defence, Mr Ademola Seriki, has declared his intention to run for the office of Governor of Lagos State. He says his main mission is to rescue the citizens of the state from the stiff tax policies of the current government. How do you react to this?
Well, I think Honourable Seriki needs time to settle down and study the situation properly. This tax issue requires a close study and deep analysis. I can assure you that he will abandon that line of attack once he has things in the right perspective. To start with, what is a stiff tax policy? Well over 90 per cent of taxpayers in Lagos State pay personal income tax, stamp duties and capital gains tax. Other sundry taxes and levies are not nearly so prevalent. The major ones I mentioned are charged by federal law and the rates are the same throughout Nigeria. Lagos State Government has never and cannot even increase the rates. Rather, we charge less than we should in many circumstances. The difference between Lagos and other states is that we extend the tax net to see that more people are covered and we achieve greater efficiency in our tax administration. Where it was only the teachers, civil servants, doctors, journalists and others in paid employment that were paying their taxes regularly, we now get people in the informal sector to play their part also. Then we get those companies and other employers who deduct monthly but fail to remit to government to do so. If that is harsh, then what do you recommend?
He has also recommended tax exemption certificate for all petty traders…
Wonderful! What do we currently get from petty traders? Something in the region of N2,500 per annum, if at all. That is less than N7 per day or N210 per month. What Hon. Seriki may not know is that most teachers, nurses or junior civil servants pay more than that even though they earn less than the petty traders. The tax rate at the lower levels is between five and 10 per cent. So, if you have teachers in private schools all over the place earning 10,000 per month and paying their tax according to law, or cleaners, hospital attendants, nurses, drivers, gatemen etc, are you also going to give exemption certificates to all those? There is something called equity in tax systems and it is an essential factor. So to do the exemption thing properly you have to determine the level of people you propose to exempt and apply it to everyone at that level, irrespective of occupation. It is not feasible to just say petty traders. Who is a petty trader? When does trading cease to be petty? You see, in public administration specifics are required if you want to develop and implement a policy. Vague, open ended statements won’t do at all.
But he says that several companies have relocated from Lagos because of tax.
Again, the question is how many and why? He should at least know a few. You know we don’t charge or collect companies income tax, we don’t collect stamp duty or capital gains tax from companies. All we ask of them are taxes they collect on our behalf from their employees, directors or contractors. As I said, the rates are fixed by federal law and made applicable throughout Nigeria. The only thing we can be accused of is following up and recovering what is due to government. Now if anyone tells you that they won’t do that, please ask them how they are going to run the government. When companies were complaining of multiple taxation, we were the first state government to sponsor a bill to harmonise the levies chargeable, issue a list that everyone can verify, set rules, stamp out touting and arbitrary charges and make definitive legal provisions to guide tax collection and administration. Even before the law was passed, we started working with Local Government Authorities to ensure that only legal levies were charged and duly authorised officials and agents were employed in tax administration. We also set up a Revenue Complaints and Information Unit which has assisted thousands of Lagosians, individuals and companies get information and to resolve their tax related issues.
What of companies being closed down by LIRS for tax default?
All over the world, countries are only as good as their tax systems and the tax machinery is only as good as its enforcement capability. Not many people would want to pay tax voluntarily. Equity dictates that if you deduct from some people’s salary even before they lay their eyes on it, you should be equally diligent in pursuing others who are also enjoined by law to pay. When we have issues with companies, it is either that they were not deducting taxes that they should deduct or they were deducting and not remitting to government. Either one is an illegal activity. Before we lock up an organisation, we would have served all the notices required by law and given all the opportunities allowed for the company to express dissatisfaction with the assessment or to file an appeal. We always have the proof of service, and that is why LIRS has not been convicted for illegal closure yet. In fact you should wonder how all these cases are quietly resolved. Other states have been coming to us to learn how we achieved this level of tax awareness and efficiency in Lagos and they see the developments taking place as a direct result of that. This is acknowledged worldwide as a positive trend that will pull us up from the underdeveloped level we have been in all this while. So, when anyone stands up to say that he won’t, as governor, enforce tax collection or that he won’t bother with the informal sector, you need to ask how exactly he proposes to run the government. By borrowing, doing business or printing money?
So the Lagos State government is unrepentant about its tax policy?
Certainly! Perfection belongs to God, so we will have problems with individual taxpayers now and then; so we are continually refining our system. We promptly attend to complaints and we remain committed to seeing that everything is done properly, but we won’t ever play politics with taxation. The contributions of even the smallest taxpayers have been their symbol of participation. Every taxpayer becomes part of government and is able to hold government accountable because we are spending his money and he is fully entitled to ask how. All these good things the Fashola government is known for happened because more Lagosians are now alive to their tax responsibility and contribute towards increasing the internally generated revenue. You will see that more people will vote in the next elections because they want to have a hand in deciding who will take and spend their money on their behalf. That is how taxation promotes democracy. As government has more money to spend on capital projects, more people get gainfully employed, more money circulates in productive sectors and the pace of economic development increases. This is apart from the infrastructure and public services delivered, which has made Lagos the envy of other states. All over the world, taxation is the key to development. If in year 2010, anyone suggests that the way forward is to overlook defaulters and grant exemption to a large section of taxpayers, then you should think carefully about the person’s motive because it is contrary to all the accepted principles of public administration and economic management.