Taxation is acknowledged as a very essential instrument for development and growth in many societies. The Lagos State’s enviable Internally Generated Revenue over the years is predicated on this. It has not only helped the state to provide better services within its jurisdictions, but positioned her as a model in Nigeria. However, taxable adults and establishments often evade and avoid tax payment, hence depriving the government of revenue. ISIOMA MADIKE, in this report, attempts to peep into the efficiency of tax administration in the state as it concerns tax net, avoidance and evasion by companies or corporate entities operating within the “Centre of Excellence”

The Lagos State tax system, like most in other climes, is said to be fraught with crippling challenges of compromises, avoidance, and outright evasion. This, according to some insiders, is making the state to lose huge revenue running into billions of naira yearly. Just recently, a popular Nollywood actor, Iyabo Ojo, was reportedly asked to remit the sum of N38 million, her supposedly accrued Personal Income Tax (PIT) to the state.

The movie star took to her Instagram account on September 12, to lament the tax debt levied on her by the Lagos State tax agency. In a long post on Instagram with a picture of the tax papers, according to an online news portal, Pulse. ng, which she was said to have subsequently deleted, Ojo was said to be contemplating shutting down her chain of firms. She equally was quoted to have complained to be struggling to make little or no profit from the said businesses.

The single mother allegedly tagged the Lagos State Governor, Babajide Sanwo-Olu, in the post where she wondered how the tax officials arrived at the sum for her PIT. The Instagram post read in part: “It’s so sad that I may have to finally close down my business soon… because I don’t even know how or where to start this negotiation with Lagos State from. I’m still struggling with making profit, after paying rent, salaries, maintenance, electricity, local and state government taxes in different categories and levy.

I hardly make little or no profit. “My fellow Nigerians I have been asked to pay almost 38 million for my income tax to Lagos State. 2014–2017, I was still struggling with my small business in Ikeja, like I’m still even doing now or is it from my acting that we are poorly paid or from where now? Retiring looks like the next option because doing business is very frustrating in Nigeria.”

Ojo launched her business line in 2016 with the name Fespris, which included a spa, salon, facials in its kitty, while a restaurant and lounge were added in 2019. Incidentally, Ojo was not the only one, who has had issues with the Lagos tax office. Former Super Eagles captain, Augustine ‘Jay-Jay’ Okocha, has been having a running battle with the state tax agency for alleged tax evasion also. According to a report by the Nation Newspaper on May 28, Lagos State High Court, Igbosere, Lagos, renewed the arrest warrant it issued on him nearly two years and 11 months ago. Justice Adedayo Akintoye was said to have made the renewal following Okocha’s alleged repeated failure to conclude an out-of-court settlement with the Lagos State Government. He was also accused of failing to appear in court to answer to the charge.

The ex-footballer was issued a similar bench warrant in February for alleged failure to appear in court several times to answer questions on why he allegedly failed to pay his income taxes.

The prosecutor, Dr. Jide Martins, had on June 6, 2017, filed the charge. The case came up for the first time on October 5, 2017, but Okocha allegedly refused to appear in court. The prosecutor had told the court that Okocha had failed to furnish the Lagos State Internal Revenue Services (LIRS), with a return of his income for tax purposes. He said that the offence contravened Sections 56 (a) and (b) of the Lagos State Revenue Administration Law No.8, 2006, and Section 94 (1) of the Personal Income Tax Act Cap P8, Laws of the Federation of Nigeria 2004.

A tax agent of a Lagos-based company, Kehinde Babatunde, who allegedly defrauded of N2.4 million meant for tax payments, according to the Nation’s report on August 20, also appeared before an Igbosere Magistrates’ Court in Lagos. Babatunde, 44, was arraigned on six-counts of fraud, forgery and stealing by the police, before Mrs K. S. Abdulsalam. Prosecuting Sergeant, Friday Mameh, alleged that the defendant committed the offences from 2017 to sometime in 2018 in Lagos.

The court heard that the defendant obtained N2.4 million from his employer, DKR Associates, for remittance to LIRS as the firm’s annual tax payments but converted it to his use. Mameh said the defendant forged LIRS receipts of February 6, 2017, with serial numbers 35911480/ MINOHGAG and that of May 8, 2017, marked 35742568/UJKEHKND. According to him, the defendant also forged three Skye Bank deposit slip in the name of LIRS deposit slip “so that the documents would be acted upon as genuine to the prejudice of DKR Associates.”

Mameh was quoted to have said that the offences contravened Sections 287, 314, 336, 337, 365(3) and 411 of the Criminal Law of Lagos State, 2015. Babatunde however, pleaded not guilty to the charges and was subsequently granted bail. In February 27, 2018, the tax agency reportedly shut 20 hotels, restaurants and event centres also because of their failure to remit taxes.

The Director of Legal Services of the LIRS, Seyi Alade, according to Punch report, made the disclosure in an interview with the News Agency of Nigeria (NAN) on the sidelines of a tax law enforcement exercise, conducted in Lagos at the time.

Alade was quoted to have said that the affected firms owed the state government a total of N295.49 million. The report added that the state had started full enforcement of all aspects of the tax laws on tax defaulters. According to him, sealing off hotels and other facilities will be eradicated, due to the coming into operation of the Hotel Occupancy and Restaurant Consumption (Fiscalisation) Regulation, 2017.

He said the new regulations had made it mandatory for all hotels, restaurants, event centres and other entities liable to consumption taxes, to allow integration of the Electronic Revenue Assurance Systems (ERAS Alade had said: “ERAS is a software application or device that issues invoices and receipts to consumers, bearing a unique QR code, detailing the items and/or services ordered and in an embedded automation of consumption tax remittance in real time.

“It is a measure that will allow the LIRS to have efficient oversight of all sales transactions undertaken through these entities. The system offers transparency to the entire management and operational system of the entities and it is also of immense benefit to the tax collecting agents.” According to Alade, this is not a new law, but compliance machinery with the existing Hotel Occupancy and Restaurant Consumption Law of Lagos State, towards aligning with global best practice in the use of technology and automated solutions.

He noted that the system was long in operation in countries like Kenya, Rwanda, among others, adding that Lagos State could adopt it to enhance effectiveness of its taxation and revenue generation system. He warned that failure to be integrated into the ERAS platform was an offence punishable with fines and jail terms upon conviction by court.

He went on to appeal to business entities liable to consumption taxes to endeavour to be integrated into the ERAS platform and ensure prompt remittance of taxes to avoid disruptions to their businesses. Before then, LIRS had shut down 11 hotels, restaurants and event centres over N355 million tax evasion in December, 2017.

Alade had said this after a state-wide tax law enforcement exercise. Quoting NAN, Vanguard Newspaper reported that the government had started full enforcement of all aspects of tax laws on defaulting taxpayers.

Alade, the paper added, further warned that failure to file Annual Tax Returns (ATR), false declarations in returns filed and evasion of taxes were criminal offences punishable by severe fines and jail terms upon conviction by a court. “Any failure to deduct and remit taxes as and when due in Lagos State will now attract very serious monetary penalties.

These penalties include sealing of the company, seizure of the goods and chattels and criminal prosecution of principal officers of recalcitrant entities. We are presently prosecuting 52 high net-worth personalities and 20 entertainment celebrities before the state High Court for offences ranging from failure to file Annual Tax Returns, false declaration in returns and tax evasion,” he had said. He added that over 200 corporate bodies were currently being prosecuted before the High Courts for failure to file returns and remit their taxes to the government.

Alade advised that taxpayers should take advantage of the window of opportunity created by the Voluntary Assets and Income Declaration Scheme (VAIDS), to regularise their tax status relating to previous tax periods. He had said: “In exchange for full and honest disclosure of assets and income, such taxpayer will benefit from the forgiveness of overdue interests and penalties till December 31, 2017.

Declarations made from January 1, 2018, will attract interest but no penalties up to the end of the scheme on March 31, 2018.” He appealed to all taxable individuals and business entities operating in the state to ensure prompt remittance of their taxes to avoid the additional payments of interests.

Alade added that business entities and taxable individuals who failed to remit their taxes promptly would also suffer penalties and disruptions to their businesses as a result of tax evasion. Little wonder, the then state governor, Akinwunmi Ambode, complained of tax avoidance, when he stated that only three per cent of the inhabitants of Lagos paid tax.

He was quoted by an online portal, Premium Times, to have said that unpaid taxes were preventing the state government from improving infrastructure in the state and from dealing with challenges such as flooding.

The former governor had said:“The number of people paying taxes in Lagos is less than 600,000 people and we are 22 million and then 67 per cent of the people living in Lagos are below the age of 35 and even the retirees, how much are they paying?” He had also complained that there had been no increase in tax revenues over the past decade in Lagos and that low-level avoidance was harming the city.

“Nobody takes it as their business that the new road I am using, I need to pay something. What I am saying is that there must be a convergence between civic obligations and the ability of government to build trust and be able to tell people that you know what, the little that you are giving me, I will use it judiciously,” he had said. Flood has remained an intractable challenge in the “Centre of Excellence”, which often times is worsened by poor drainage system, making traversing business district a herculean task many a time.

Lagos, said to be one of the world’s most populous cities with an estimated population of over 25 million people, is believed to be bigger than Los Angeles and Russia’s capital, Moscow. With such a large and fast-growing population, according to some opinions, Nigeria is expected to overtake the United States as the world’s third most populous country by 2050; as such the country’s mega city ordinarily is expected to boost a huge tax base.

But, head of Tax and Regulatory Services at PwC Nigeria and Tax Leader for PwC West Africa, Taiwo Oyedele, an author and public speaker on tax, business and economic matters, in one of his writings, quoted Sven Steinmo, to have said that “Governments need money. Modern governments need lots of money. How they get this money and whom they take it from are the two most difficult political issues faced in any modern political economy.”

Paying taxes, Oyedele added, was not particularly easy anywhere in the world for anyone who had expended time, energy and other resources to earn the income. The major reason for this, according to him, is that there is no direct benefit for tax payment.

“How well you enjoy social services and public infrastructure is not a function of how much tax you pay hence people will avoid paying if they can,” he further said, adding, “taxation is a more reliable and predictable source of revenue but it comes with its own challenges, especially in a clime where the rate of compliance has been historically very low.” Tax avoidance is considered to be a matter of being sensible. While the law regards it as a legitimate game, tax evasion is seen as immoral and illegal.

It is viewed as an outright, dishonest action whereby the taxpayer endeavours to reduce his tax liability through the use of illegal means. Tax experts are of the opinion that tax evasion is a fraudulent, dishonest, intentional distortion or concealment of facts and figures with the intention of avoiding the payment of or reducing the amount of tax otherwise payable. This, according to them, is accomplished by deliberate act of omission or commission which in them constitute criminal acts under the tax laws. These acts of omission or commission might include: Failure to pay tax; failure to submit returns; omission or misstatement of items from returns; claiming relief (in Personal Income Tax), for example, of children that do not exist; understating income; documenting fictitious transactions and overstating expenses.

In general, tax evasion and corruption can have unclear effects on economic growth. But evasion increases the amount of resources accumulated by businesspersons, and reduces the amount of public services supplied by the government, thus leading to negative consequences for economic growth. It is, in the valuation of tax experts, an intentional effort by people, corporate bodies, trust and other institutions to illegally refused to pay their tax and report true and fair value of their earnings by a means of evading. It involves taxpayers consciously misrepresenting or hiding the true position of their affairs to the relevant tax authorities to ease their tax burden.

However, taxes, and tax systems, are fundamental components of government revenue generation. They form one of the central arenas for the conduct of state-society relations, and they shape the balance between accumulation and redistribution that gives states their social character.

Thus, taxes build capacity to provide security, meet basic needs or foster economic development and they build legitimacy and consent helping to create consensual, accountable and representative government. Meanwhile, Abiola James of the Department of Accounting, Lagos State University, noted in one of his research works the danger of inadequate tax collections. He said, for instance, that financing of the resulting budget deficit through borrowing can cause unsustainable increases in the state public debt.

In the alternative, revenue shortfalls, he added, shrunk the budgetary resource envelope, thus, affecting the government‘s ability to implement its policies and programmes and provide public services. He added: “Unexpected dips in revenue collection also cause budget cuts that result in major inefficiencies in the public expenditure management. Successive administration of Lagos State in recognition of this developed improved revenue administration structure targeted at increasing internal revenue accruable to the government. The state might have primed on this as it is presently ranked first by National Bureau of Statistics (NBS) with the highest IGR in the federation.

The revenue generated by the state, according to NBS, stands at an impressive N268.2 billion, a major source of which is tax from top companies, business owners, citizens and also from investment.

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