Recently the chairman, Lagos Internal Revenue Service, Mr Ayodele Subair, spoke about the technology application in the collection of the state’s consumption tax, saying it is targeted at improving efficiency while plugging leakages.
REFLECTING on your consumption tax you recently unveiled an e-payment platform. Can you shed more light on it?
It’s an electronic way of recording all sorts of transactions. Consumption tax is applied when goods and services are consumed in hospitality sector, hotels, restaurants, events centres, night clubs and bars, so basically when a member of the public goes to these various centres either to buy goods or services or to get a renting space in any of these establishments, we charge five percent on their invoice.
So that is what the consumption tax is all about, and the e-platform is about digitalizing the whole process electronically by making sure we improve transparency and collection of remittance of this to the tax authority then to the state government.
What is the level of compliance, and why did it take you so long so launch this technology?
Generally, most forward looking organisations are adopting a lot of technology in the approach to doing business.
This technology based system has been established in some developed and developing countries, and Lagos being the trailblazer, we want to improve on the efficiency in collection of consumption taxes. So we have decided to leverage on the technology also and try to adopt the HRC law which was passed in 2009. We have not been totally efficient in the collection of consumption taxes due to sharp practices that the hotel owners and the other business people have been applying over the years, we decided that in other to increase efficiency and reduce the amount of leakages in the system, we need to apply technology and that is why we are launching this initiative.
On the level of compliance, we had the stakeholders meeting some weeks ago and from last week Monday (three weeks ago) we had started going out. We have to first educate the collecting agents, the owners of hotels and others because they will interface with the public, collect the consumption tax and then remit to us. We first have to engage them and teach them how to use all the systems that are about to be installed in their various places, we have to give them a little bit of time, many of them had to upgrade their computer environment and we generally had to train them also.
So right now we have decided to install the electronic devices into their system and it has been going on well. We didn’t have any resistance, gradually we have teams that are going out to all these centres, we look at where we have limited resources then we first concentrate on that area for establishment. We will eventually reach out to everybody, we have started installing the EFD and we don’t have issues.
How much did you generate from consumption tax last year and how much do you hope to collect under the new system?
Last year average we got was between N200 and N250 million and it is going towards about 300 million a month. But we anticipate that before the end of the year we will be looking at between N800 million to N1 billion with this technology.
Is the Lagos Internal Revenue Service in partnership with any Fintech on this? And what is the impact on jobs and employments.
You have to sacrifice one for the other, is either you want to increase efficiency or you don’t. There is a lot of inefficiency going on, so Fintech is not only increasing efficiency but transparency, aside from the technology itself and the people, we still need to have a lot of staff that are still going to man the system, monitor the environment and involve in any dispute reconciliation, for instance, if the electronic device goes off we need to know them, then deploy human beings to go and look at the set-up. So there is still a lot of people in the employment.
Is there any incentive for compliance?
You have to comply with the system because it is the law. Once you are in a hospitality business, you have to comply with it and it has a lot of benefits, both on the side of the administration, the consumers, and also on the side of property owners and the collecting agents. In terms of collecting agents, their own benefit is to increase accountability and transparency that the system brings into the businesses.
For instance in a hotel, with the presence of the electronic devices, no matter where you are you can tune in your laptop and view your transactions. Definitely the transparency will go up for you.
On the side of the consumers, there is a reward on royalty scheme that is attached to the system; there will be a raffle draw that will take place weekly, monthly and annually and in this raffle draws your entry ticket is the invoice that you will get from patronising our various centres. It’s an electronic system that has a unique ID number in every receipt.
So with that invoice you get an automatic entry into the raffle draw, the raffle draw is done by the best practices, they provide report for all lotteries and raffle businesses. All the systems of the raffle draw will be certified by them because they are the ones authorised by the law to do so. There are lots of raffle prizes, like electronics, possibly motor vehicles, ticket to travel outside the country on vacation, ticket to travel within the county and other prizes which will be unveiled over time. So the benefit to the tax authority is that it will help plug all the leakages and indirectly increase our revenue for development.
In terms of increase in revenue, it will help keep better financial records, we establish our position over time, true trend and we have other criteria’s that we use, we have those electronic and physical devices that interface between their own system and our own system. So as they are recording the transactions we are also viewing on our own monitors, so everybody is connected. We can view if there is a drop in sales suddenly; we investigate and dispatch an emergency team to those premises.
What category of restaurants and hotels are you looking at
We are looking at all. We classified them as structured and unstructured hotels; the structured hotels are usually the big brands, which also covers the local brands and African brands.
Have you started deploying monitors in terms of revenue and compliance?
You know everything is evaluated maybe weekly, monthly, or annually, so it’s a bit early for us to jump to conclusion on all these things. But before we did the implementations we went through different processes. One of the processes was a pilot study. Some operators allowed us to plug in our devices into their cash registers, and we saw the impacts, but a lot of businesses do not report the correct amount and this is what we are trying to correct. It’s going to take us a while to reach the whole of the states and a while to redeploy for operators to get use to it. We need to be understanding and come up with a system which will take some time.
Is this system being practised in other countries or is it just a Nigerian innovation
It is not a Nigeria innovation; it’s already a system that has been in practice in other developed and developing countries. In Africa we have countries like Ethiopia, Rwanda who have established this ERC system and is working effectively and efficiently. We also have countries like Sweden, Italy, Belgium and so many other countries. There is still levels of primitive measures, if your electronic physical device (EFD) is not working, you are expected to report to LIRS but a failure to report will attract primitive measures, we compute what we have lost and we charge you penalty of 10 per cent and also interest of five per cent above the minimum discount rate of the Central Bank of Nigeria, then when you fail to carry out a provision like not declaring properly will attract a fine of N2million, six months imprisonment, either or both. So we enjoin all operators to make sure they adopt sincerity in the sector.