‘Nigerian Elite Evade Taxes’
Tax, is such a touchy issue in Nigeria, so much so that the various tax regimes, are viewed with circumspection by most Nigerian elites, who perceptibly, chronically evade taxes. While in most advanced jurisdictions, tax evasion attracts stiff penalties, including jail terms, in Nigeria, the rich are never punished for refusing or neglecting to pay their taxes. The ongoing uproar engendered by the upward review of Land Use Charges in Lagos State, took Onikepo Braithwaite to the University of Lagos Law Faculty, to seek the views of a tax expert, Professor Abiola Sanni on various tax related issues
Prof, there has been a serious outcry against the new Lagos State Land Use Charge Law. Despite the subsequent 50% reduction, people are still protesting that the new Lagos State tax and various charges regime, is oppressive. As an expert in Taxation, do you believe it is oppressive?
There is no doubt that the new Land Use Charge Law, 2018 has generated a lot of controversy, which has put an otherwise popular Governor and his administration on the spot. This reinforces the aphorism that, no one pays tax with a smile, even in climes where there is transparency and accountability in governance. It is important to note that, it was Lagos State that popularised the cliché “Taxpayers money in action”. The fact that Lagosians, to a large extent, can see and appreciate judicious use of taxpayers money, does not mean that they will not engage government and ask critical questions on its tax policy preferences and manifestation. History is replete with how unpopular tax policy, precipi- tated war and collapse of empires.
Property tax is particularly complex, because taxpayers who consider the rate to be outrageous and unacceptable, cannot physically move their properties to another location. This is what inspired the taxpayers in California, to initiate a constitutional amendment which capped the rate of properly tax in what is popularly known as Proposition 13. For me, the takeaway for the Lagos State Government from these developments, is to make a conscious and deliberate effort to consolidate on its manifold achievements, by leveraging on leading practices in its tax policy formulation and legislation.
In response to your pointed question whether the tax is oppressive, I will rather use a well-settled terminology in tax parlance which is equity or fairness. One of the cardinal principles of taxation espoused by Adam Smith in his The Wealth of Nations, which is reinforced in the Revised National Tax Policy, is equity. For the category of taxpayers whose tax burdens have been significantly increased
“IT WOULD APPEAR THAT, NOTHING PREPARED TAXPAYERS GENERALLY FOR THE INCREASE. WHILE THE STATE HOUSE OF ASSEMBLY MUST HAVE DONE A PUBLIC HEARING TO FULFILL THE CONSTITUTIONAL RITUAL, IT APPEARS THAT CRITICAL STAKEHOLDERS HAVE NOT BEEN CARRIED ALONG”
suddenly, it would be unfair. The sense of unfairness, cannot be rationalised by generous treatment of another category of taxpayers. It would appear that, nothing prepared taxpayers generally for the increase. While the State House of Assembly must have done a public hearing to fulfil the constitutional ritual, it appears that critical stakeholders have not been carried along. In future, I will suggest that the type of open and frank consultative meetings which took place after the crisis, should have come before the passage of the law, in order to gauge the public pulse and form a consensus on critical issues. I will urge the Government, to urgently rethink the policy of imposing charges on drilling of boreholes and water treatment, if the document on the scale of charges circulating in the social media is true. Without mincing words, that will be tyrannical and oppressive.
There have also been questions about the legality of the Law, as some aspects of it seem to be unconstitutional, like the collection of tenement rate which the Constitution makes the exclusive preserve of the Local Government, and the attempt to devolve this constitutional power to the State by virtue of the new Law. Kindly, comment on this.
This is a tricky question. Let me clarify that, it will be wrong to suggest that the entire law is illegal and unconstitutional. Rather, the concern on constitutionality centres on the section which permits the local government to delegate the collection to the State. Having said that, the provisions of Section 7 item I(J) of the Fourth Schedule of the Constitution seems clear enough; to mandate every State to confer the function of levying tenement rate on a local government. The basis of this, in my view, is to give local government access to independent revenue, with which it can discharge its functions. However, due to the near collapse of the local government system in Nigeria, it is almost illusory to expect local government, to efficiently perform this role. The need to reinvigorate the property tax system, led to the introduction of the Land Use Charge Law of 2001. I did a critical review of the Law in an article, which the new Law could have benefitted from.
Anyway, irrespective of the popular view that section 3(2) of the Land Use Charge Law is unconstitutional, the Lagos State High Court had held in a number of cases that there was no constitutional infraction. However, in GRINAKER v ATTORNEY GENERAL OF RIVERS STATE, a similar provision in the Property Law of Rivers State, was declared as unconstitutional. The Land Use Charge Law of Osun State, recently suffered the same fate however, on the basis that a House of Assembly not known to law enacted it. Anyway, it is elementary that decisions of the Rivers and Osun State High Courts on this matter, have no force of law in Lagos State. So, Land Use Charge Law remains constitutional in Lagos State, until the decisions are set aside on appeal, or there is a pronouncement of the Court of Appeal or Supreme Court on the matter. I have consistently advocated through my writings, my preference for strengthening the local government system, through appropriate decentralisation of critical responsibilities to them, rather than the current centralisation even at the State level. It is doubtful if there can be sustainable development at the grassroots, without a well-structured and well-funded local government system.
Lagos Residents have over the years, complained about being the most taxed in Nigeria, in comparison to Residents of other States. Is this true?
It is not correct, to state that Lagos State residents are the most taxed in Nigeria. Practically all the tax laws existing in Lagos State, also exist in most states of the Federation, except the Wharf Landing Fee. Even taxes that did not previously exist in those States, are now being enacted as by other States, including non- APC States who tend to copy Lagos. And the rates are the same, even though in an ideal federal system, taxes cannot be uniform. Tax rates in the cities may not be the same in the provinces. The correct statement may be, that Lagos State is the most “tax aware” State in Nigeria. We can trace this development to the advent of the administration of Asiwaju Bola Ahmed Tinubu, which envisioned a State run mainly through taxes. Whatever people may say about Asiwaju, without his vision, Lagos would have also been drenched by fiscal rain, and be on the verge of failure like some other States. All the manifestations of fiscal adversity, would have had multiplier effects in Lagos, far beyond smaller States. With a relatively decent investment in the establishment of Lagos State Internal Revenue Service (even before the FIRS was established under a statute), Lagos State was able to recruit experienced and innovative people from the private sector, to drive the reform. That Mr. Tunde Fowler now calls the shots at FIRS, is a testimony that Lagos tax reform has largely succeeded. I wish and pray, that we do not fritter the goodwill and the brand advantage.
What is your assessment of the nation’s tax regime? What can be done to improve it?
The problem of the Nigeria tax system, is well documented. The National Tax Policy 2017 listed 11 critical issues, which we must focus on as a nation. They include lack of a robust framework for the taxation of the informal sector and high net worth individuals, fragmented database of taxpayers and weak structure for exchange of information by and with tax authorities, inordinate drive by all tiers of government to grow internally generated revenue, lack of clarity on taxation powers of each level of government, and encroachment on the powers of one level of government by another; poor accountability for tax revenue; use of aggressive and unorthodox methods for tax collection; failure by tax authorities to honour refund obligations to taxpayers; the non-regular review of tax legislation, lack of strict adherence to tax policy direction and procedural guidelines. The list is almost endless.
In my view, the expression of these challenges, constitutes an admission in the National Tax Policy, that all is not well with the Nigerian tax system. My take is that, focus should now be on how to develop appropriate responses to get out of the fiscal wood. Stakeholders in the system, should devote their intellect and energies on designing a new tax system, which will be simple, administrable and efficient, as envisaged by the Revised National Tax Policy.
Many are complaining that in a country where most people have to provide their own services, like electricity and water, while the roads are practically non-existent and public education and healthcare are almost nil, that it is unfair to make people pay such high taxes. That instead, Government should reduce expenditure on frivolities. Do you agree?
The question speaks to a general lack of basic infrastructure, which are taken for granted in other climes. It is most unfortunate, and negatively impacts on tax culture. If taxpayers in developed societies are not happy paying taxes; you can then imagine what the attitude would be in a society where taxpayers spend private funds to do or mend road, provide security and other basic amenities. It is even worse, because of the pervasive corruption in the public sector, which makes it difficult even in accessing available public services. In some cases, it is like daylight robbery. Imagine where a complainant has to facilitate the police to get them to act, or is made to pay a civil servant for “pushing” your file. There is no doubt that, more revenue will be available for infrastructure development, if we minimise waste and white elephant projects. But I think that, the problems run deeper than just availability of revenue for developmental projects.
States have continued to be in an unending contention about the sharing formula of Value Added Tax (VAT). The main argument has been that, some States like the core Northern States, which prohibit the consumption of alcohol and some other activities that are subject to VAT, have no moral justification to share from VAT revenue generated from other States that do not prohibit such activities. How can this be resolved?
Let me correct one general erroneous impression. A significant amount of VAT revenue comes from importation, which is clearly beyond the powers of States. To that extent, all States are entitled to share from the revenue accruing from international and inter-state supplies of goods and services. This however, does not minimise the clamour by advocates of fiscal federalism on the constitutionality of VAT under the extant Constitution.
The Federal Government should come to terms with the fact that, an important aspect of VAT on intra-State supply of goods and services, is essentially within the taxing powers of the States. It is therefore, ultra vires the Federal Government, to
“NO TAX AUTHORITY IN NIGERIA, HAS THE POWER TO IMPOSE TAXES ON PROPERTIES THAT ARE SITUATE OUTSIDE NIGERIA, SINCE TAX IS TERRITORIAL. HOWEVER, NIGERIA CAN IMPOSE TAXES ON INCOMES (RENTS) DERIVED FROM PROPERTIES SITUATE OUTSIDE NIGERIA, IF THE OWNERS OF THOSE PROPERTIES ARE RESIDENT IN NIGERIA”
continue to impose and collect VAT on intra- State supply of goods and services. Hence, the Federal Government should yield the power to administer VAT on intra-state supplies to the States. As more States introduce their consumption tax alongside VAT; following the Lagos State model, the problem of multiplicity of taxes will be exacerbated. States who desire to continue with the federally administered VAT, should be able to work out the modalities for such an arrangement, while a State like Lagos and few others, who desire to stand alone and administer their consumption tax, should be free to do so. Lagos State should internally resolve the multiplicity of taxes, arising from the concurrent administration of VAT and its consumption tax. It should take an informed decision on whether to stay with VAT, or go the whole hog in implementing its consumption tax. If it chooses the latter, which to me is a better option, the base of the consumption tax should be widened beyond the tourism and hospitality sector. This will require an amendment of the charging clause of the Hotel Occupancy and Restaurant Consumption Law, to include all taxable intra-state supply of goods and services, and the adoption of a new title which is general and not hospitality sector-specific.
What is your opinion on the Federal Government’s VAIDS tax regime?
VAIDS (otherwise known as Tax Amnesty), is one of the strategies for encouraging voluntary compliance and widening the tax net by offering incentives (sweeteners) for those who have been defaulting on their tax obligations to come clean; within a specified period of time; failing which the full weight of the law will be brought against them. It is a good programme which, if implemented properly, will yield manifold advantages. First, there will be increase in revenue. Secondly, it will help the government to gather and enrich its taxpayers’ data base. Thirdly, it will increase compliance, as more people will take advantage of the fact that they will not be prosecuted or made to suffer interests and penalties, for failing to pay or remit taxes. In addition, it will provide the government with more and better arsenals, to prosecute recalcitrant tax defaulters. Various countries have at one time or the other, implemented tax amnesty with fantastic results. For example, it was recently reported that, Indonesia realised over 8 Billion USD from tax amnesty last year. So, in my opinion, it is a right step in the right direction. I commend the Honourable Minister of Finance, Mrs Kemi Adeosun for this initiative. Posterity will remember her, for this quantum leap.
Lately, we have been hearing that Nigerians will now be taxed on the properties that they own outside Nigeria. How will this particular tax operate? In a situation where for instance in the UK, people have bought their properties by means of mortgages meaning that they do not own the property in entirety until payment is made in full, does this tax still apply to them?
I do not think that information is correct. No tax authority in Nigeria, has power to impose taxes on properties that are situate outside Nigeria, since tax is territorial. However, Nigeria can impose taxes on incomes (rents) derived from properties situate outside Nigeria, if the owners of those properties are resident in Nigeria. Accordingly, the focus of the Personal Income Tax Act, is on income and not properties/assets.
What is being currently carried out is an investigation on the properties abroad owned by Nigerians resident in the country, to determine whether the owners of these properties have either discharged their tax obligations in Nigeria, or paid taxes on their global incomes including rent, dividend, interest from their offshore investments/ assets.
Are Tax Tribunals really fulfilling their statutory roles?
Tax Appeal Tribunal (TAT), has no doubt filled an important gap since their establishment until the term of the Chairmen and Commissioners lapsed in 2016. As a publisher of All Nigerian Tax Cases (a compendium of all Nigerian tax cases since 1922 till date consisting over 500 tax cases), the project would not have seen the light of the day, without the contributions of the TAT. Having said that, I believe that, the time is ripe for us to have proper tax courts as recommended by the National Tax Policy. It will be recalled that the Federal High Court (formerly known as the Federal Revenue Court), was initially established as a revenue exclusive court, until its jurisdiction became convoluted during the military era. While this will require a Constitutional amendment, it is achievable in the long run. At a recent retreat organised by the FIRS for members of the National Assembly, a few Legislators expressed their support for this recommendation, which is an indicator that the conversation is gaining traction.
Kindly, shed some light on their composition and legality.
In terms of composition, the Tribunal is established in different zones. Each zone is made of up of five Commissioners headed by a Chairman who is Lawyer, well versed in tax law. Other members are a mix of Lawyers and other non-Lawyer tax experts. By reason of their composition, they ordinarily should not dabble into core legal issues, but they are vested with jurisdiction to adjudicate on all disputes arising from the operation of the federal tax laws, which I think is too wide. The focus should have been on, dispute on assessment.
While some claim that the common man who is in the majority, does not pay tax at all
“HOWEVER, THE ELITE, BY VIRTUE OF THEIR WEALTH, ARE ABLE TO HIRE EXPERTS HAVE STRUCTURED THEIR BUSINESSES IN A TAX EFFICIENT MANNER, LARGELY AVOID TAX. THE ONES THEY CANNOT AVOID, THEY EVADE”
“I SINCERELY THINK THAT IT IS CONCEPTUALLY, LEGALLY, AND CONSTITUTIONALLY WRONG, FOR A COURT TO ENTERTAIN A SUIT WHICH SEEKS TO TIE THE HANDS OF THE NATIONAL ASSEMBLY, IN THE EXERCISE OF ITS CONSTITUTIONAL POWER”
(aside from those that are forced to by virtue of PAYE), the man on the street claims that it is the Nigerian elite that are notorious for tax evasion and they are never really prosecuted for tax related offences. Are these assertions true?
The two assertions are true to a large extent. Most of the “common men” usually belong to the sector of the economy, known as informal economy. Transactions and payment in this sector are undocumented and difficult to track, so they are off the radar of the tax authorities and therefore, untaxed. The informal sector is quite huge, and larger than the formal sector. However, the elite, by virtue of their wealth, are able to hire experts who have structured their businesses in a tax efficient manner, largely to avoid tax. The ones they cannot avoid, they evade. If it may be asked, how many so-called big men have been convicted for tax evasion in Nigeria? The recent exposé by the Vice President, that only 214 big men pay taxes in Nigeria, is a pointer to the fact that Nigerian big men do not pay taxes. So, the statements are correct to some extent. It suffices to say that, VAIDS is aimed at addressing some of the perceived inequities in the tax system.
As crucial as it is, Taxation Law does not seem to be a popular subject taught in Law Faculties or the Law School. Yet, it is a growing and lucrative area for Lawyers. Having taught the subject for so many years, how can the curriculum be tinkered with to fully accommodate Taxation?
The story is changing. Taxation was not available, when I was in the University. I virtually read up the subject, in the course of my teaching and research. The first tax class I taught at the Obafemi Awolowo University under the mentorship of Prof Margaret Okorodudu-Fubara, consisted of only 7 students. Tax classes are now larger in the region of about 150 students, at both undergraduate and postgraduate levels (Master of Laws Degree). There are Tax Clubs in tertiary institutions across the country, and even all the secondary schools in Kwara State. To me, these are the future of the Nigerian tax system. I use this opportunity, to appreciate and commend all the institutions and persons, supporting the project. The Chairman of the FIRS and Joint Tax Board, Mr Tunde Fowler, the President of the Chartered Institute of Taxation of Nigeria, Lagos State Internal Revenue Service (LIRS), Kwara State Internal Revenue Service (KWIRS) and the Big 4, deserve special mention.
There are on-going efforts in University of Lagos, to introduce Taxation at the Bachelors and Postgraduate levels. Most of the practitioners now, are accidental tax practitioners. We need to encourage young persons, to elect from the onset to study taxation the way people choose accounting, law, medicine, because they have mentors who have succeeded in that field. Then, we will have well-rounded students with knowledge of economics, legal and administrative dimensions of taxation.
There has been an ongoing debate by Lawyers about the Election Act Amendment Bill, as to whether the National Assembly can change the sequence of the elections. What is your opinion on this issue?
Beyond legalism, I think our basic concern should be on the credibility of the processes, rather than the effect of the political manoeuvring of the legal framework by seekers of elective offices. I really do not see how the outcome of the sequence, will affect the common man in the real sense. So, we should leave those who are contesting election, to worry about the consequences of the sequence, while we live with what is provided in the Electoral Act, as amended.
Having said that, while I appreciate the value of separation of powers and checks and balances, I believe the intrusion of the National Assembly into the executive turf, is becoming unacceptable. Besides politics, what could be the basis for the Legislators foraging into purely executive matters? In the University where I work, Senate approves the period of examinations, while the nitty-gritty of administration, is left for the management. The right question to ask, is whether the attempt by the National Assembly, has succeeded in overriding the well- established line of judicial cases, that sequence of election is an executive matter, either the Amendment of the Constitution or the Electoral Act. If the answer is in the affirmative, we have to err on the side of the existing law, and clamour for its review in future, if considered intrusive and unacceptable.
Does the court also have the power to stop the National Assembly from performing an act that is provided for by the Constitution, that is, to override the President’s veto on a Bill?
There are express provisions in the Constitution, empowering the National Assembly to override the Presidential veto. To that extent, there is nothing wrong if the National Assembly decides to activate or leverage those provisions. I believe that by so doing, our jurisprudence will be enriched. Their motive is secondary. I sincerely think that it is conceptually, legally, and constitutionally wrong, for a court to entertain a suit which seeks to tie the hands of the National Assembly, in the exercise of its constitutional power. It is wrong, in my view for a court to issue an injunctive order against the National Assembly, in these circumstances. The proper thing, in my view, is to challenge the exercise after it has been exercised, not before.
Of what advantage would it be for Nigeria if the Petroleum Industry Bill is passed?
For one, it would bring about stability and certainty to the petroleum industry. The uncertainty surrounding that sector, owes to a large extent to the non-passage of that Bill. This also makes investment in that sector very difficult, as no businessman worth his salt, would love to invest in an environment full of uncertainty. I have always advocated that the fiscal aspect should be severed from the Bill, considering the nature of taxation and the rules on interpretation of taxing statutes. I don't agree with the logic of consolidating all the laws applicable to a sector, into a single statute. It is just unwieldy. If the logic is sound, why are we not applying it to all sectors, such as financial institutions and even the university system. Even when these laws are scattered in different statutes, practitioners have no difficulty in collating them into a compendium. So, what is the sense in an omnibus law, that has taken almost forever to be passed into law?
What is your opinion about Restructuring Nigeria? How do you think Government should go about this? Since the proscription of IPOB, it seems that the movement for Restructuring et al seems to have lost steam.
I am an advocate of Restructuring. I honestly believe that, Nigeria is not going anywhere without Restructuring. Restructuring will bring about efficiency, in terms of allocation of resources. Allocation of functions, should be done based on the doctrine of subsidiarity. If the States are in the best position to provide certain services such as policing, it makes no sense to centralise it, while the States continue to share the cost with the Federal Government. The current challenges facing the nation, have rather brought the issue of restructuring to the fore. You can see that even APC who failed to deliver on its election campaign to restructure, is again posturing to be determined to do so.
I believe that, the struggle for restructuring predated, and is bigger than IPOB. The radical approach of IPOB and the Niger Deltans, has however, reinforced the imperative of restructuring. I believe that in the long run, we are all victims of over-centralisation, including those who are benefiting from the current arrangement.
The Lagos State Government recently endowed a Chair on Taxation, of which you are the pioneer distinguished Lecturer. Kindly, shed some light on this.
Lagos State broke a new ground, by being the first State in Nigeria to invest in a professorial chair. The main object, is to provide finance over a period of time towards teaching, research and public service, on State and local government taxation in Nigeria, on which I am passionate. The whole idea is that, the occupier of the Chair, will be able to meaningfully contribute to the development of State and local taxation in the State. I owe Lagos State Government a debt of gratitude, for this honour, and I hope that they will take full advantage of what the Chair has to offer. Governor Ambode has challenged us to come up with innovative ideas, and this is what we hope to do. My prayer is that other States and the Federal Government, will follow the lead of Lagos State in this regard.
You have authored several books, including one on Taxation which you recently published. What is your book ‘Introduction to Nigerian Legal Method’ about?
I will like to say that the best is yet to come, in terms of my offerings on law of taxation. I am humbled, by the rate of penetration of The
Nigerian Legal Method in Nigeria and West Africa Sub Region. Since its publication, in 1997 (21 years ago), the book has enriched the teaching of the subject. I edited the book as a Lecturer 1 while at OAU, providing leadership for colleagues who contributed to it. The book is long overdue for review. By the grace of God, that mission will be accomplished before the end of this year.