Adedayo: Finance Act Requires Dialogue for Effective Implementation

In this interview, the President of Chartered Institute of Taxation, Mr. Adesina Adedayo advocates proper dialogue in subsequent amendments to the finance act with key stakeholders in order to have smooth adoption of the finance  act. He also spoke extensively on means the Federal Government can improve tax revenues in Nigeria as well as other tax related issues: Nume Ekeghe presents excepts 

What has CITN done to enhance tax processes in Nigeria over the course of 40 years?  

When CITN has started, the issue of tax was not taken as a priority mainly because we had resources coming in from oil. And so, we didn’t take tax as a serious issue on like what was happening in the post-colonial days. Now, at this point in time, the reality that these resources will sooner or later be dwindling and as the challenges are glaring that we’ll have to talk about what can we do for ourselves.  This has prompted us to realise that we need to start talking about a profession that has to do with the internally generated revenue (IGR) that has to do with what are those issues that borders on our income, on transaction, and what are those borders on static wealth which we call capital gain.

In changing the narrative, we move tax from what people do not consider very important to a level where it has taken a prominent place. I doubt if there is any organisation today, that when they sit at the level of board meeting, they will first consider tax issues in their business model. They will consider tax issues when it comes to everything they’re going to discuss, as it affects their staff, as it affects their transaction as it affects even their branch expansion as you must take tax into consideration. So those are the areas where we have changed the narrative over the years now as of today, the profession of tax is beyond even talking about the challenges of our economy is something nobody can ignore worldwide. Virtually everything is now revolving around the tax professional.

CITN had a lot of discuss with the federal government as relates to the finance act. What has been the input of CITN in the recent finance act?

I will put that into two aspects, the input of CITN as a corporate entity, and the input of the members of CITN in the finance act. Now let me start with the generic. The input of CITN is always done regularly and immediately the finance act comes out. We are always engaged in terms of our various faculties on how it affects the feedback we are getting. And then our research at technical  department works further to see the wider implication of the amendment imposed by the finance act. 

So, we tend to do more proactive and reactive input.  Proactive in the sense that we look at an issue before it comes into the finance act and we also look at the issue of when the Finance Act is out 

From the individual perspective, a lot of our members individually are involved in terms of committee setup for the propose of finance act and for regular review and input. Most of the time, more than 80 per cent of those who get involved in crafting the finance act on an annual basis are members of the institutions. So, it is clear that their knowledge of the tax system and the tax profession is high enough for them to know duplication of difference between what we used to have and what they’re now proposing to be done. So that way the knowledge gap is not something they can toy with it.

The 2021 act embeds a lot of issues operators in the real sector are concerned about, what are your takes on the concerns raised? 

Whenever it comes to drafts or act, there are always blindside, which is natural, and it is that that makes issues of regular amendment to be a consistent feature. Let me use a simple illustration. If you say anybody that wears a skirt should be arrested. If a Scottish man is walking on the streets of Nigeria, you will arrest him. But it is a technicality as we must look at the issue of socio-cultural aspects. Is it considered skirt  their own language or is a definition issue that we need to clarify? Or is it a question of a religious issue that makes a skirt a taboo or that as Africans we do not believe that men should wear skirts? You see, this interpretation rule now becomes the basis of how you interpret that law, because the legislative framework is meant to support the administrative implementation. So, I will want to align with you on one area that every finance act including the one that will be done in the future will always have issues that borders on computation. And that interpretation will require people to sit down, reconcile and dialogue to know how to effectively implement this.

Federal Inland Revenue Service (FIRS) is doing somethingwhich is beautiful. For every finance act that comes out, they take their time to go for retreats, and talk about how should it be interpreted and how should it be applied so that they go beyond the literally word to now talk about how the implementation will proceed. So, I will say that is not an issue that is too controversial per se. It just needs people to sit down and agree on how to implement it.

Still on the Finance Act, and of course its major issue is on increasing tax revenues. But what would be your advice towards expanding the tax brackets?

What I would advise the federal government is straightforward and at times, it looks so simple and I tend to laugh at it myself. Expanding the tax net is the starting point and address this, let’s ask ourselves some pedestrian question of how many people in Nigeria are making direct income and how many of these people are being taxed. Now we can agree that the people that suffers tax more are those who are paid or in structured employment. So that means there are some people who are not in structured employment are making more money than me and you. The question is how to get them into the tax net.  The formal sector is more pronounced, and so let’s first create a threshold which the finance act is trying to address. Let’s create a threshold at what level is your income exempted from tax. So, once you cross that threshold, then please start contributing to the civilisation we all enjoy as a taxpayer. 

Now I’ve expanded the task net, if we address that as the first one. Ask yourself, what are those areas of taxes that are easy to collect which are transaction taxes. So, because you see you may not be able to determine the income of a petty trader but he must engage in transaction we should make him to pay VAT. Even on the phone, we are talking about the recharge card, you will find out that you are going to be pay VAT just by recharging N1,500. So, there are already some embedded taxes in transaction. So we can expand to that area after dealing with the income. 

After dealing with transaction, go after the wealth. Those are the processes we need to follow. Start with income, follow the transaction then go after the wealth. Wealth can be seen and when the wealth is seen, the question is how to tax this wealth. 

CITN is the only body that can regulate tax in Nigeria, however, recently some other bodies are clamoring to include tax into  their functions. Can you speak on this? 

It looks as if tax is the beautiful bride we want. There are three major professional bodies had to came together, which are CITN, Institute of Chartered Accountants of Nigeria (ICAN) and Association of National Accountants (ANAN) to sign an MOU, the MOU was signed last June to make it clear I look these three professional bodies major professional bodies that deals with the issues of tax and then they agreed that the issue of the regulation of the practice of taxation should be domiciled with CITN. 

For CITN we don’t think of anything but tax. We wake up in the morning we are thinking tax. So, it is clear that the other professional bodies we are talking about actually took it as an adventure in professionalism and overtime every time they come up with this, the courts and even the judicial system has recognised it and has kept telling them to stick to their profession.  It is only one particular institute that is doing this adventure, all the others have agreed that they should stick to what they’re very good at.

Are you saying it is an attempt to decentralize tax regulation?

I’m very mindful with the use of words. Let me say that decentralisation may not be the word to use in this case. It is more or less like deregulation. The deregulation will be the right word I would want to stick with. You have tax administrators in all states of the Federation. We also have in the central one, which is a federal inland Revenue Service. What they do at the state, they stick more to the personal income tax. What they do at federal, they focus more on the corporate entity. But you find out that the principle of taxation remains the same.  

Now at the regulatory side, what we are saying is simple, the professionals that will walk along with these people or with them even within the same system must be developed along certain ethics, certain knowledge and all the rest. That is what we stand for, as an institute. So, if you see any professional body that says I am training auditors, I’m training accountants, I’m training forensic expert, I’m training a business recovery expert, and I’m also training tax experts, at that point in time you have to exercise caution and ask yourself, are these experts going to be the best at what they do every time every day.

The issue of tax is about regulation of those people who work along with these other professionals and who advices you have because tax is an active profession. So generally speaking, we regulate, we don’t collect tax as an institute.  We are not interested in talking about federal allocation. All we are saying is that you want to work in this field, please be a professional in tax.  If anybody comes into that profession, it would dilute the standard. And then secondly, will the knowledge be  in the interest of the country because at the end of the day, you cannot say that you’re an expert in so many places.