Akande: LIRS Filing Process Now Easy, Fully Automated
In this interview, the Special Advisor to the Executive Chairman of the Lagos State Internal Revenue Service (LIRS), Tokunbo Akande emphasised the significance of employers submitting annual tax returns and individuals complying with the filing of tax returns for additional income before the January 31st deadline. He also said that the LIRS filing process has been fully automated, ensuring ease for everyone and helping to prevent penalties. Nume Ekeghe presents excepts:
Could you give an overview of the annual tax filing process with the LIRS concerning the P.A.Y.E for business?
The overview of tax filing starts from what are the obligations of the taxpayer. For the campaign that we are running currently, it is not the taxpayer that is filing, what you have are the agents of governments that are filing. Agents of government in the sense that we have employers of labor and employers of services and vendors. What it means is that those entities that have paid compensation for any form of service to any individual or resident in Lagos that is liable to tax on whose behalf those agents have deducted from the compensation are remitted to the government as provided for by the law. So I’m talking of employers, now, you have employees, you have paid them a salary for the preceding year and you have deducted because the law empowers you to do it some portion of that is as taxes, which you have now remitted to the government as at when due. You are now just giving us a report card, just like if you have an agent that manages your estate for you and collects money and then gives you a statement.
What are the benefits of filing your taxes promptly?
The benefits are enormous because we are all partners working in the same economy. All we are trying to do is that the law says you should do it. So you should be law abiding in anywhere you are you find yourself. So the rules that guide us are the constitution and also we have laws. The law says that you have the obligation to be an agent of the government to do this. Now, for you to do this, it helps with planning because we have comprehensive records of what took place last year. It is important to know your past which would inform your present and then you can project to the future. So essentially what we are trying to say is, let us have the comprehensive records of all the financial and economic transactions that took place last year so filing can help us to build that database and then also which we will interrogate later on in the year when you and I as individuals who are the taxpayers will also need to file our records. We can do it now. However, we have our own a gap of about 90 days up to the 31st of March. So by the time can get the records of the agents, we can use them to validate the records of the taxpayers.
What is the Deadline for filing PAYE annual tax returns with the LIRS?
31st of January.
What are the consequences of late filing?
The penalty or financial penalty is not the main deterrent. The main deterrent is the fact that government agency has a right to prosecute you and get you convicted. So why do you want to be designated as a convict for something that has been made easy for you to do? It is not your money and it has nothing to do with you. It is the money for the people that you have employed, and you have deducted on behalf of the government and we are just rendering returns. Also, you may have paid the money during the year and you are just filling. We know it can be cumbersome and that’s why all the reforms that we have done in Lagos State, I can speak for other jurisdictions is to make it easier for compliance. Like I always tell people, taxes are things that people don’t want to pay but aside from tax itself, you have the cost of compliance. As a sub-national in Lagos state, we are operating federal laws. So we can’t even change the rate or change the law. We can make recommendations to various committee setups, but we don’t have direct opportunities to tweak them. But what we can tweak is what we have been doing which is the process of complaint. Initially, we had loads and loads of pages in Lagos, we first shrunk the format by reducing the number of pages that you have to submit but we have gone further to digitise the system. So aside from now digitising the system that allows people to file we have digitise the process itself whereby you can do it from the comfort of your home, just populate, just copy and paste what you have done and then you upload and we are good and you will get a notification that what you have done is in order. If you get convicted as a corporate entity for not filing at the right time, it is N500,000 but the damage done to your brand as a convict is more than N500,000.
You mentioned the importance of filing on time and how it helps with planning. The Federal Government and states have planned to expand the tax brackets, can you share the plans of LIRS on how it plans to expand the net?
To expand the tax net, as it were, you know, at the federal level now we have the Presidential Committee on Tax Reforms working on that. Now at the state level, what LIRS and other states have started to do is we have done a kind of multi-channel approach to the expansion of the tax net. It is basically enumeration. For any tax agency, their goals are just to ensure that every taxable entity is the tax net, and ensuring that all those in the tax net pay adequately. Those are the only two goals that we want. So, for us to expand the tax net, we engage in a continuous exercise of enumeration at the state level. We have 39 tax stations, we have over 40 Mini tax stations. Aside from that, we have a whole department that we call the tax education and enlightenment team. Those are guys that go out every single day, combing every nook and corner of Lagos to sensitise people on the need to be within the tax bracket. We have also the corporate communications unit that uses all the platforms available to it to showcase all the things that the government of Lagos is doing. We have had instances in the past which I’ve experienced, where people voluntarily come that they want to pay their taxes. Now, what we have also done is we have used the instrumentality of the law to ensure that there are certain things the law provides, we didn’t write the law, It’s a federal law that says you can’t do certain things unless you have tax compliance. But most of those laws are just therein people see it as redundant, they have not been using it but we have activated those laws in Lagos. Presently, people know that there are certain transactions you can’t do unless you are in the tax net and that has helped us to expand the net. And of course, we mine data, we have a whole unit of what we call intelligence units. All they do is to mine data from all sources and then check the financial footprints of people, check whether those people are in the tax net, and if they are paying right. If they are not, then we bring them in. So, we are using the opportunities available to us within the ambit of the law.
Are there specific areas of the tax filing process that people tend to overlook?
Generally, people especially people in paid employment tend to assume that the only income that is liable to tax is the one that they get from their employer. But tax covers all sources of income. It is on that tax that you see we don’t discriminate any income. There is no bad income under tax, every single income that we can see should be disclosed. Then the law will tell you specifically those that are exempt from tax then every other one is taxable. So people tend to overlook that aspect. Now for this season that you have, what people tend to overlook is that when they are filing for their employees they don’t tend to disclose what we call unique identification of those employees and that is where the problems is. The challenge we have is very peculiar to us here. I know someone who is Iniobong, people call the person Ini, and the person filling says Ini however there could be 1001 Ini. So for the system that we have built, the computer is not as versatile as you as a person. We are getting there with artificial intelligence, but a person looking for an Iniobong that is 245 which can complicate matters when we are filing because it won’t the Iniobong that paid the tax. So when employers of labor, are filing it is important for them that they file will the full names of those individuals who are filing for and unique identification for them. The proper thing to do now is to use the NIN because that is the basic validation that we are using in this country.
So for businesses venturing into tax filing for the first time, what advice would you give them?
My advice to them is that filing is as simple as ABC. The mindset is important. The fact is that we have made filing easy so they should come with the mindset that it is an easy process. Once you have that, it becomes such a major step you have removed. The fear of many is that all the things that is too laborious have now been made as simple as possible. As long as you keep records of what you have done which I think every single business does you can always refer to your records and if we have challenges, we have more than enough multi-channel assistance models that can help you. On our e-tax, we have what we call digital assistance. If you can’t use that one, we have our Customer Service Center who will handhold you and take you step-by-step of the process. Also, people can just go to our sites, and read over the FAQ that we have there and we have just one page that tells you what you are supposed to do. That tells you how easy it is. If that does not suffice, then we have our boots on the ground that is the offices and in each of our offices, we have a dedicated desk to assist people who want to file free of charge. If anybody has any issues they should please use our whistleblowing platform.
Can you shed light on the verification audit processes that may follow tax filing?
It is just simple triangulation. All we want to do is that all the people that are supposed to be the tax net are in and then all those in the tax net pay adequately. So when you have filled that I paid XY N50,000 last year. XY supposed to file returns before the end of March and when he files, he tells me that from company A he got is N75,000. So I know that the employer has under-disclosed and there is a penalty for when you do that too. If you give us the wrong information, there is a penalty. If you give us false information, there is a penalty. Note that there is a difference between wrong and false. wrong is not intentional, you just made an error in the process of adding things up and we can see that an error may be a decimal point was missed somewhere. But when you have someone that has planned to give us false information, there are lots of penalties for it. So, essentially before the end of the year, the law empowers us to conduct audits of our agents. That is the employers of labor to see and check that they have done the right thing in accordance with the law. Don’t forget also that Nigeria’s tax system is essentially self-assessment. It allows you to say this is how much I think, based on the law I should pay as tax. So when you do that, now it is a tax authority that will now go back and say this is how much you should pay. If you do it right, some of these things are very straightforward like withholding taxes. It Is not as difficult as people tend to look at it, but because of the level of documentation in the past, it has scared people away and has created employment opportunities for people who can act as a tax consultant. The truth is every single literate person in Nigeria can handle his or her tax affairs.
How does LIRS ensure the accuracy of information provided by taxpayers?
We depend on information from agents, individuals and we also have access to information that is available on the net. So it is a triangulation of this information from the taxpayer, from the agent, and then the publicly available information. The three would just combine and then you will see the true position and that’s it. The Constitution says is that you should with that being prompted by the tax authority, declare truthfully all your sources of income. So if you have not done that, then of course there’s a penalty that you will pay.
What was it like before the advent of e-Tax?
You can imagine like I told you the problem was horrendous. It is all paper and paper. So you can imagine a Lagos where we have over five million taxpayers, now because compliance is very low. If assumed that it is just 10 per cent of those people that agrees to pay tax, which is 500,000, people and we have just 40 stations, less assume we have 50 stations, which means in every station we distribute 10,000 and the pages that would be filled is just five pages that is 50. You store that one in year one, store it in year two before you know it, you already run out of space. Then retrieval of information, the interrogation that I want to do as a tax administrator is almost, I will have to look for sample of three or four because there is no way it is humanly possible for the tax administrator to go through all those documents but when it is digitized, I can just say I want to check those people whose income level is five million and above the system will just pull those ones and bring them out for me. Imagine if I want to do those ones when it was paper, I will have to employ youth corpers to comb through all those reports and then you can imagine all those, there will be errors from them. So it was almost impossible to manage effectively all those information. Definitely we were underutilizing the information that was available from the filling process; we were not having a complete 360 view on the taxpayers, the quality of service that were providing to the taxpayers was also poor relative to what we can do now. Now if your employers file and you file online yourself, you can easily just generate your tax clearance certificate (TCC). That time, am sure you will have to apply to somebody, the head of station would do a small note before you come to head office before head office would do another note before it comes to the chairman. The numbers of people that we were able to provide complete service to were abysmally low unlike now. And then the cost to the environment itself. The total number of paper. So you can imagine that a tree gives us maybe 50,000 pieces of paper to a number of trees that have been able to cut down for us to do ordinary filing. So those are the kind of things that people need to think through to see why the digitisation that we are doing is not only for the purpose of revenue drive but it also for economic planning, it is for the benefit of the citizens and also the benefit of the environment in which we all live.
What would you say in your own view has been the challenges for employers in filling their returns?
The challenge they have possibly is that from what I can see it depends on the level of documentation, which they keep at their end because they are reporting events that have passed. We have had instances in the past that some of them will tell you that this employee only worked for me for one month and has since left, I don’t have all the details. I find it a bit worrisome but that is the reality. They then tell you that I don’t have the details of such an employee. How can you employ somebody that you don’t have the details of such an employee? The employer would just say the employee was supposed to be on probation. Get the details of that person so that anytime you have to report on that person, you can say with certainty that it is that individual you are reporting on, that is a major challenge they always have and then also sometimes people complain but I think we have resolved that when we first started. The challenge was that the average Nigerian way of doing things. You have from the second of January to 31st of December to report on what you did last year, which you are aware that you will do but nobody has prepared any report. From the 27th of January you will now see everybody wanting to log in at the same time. So what you have is that the system crashes. But if we have all decided that the filing we have the opportunity to do it between January second and 31st, don’t wait till the last moment because don’t postpone it. That is why I think, our slogan this year was to get it done immediately.
You mentioned the whole process of digitisation, we know it is an evolving process, but what more can we expect in the future in terms of making tax filing easier especially if you are targeting a different demographic of Gen Z to file taxes?
Our e-Tax platform is a digital application and just like you have it is a work in progress that is why every two weeks you see they want to upgrade. So the same thing we have done here. What we have here is an end-to-end tax administration system. We have different modules; all those modules are always being tinkered with on feedback that we get from the taxpayers. So what we do is that the improvement that you will see next year will be based on feedback that we get from taxpayers this year and things that our own crop of software developers can tinker with to see how the process can become less strenuous and less time consuming and also withdraw too much computing power from the system. Those are the kinds of things that we hope to put in place.
Initially what we did was to digitise the format but we have now digitised the process, you make payment and we have added some other modules, hopefully by this year we launch what we call the e-Tax 2.0. What we are operating is 1.0. so the enhanced version of the application will be launched this year. So it is an evolving thing and we know that we need to just need improving and improve on it. Yes, we have our social media handles but I went on a programme sometime late last year and one of the things that I learned was actually that you can link those social media handles to some of the parent applications without compromising the integrity of the parent application that is an area we can possibly think of going forward because we know that the new generation spends more time on the social media. So if they can see that even from the social media where they are they can still do some of these other regulatory functions or obligations without existing that their handle am sure it will also make it easier for them to comply. It is something that came up and learned and I think it is something that we can work on.
Following the submission of companies annual tax returns and clearance, are there any other additional statutory regulations for employees within this company and any deadline?
Yes, that is what I told you. This one is just the first step. These are just the agents, the taxpayer has not filed. The taxpayer is the employee. The taxpayers at the federal level are the corporate entities, and the taxpayers at the state sub-national are you and I. we are the taxpayers, we have an obligation constitutionally and legally to disclose fully all our income for last year, January 1st 2023 to December 31st, 2023 this is how much I got from this source, they have that obligation. In the past like I said you will see some people out of ignorance saying my employer has filed for me but it is not true. You should file and disclose additional income.
