Speeches

119th Meeting Of The Joint Tax Board

Jul 27, 2008 - Our State is highly honoured for this privilege of hosting the 119th Meeting of the Joint Tax Board. Apart from the unique opportunity of welcoming you all to our new Lagos, I am excited about the possibilities offered by the intensive brainstorming which is bound to occur in the next few days. The Joint Tax Board is, by all means of measurement, the highest ranking community of tax administrators in the country and, given the currency and importance of revenue issues in Nigeria of today, I have no doubt that positively momentous and progressive decisions will be taken at this meeting.

The critical role which members of JTB play, individually and collectively, in our democratic and developmental process cannot be over emphasized. Individually, you are saddled with the rather difficult task of ensuring that the mandate of government is fully funded. Without the resources you help us to harness, democracy and development would only be enticing ideals, well beyond our reach. Collectively as a body, JTB plays the all important role of facilitating the emergence of efficient tax administration systems in Nigeria and resolving conflicts in tax jurisdiction among members. It is in recognition of these critical roles that Lagos State Government sponsored the first ever National Tax Retreat of the JTB in August 2005, with the theme ‘Tax Reform in a Democracy’. That partnership commitment continues today as we host this 119th Meeting.

I probably state the obvious when I reiterate the fact that taxation and revenue administration are most essential issues to consider in tackling our economic and developmental challenges. Far more financial resources than we have today are required to enable us procure better power and water supply; better educational and health services; better police and armed forces; better road and drainage networks and many other improvements which we so urgently need to pull through our developmental roadblocks.

Lagos supports, hosts and facilitates the sustenance of close to 60% of Nigeria’s industrial concerns, imports and immigration. The population of the State continues to grow as people increasingly chose her as the favored destination to live, work and play. The resources of Lagos alone cannot support this growing population. Like every other City-State of her population, size and prominence, there must be immigrant, intra-national and international capital that must be injected into this economy to support the investment that makes the State an ideal place to live, work and play.

All over the world, taxation offers the most significant and enduring means of achieving the developmental objectives. By compelling everyone with taxable income or resources to contribute, a lot is achieved for the common good without imposing an onerous burden on any particular individual or group. I think here lays our challenge today. How do we convince our people to gladly fulfill their legal and moral tax obligation? How do we get everyone to voluntarily contribute his quota at minimum cost, with all required assistance, simplified laws and regulations, and minimum bureaucracy?

While the foregoing are urgent questions to be tackled at the street level in every State and Local Government Area of the Federation, our preferred system of government, that is federalism, poses its own questions to which we must also find clear answers if we are to successfully rescue our revenue superstructure. How do we ensure that each of the Federal, State and Local Government Councils has sufficient taxing powers to enable it fulfill its constitutional responsibility? In other words, which taxes should be within the jurisdiction of the National Assembly and which should be left for the State Legislatures? What are the fairest ways of allocating and distributing revenue collected by the Federation among the three tiers of Government?

I am well aware that some of the extant legal provisions are not within the purview of the JTB to alter. Indeed, some are constitutional problems which cannot be resolved unless the 1999 Constitution is reviewed. However, your thoughts and resolutions are, no doubt, of crucial importance in pointing the right way. I also believe that we must always bear in mind the various perspectives on these issues, which your diverse membership is so uniquely poised to generate, if we are to understand each other and jointly confront the sickly symptoms of tax administration in Nigeria.

Whatever the content of our Constitution might be, I think we will always have differences of approach among the three tiers of government. The Personal Income Tax Act, the Capital Gains Tax Act and the Stamp Duty Act all are statutes of the National Assembly which are daily being implemented by tax authorities in all the States of the Federation. There are bound to be differences of interpretation and administrative procedures. Yet we must devise ways of harmonizing these approaches and maintaining the essential character of the Nigerian tax system. This is the balancing act which we must maintain in order to give true meaning to fiscal federalism, even within the context of a National Tax Policy and a common Nigerian economy. It is therefore essential for us to nurture institutions like the JTB which are devoted to this harmonization process.

However, I think, with respect, it is time the Joint Tax Board is removed from the narrow platform of the Personal Income Tax Act and established as a Constitutional or statutory body in its own right with a wider mandate to suit its current challenges.

This should include express powers to originate a thoroughgoing review of all the tax laws that are commonly administered by the Federal Capital Territory and all the States of the Federation. As things stand, I doubt that anyone would disagree with the contention that our approaches to the taxation of personal income, capital gains and documents (by way of stamp duties) are pretty outdated and deserving of rejuvenation. Since, under the current Constitution, reform of the applicable laws can only be achieved at the National Assembly, a common discussion and pressure point must be found by all concerned, i.e., the Federal and all the State Governments. In my view, the JTB is eminently qualified to take on this broad challenge, but I believe it will do it better if it is statutorily so empowered.

However, in talking about cooperation in our tax systems, it has always been our belief in Lagos State that justice must be the minimum condition for engagement. In other words, each government must give the other its dues under the Constitution as a precondition for working together towards a common goal. This is why we have never suppressed our displeasure at Federal Government incursion in the areas of sales or value added taxation as well as the licensing of lotteries. These being residual matters under the 1999 Constitution, we strongly believe that fairness and justice demand that they be left within the exclusive jurisdiction of States.

Recent attempts to introduce a tax or levy on petrol consumption through Federal Legislation must be discouraged and condemned for what it is – an unconstitutional incursion into the residual taxation powers of the States in the area of local consumption. Such a tax, wherever it is to be levied can only be levied by the States for the purpose of sustaining services such as road infrastructure, education, health or other compelling social needs.

At the State level, taxes like VAT or sales tax tend to mirror the economic opportunities and developmental challenges of the host government and its residents. In Lagos, it happens that the opportunities are as high as the challenges. However, due to the denial of this taxable source, economic activities and the resultant challenges are now at a level well above the accessible revenues of the State government. This makes it exceedingly difficult, indeed almost impossible, to achieve and maintain the minimum indicators of a decent society. Much is being said about our internally generated revenue, but no real assessment of its impact can be made without a good grasp of the responsibilities which the State has to shoulder.

As you all know, Lagos State is the most promising and most attractive land of opportunities in Nigeria. At least one out of every 10 Nigerians lives in Lagos, even though the landmass is only 3,577 sq. km. (0.39% of Nigeria’s total landmass of 923,773 sq. km). As against the national average population density of 1,308 per sq. km., Lagos State has over 20,000 persons per sq. km. Almost everyone seeking to work or learn a trade in Nigeria thinks first of coming to Lagos. By current estimates, which are confirmed by international organizations, the population of Lagos State is now in the region of 18 million. As of 2006, UN-Habitat considered Lagos the 6th global megacity and the fastest growing in that category. It is no wonder then that we host 27.4% of Nigeria’s urban population. Our vehicular density is 222 per sq. km., as against the national average of 11 per sq. km.

This vibrant population and interesting diversity has its advantages and disadvantages. The advantage is in the economic opportunities, but the attendant revenue potentials cannot truly accrue to the State unless consumption taxes are left with the State Government. Meanwhile the down side is writ large in the numerous trailers and containers, heavy goods and equipment going from Lagos into markets and factories all over Nigeria. Lagos roads bear the heaviest loads on a daily basis and they require the most exacting maintenance regime. Daily inflow of population means more and more new towns and villages, for which we have to build more roads, drainage facilities, schools, hospitals, courtrooms, etc. Already, about 10,000 metric tonnes of refuse, by far the highest in Nigeria, are generated daily in Lagos State. Yet the budget of $1.8bn which we inherited in 2007 was much lower than the annual budget of the New York Fire Department alone ($2.7bn).

As a result of this population profile, Lagos State has the highest number of public hospitals and health centres, primary and secondary schools, magistrates and high courts, water works and markets, etc, you can find in any State of Nigeria. The vehicular density makes traffic management an extremely vital business of government. In the same way, the high rate of refuse generation means that a one-day slip in the collection process is simply dangerous and unacceptable. Our inland waterways and proximity to the sea generate huge funds for Nigeria as Lagos ports handle over 70% of total national cargo freight. Yet, these same features make the State prone to flooding and compels us spend massively and continuously on our drainage infrastructure. Every challenge in other States of Nigeria is multiplied several times over in Lagos. The current budget of N403.4bn is, therefore, only a very conservative estimate of what we urgently require to make a change. In the absence of consumption taxes, our revenue profile can hardly support it.

Because a significant population of all other States have made Lagos either their first or second home, it becomes manifest that our internal revenue generation successes mentioned earlier are extremely modest and by per capita, it is obvious that we are easily the poorest State in the Federation because we have more people to cater for and more infrastructure to maintain than many other States combined.

That also explains our disagreement with the new revenue allocation proposal which gives the Federal and State Governments an increased share at the expense of the States and local government councils. I believe that the essential purpose of revenue allocation is to guarantee to each tier of government the wherewithal to discharge its peculiar constitutional responsibilities. Clearly, States and Local Government Councils are the most proximate to the people. With the possible exception of Federal Capital Territory residents, every Nigerian lives in a State or a Local Government Council. States and Local Government Councils should therefore be empowered to deliver most of the services that will touch the people’s lives directly. Indeed, they are the quickest and most efficient means through which the Millennium Development Goals can be achieved, if we truly intend to achieve these goals.

The need for reduced Federal Allocation becomes compelling and logical when we consider the fact that service delivery obligations of the Federal Government have shrunk considerably and continues to shrink with the actual or planned privatization /commercialization of many activities which historically accounted for the major expenditures of the Federal Government. These include telecommunications and electric power supply, rail and air transportation, air and sea ports management, etc. This trend will continue as State Governments and private companies continue to demand the decentralization of services which had traditionally been centralized. All these factors should be properly weighed if we are to achieve an acceptable degree of fairness in our revenue allocation process.

Again, I must stress that this is the only reason why we, as a State, are so passionate about our constitutional rights. We believe that justice and fairness in the context of constitutionalism must be the basis of cooperation in fiscal federalism. This standpoint also explains our call for the immediate implementation of section 163 of the 1999 Constitution. That section provides that “Where under an Act of the National Assembly, tax or duty is imposed in respect of any matters specified in item D of Part II of the Second Schedule to this Constitution, the net proceeds of such tax or duty shall be distributed among the States on the basis of derivation . . .“ Matters so specified in item D, Part II of the Second Schedule to the Constitution are “–any tax or duty on capital gains, incomes or profits of persons other than companies; and documents or transactions by way of stamp duties.”

At the moment, the Federal Government, acting through the Federal Inland Revenue Service, collects capital gains and income taxes on persons employed in the Armed Forces and the Nigerian Police other than in a civilian capacity. It also collects Stamp Duty on documents executed by corporate bodies. Under section 163(b), “where such tax is collected by the Government of the Federation or other authority of the Federation, there shall be paid to each State at such times as the National Assembly may prescribe, a sum equal to the proportion of the net proceeds of such tax or duty that are derived from that state.”

The obvious effect is that these taxes ought to be returned to the States from which they were derived, i.e., the States in which the taxpayer individual was resident or in which the underlying transaction of the stamped document took place. As we speak, the Federal Government has not been complying with this constitutional provision. Neither has the National Assembly made the Act to facilitate that compliance. This is particularly unfortunate in the light of a subsisting judgment of the Supreme Court in Attorney General of the Federation v. Attorney General of Abia State and 35 Ors, [2002]6 M.J.S.C. 1 the Court (per Ogundare J.S.C.), which affirmed the right of the States in this respect.

Another example of those practices and Decrees (now regarded as Acts of the National Assembly) which were made during the military era and which do not strictly conform to our federal constitution is to be found in the Personal Income Tax Act. The Act creates not only Revenue Boards for the States but also Revenue Committees for all the Local Government Councils. It also purports to establish Joint State Revenue Committees. This was perhaps all well and good when the Federal Military Government had the power to make laws for the entire country on any matter whatsoever, but, surely, that is not the case now and these legal provisions have to be brought into conformity with the Constitution.

If, as we have done in Lagos State, each State House of Assembly establishes its State Board and Local Government Revenue Committees, the legislature can literarily infuse such institutions with the full character and aspirations of the State concerned. After all, this is what the Federal Government has done for itself by removing the Federal Board of Inland Revenue from the Companies Income Tax Act and recreating it as an autonomous Revenue Service under its own enabling law.

Under our Revenue Administration Law 2007, the Lagos State Internal Revenue Service (LIRS) is now established as a fully professionalized and autonomous agency with power to employ staff outside the civil service structure and establish its own terms and conditions of service. The State Government has also approved for LIRS an independent source of revenue (which is a percentage of its previous year collection) and very competitive scheme of remuneration such as to enable it attract and retain highly qualified and experienced employees.

To enable it run as an ethical institution, the new Lagos IRS is guided by a vision and mission statement, comprehensive code of ethics and a gifts policy. Indeed, all its administrative and operational policies, processes and practices are well structured and documented with a view to giving full guidance to staff members and eliminating subjectivity which might lead to corrupt practices. All members of LIRS staff are also being retrained under a purpose-designed training regime so as to instill in them a professional, customer-focused and service-oriented disposition.

One recurrent issue in revenue administration which I cannot but touch upon is multiplicity of taxes and illegal levies. It is one issue which the organized private sector and, indeed, the general public have been most concerned about. While several taxes necessarily exist at all three tiers of government in our federation, the problem of unauthorized levies is certainly one which deserves immediate resolution. I know that JTB has been involved in the struggle to stamp out this problem, being the prime motivator of the Taxes and Levies (Approved List for Collection) Act of 1993. However, what we see in Lagos is that this statute has not achieved its purpose.

After reviewing existing practices and consulting with all the Local Government Executive Secretaries, the Lagos State Executive Council has therefore sent a Bill to the House of Assembly, which will lead to the passage of a Local Government Levies (Approved List for Collection) Law. The main objective of this Bill is to prescribe the agreed list of levies which the Local Government Councils and Local Council Development Areas (LGAs) in Lagos State can legitimately collect. It will also regulate the manner in which these levies may be collected by or on behalf of the Councils and ensure wide publicity of the approved levies, the applicable rates and the expected time of payment.

Very strict regulations will be set to guide the appointment of agents and consultants and, for the first time, this Law will compel all Council officials and authorized agents who interact with the general public for revenue administration to wear identification badges. Specific offences to be created by the law will penalize the collection of any levy that is not listed in the schedule; collection without due authority and identification; mounting a road block or causing a road or street to be closed for purposes of collecting any levy, etc. While this Bill is being considered by the House of Assembly, we have secured the agreement of all relevant personnel at the Local government level that we shall all keep to the levies indicated in its schedule.

While still dealing with this issue, I must take the opportunity to say a word or two about our Land Use Charge. The Land Use Charge is an example of the citizen friendly nature of our tax legislation; because Ground Rent and Tenement Rate, payable to the State and Local Governments respectively in respect of the same property have been harmonized for ease of administration and ease of payment through a single payment rather than two payments. This reduces the cost of compliance for the citizen. I must of course point out that while the rate of assessment has not increased the amounts payable are expectedly likely to rise as the value of properties rise due to our increasing investment in infrastructure which puts more money in the citizens’ purse through enhanced property values that attract higher rental incomes.

Regarding taxes and levies to be imposed by the State Government, it is our considered opinion that these must be regulated solely by the Constitution and not by any federal law. Aside from the matters preserved for the National Assembly on the Exclusive List, it is the States that have responsibility for all other subjects (commonly referred to as residual matters). In a constitutional dispensation, it is the State House of Assembly that may decide the number and variety of taxes chargeable in the State. This position does not however obviate the necessity for a national forum, such as the JTB, to deliberate on ways of conforming to an agreed National Tax Policy and to attempt harmonisation of local rates and practices within reasonable limits. Indeed, for taxes collected under federal law, harmonization of assessment and collection practices remains an imperative requirement.

As part of the overall strategy of sensitizing the public, stamping out exploitative and illegal practices and offering information and assistance to taxpayers, the Lagos State Government has established a Central Complaints and Information Unit for its revenue generating agencies. This unit creates an avenue for members of the public to lay their complaints and make suggestions towards the improvement of our administrative processes. It also serves as a resource centre for the supply of necessary information to encourage voluntary compliance by taxpayers. By ensuring prompt reply to complaints and speedy resolution of issues arising therefrom, we hope to enhance the possibility of mediation and settlement of tax disputes without resort to the law courts. The statistics generated by the Unit will also offer a scientific basis for periodic review of all our laws and administrative processes.

As we look for ways of getting more out of our existing taxes by reengineering our administrative structures, we are taking seriously the maxim that no tax drive can succeed without prior sensitization of taxpayers. We have therefore launched a massive tax campaign in the media while, at the same time, sending out several teams of dedicated staff on a daily basis to check compliance levels and educate defaulters on what the law expects of them.

We have also embarked upon a series of organized interactions between taxpayer groups and the State Government. The 1st Lagos State Stakeholders’ Conference on Taxation was in December 2007, followed by an award ceremony for the most compliant individual and corporate taxpayers in January 2008. Similarly we have had a very productive meeting with Professional Associations and the Organized Private Sector (April 2008) and with market men and women, general merchants etc in July 2008. The process will continue and our ultimate aim is to get each and every taxpayer in Lagos State to realize the importance and advantages of paying tax.

The message that was shared at these sessions was one of understanding of the social contract. We are willing and ready to fulfill our electoral promises and discharge our constitutional responsibilities if the electorates give us the tools to do so.

Another process to which we have committed ourselves is the simplification of the payment and compliance process. Within the limits of existing laws, we have introduced a simplified income tax assessment form and a tax table to assist people in determining their own tax liability. We have also established mini tax offices in all the major markets. In partnership with collecting Banks, an individual tax payer can now conveniently assess himself by reference to a table which shows various income brackets, the allowances and tax payable in respect of each. The self-assessed individual can also obtain the simplified assessment form free of charge and pay his tax at any of the over 1,200 bank branches and 36 LIRS Tax Stations across the State.

Distinguished Ladies and Gentlemen, these are the taxation issues with which we are concerned and the steps we have taken thus far in Lagos. We believe in and encourage the efforts of JTB to give Nigeria a better tax system and we hope that more will be done in that regard in the next few days. It is with much anticipation that I look forward to your communiqué. As you take on this onerous responsibility, I enjoin you all to find some time to enjoy all the exciting possibilities and hospitality that Lagos has to offer.

Although our task is challenging, we refuse to settle for Lagos as it is. We have dared to find the courage to remake Lagos as it should be, a true Center of Excellence, a model Mega City for all of Africa and the developmental economic engine for Nigeria as the giant of Africa.

To the glory of God and for the advancement of our dear country, it is my pleasure to declare the 119th meeting of the JTB open.

Mr. Babatunde Raji Fashola (SAN)
Governor of Lagos State