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Simeon Mpamugoh
Prof. Muritala Olakitan Awodun, is the pioneer Executive Chairman, Kwara State Internal Revenue Service (KW-IRS). He came into the saddle of the agency in October 2015 and has in less than four years, improved significantly, the Internally Generated Revenue (IGR) of the state through an automated process that reduced corruption in the system.
In this interview with Daily Sun, he speaks on various issues bordering on tax reforms and administration in Nigeria, and how he mobilised revenue for the strategic development of the state.
Excerpts:
Tax practices before the gains reforms
Well, the answer to that question is what you find in the increase in the number of people that have been brought into the tax net. People who even in their lifetime would tell you they have never paid tax or people who have not voluntarily paid tax before have now been brought into the system and we have them in multiples that have been drawn into the tax net. The orientation or lifestyle people have lived and what the government also permitted because of the excess crude oil money that was perceived to be adequate for government expenditure, made the authorities to pay less attention to the issue of tax payment, which has also encouraged people’s orientation that they are not expected to pay taxes. But the turn of event now has shown that quite a lot of people have realised that they cannot do without paying taxes. And the way and manner we have also gone about the process of collecting the taxes through a lot of intensive tax education and stakeholders’ engagement helped to bring about the kind of cooperation and voluntary submission of many people to the payment of taxes witnesed in recent times. But by and large, we would say that because of the strategy that had been adopted, which is not forceful, like the type that was used before, we have had significant improvement in the number of people that are now willing to pay their taxes. We also recognised, through tax education, that when they pay their taxes, they can actually ask questions from the government on how these taxes have been applied.
Lapses in previous tax regimes under a Board of Internal Revenue
Well, past tax administrators operated in environments where nobody was really challenging them for performance.
Again, the government that permitted or allowed such activities had what they considered as more than enough. So, there was no need to push any other department or agency of government towards performance. But the situation is different now that we are operating with a different agency.
The second thing is that the government also had the need to ensure that they shore up their revenue. Whatever they are losing on the part of federal allocation has to be augmented somewhere, and the most legitimate source through which that augmentation could come is IGR, which had hitherto been abandoned more or less. Governments have since realised that if they do a complete overhaul of the arrangement and process of collecting taxes, perhaps there would be more seriousness in the process and they would get better results. So, government was also willing to give the new agency all the resources required, apart from the fact that it is challenged for performance. So, all that put together helped to bring about the improvement we are seeing today.
Motivation for tax payments
The motivation for tax payments basically is good governance. There is nothing else that would motivate taxpayers to pay taxes beyond good governance. If government judiciously applies the funds realised, and in addition, account for it, the people know their society better, and they just want some level of transparency. So, if they can see that level of transparency and accountability, coupled with good governance, then you will see more people responding voluntarily towards tax payments.
Current tax administration practices
Talking generally, there has been some improvements. If you look at what started some 15 years ago from Lagos State or thereabout, which other states or at least most of other states including Kwara, had improved on, even capacity building, which brought tax as a career to limelight, that a lot of people find it now an attractive area to pursue. That has also brought a result orientation kind of administration into tax collection in different shades and forms when compared to the past. At least now, people are realising that it is better to establish a full-blown agency of government that is well catered for, and motivated for that exercise. I believe that it should go beyond the issue of tax, and spread to all other public service, that there should be some Key Performance Indicator (KPI) for each of the departments of government. There should equally be good motivation for performance, as well as adequate provision of what is required to be able to do the job so that we can have a completely reformed public service. Because that actually is the engine room that drives the economy of the nation, and if it is right in its orientation, value and approach to service delivery, we will have a better economy.
Tax as bulwark for government’s unstable revenue generation
Well, if you look at what you can call the conventional source through which government is run all over the world, it is tax. Because a society is a conglomeration of people who have come together expecting that there will be a common interest. And for that common interest, they have surrendered their individual interests, and therefore are required to pay something from the income they earn to achieve that common interest. So, for the common good of defence, security, road and health, and for what we consider as common good that everybody should be able to draw from, there is a kind of contribution. That contribution, which is supposed to be according to your capacity is what we call tax. So, it is an arrangement that is age old so that we can have a society that we all desire. So, that arrangement has come to stay. It is not something that can be faulted. It is something that has been tested over time and has worked all over the world. So, anything different from that, the result has not been as good as that arrangement.
Look at all the countries of the world; a society that is not going in the way of tax, you see quite a lot of aberrations. Even if they are developing or developed, there would still be some kind of aberration because the people will not be completely satisfied with what is going on. But where everybody contributes one thing or the other, they have a sense of belonging. And that sense of belonging makes them ask some questions as regards what has happened to the collective resources that had been contributed, and probably put the government in check. So, by and large, it is something that is worthy of support, that we all contribute to what we want to see in terms of common good, which we more or less put under the umbrella of good governance. Whether we like it or not, we want progress in the society, we want to play our part by contributing our quota, and that is tax payments. However, there are other resources of a nation that government is put in control of, because they belong to all of us. It is our contributions through tax that would make it possible to ask questions on what has been done with those resources.
Permit me to go back to the early days of Nigeria’s independence. Prior to Nigeria’s independence, it was because of the contribution of taxes that those who fought for Nigeria’s independence could actually ask questions and make demands for independence, and also ask questions relating to how all the resources were applied. Immediately after, when the military came, they saw that what makes the people agitate more is what they contributed to the common good. And because there is what they consider as adequate resource from what doesn’t directly come from the people, which is oil, they try to reduce their persistence on taxes from the people so that people will equally stop asking questions, so that they will have their way. This was not systematically, and eventually the military had their way because the less they asked from the people, the less questions people asked, and indirectly they had their way. And that contributed to the downward trend in tax collection. So, reviving it now becomes a task because we would have gone further. If you look back, you would see that if what we have before had actually been sustained, Nigeria would have been different from what it is today. But thank God, because it is better late than never. What we are doing now is to ensure that our generation and the one after us would be able to see the right thing and do the right thing and improve the nation for all of us.
Tax system in Nigeria skewed in favour of the rich
That is not correct. Tax in Nigeria is not different from tax anywhere in the world. If you look at the statistics of where the tax is coming from, 80 to 90 per cent of the taxes collected come from corporate organisations, and when it comes to individuals, the personal income tax, even what the few individuals, the so-called rich, are paying is far more than what the majority of the low income earners are paying. People have probably made noise about this thing without looking at the statistics. Let’s say we have one million people in the society that are taxpayers. And out of them, 950,000 are commoners. What those commoners are going to pay in terms of taxes, which is what the situation in Nigeria is, may not be up to 20 per cent of the total taxes collected. What the remaining 50,000 people or the companies, the highbrows pay is the 80 to 90 per cent of the taxes collected. And when you look at it again, you see that the number of the high profile people compared to the low profile people is also in that range. That is, the low level people are far more than the high level people, but the point is, the wealthy pay more, while the poor pay less.
In progressive taxation, you pay according to your capacity and ability, and that is the principle of taxation.
It is still what rules in Nigeria. But you still cannot run away from the fact that the wealthy may not be paying adequately; where somebody is supposed to pay N10 million, he can still maneuver his way and pay N2 million but that N2 million he has paid will take 1,000 people, if not more, that are poor to contribute. So the struggle should be concentrating and making sure that those wealthy people pay adequately. And you should also recognise that they have the resources and wherewithal to maneuver their way. And they are more conscious to save some money in terms of evading or avoiding payments of taxes. And for Nigeria, they always have some kind of justification, even though there is no justification in law because they are not really seeing the correct application of those taxes. Again, with good governance, most of these things will become things of the past.
Dealing with fraud and unethical practices by field staff
In Nigeria, you cannot rule out fraud in anything and it happens all over the world. So, it is a global thing. But what magnitude are we talking about? In KW-IRS, what we have done is to entrench some kind of values in our people. Thank God, we started afresh. And those values are what guide and help us to reduce the issue of fraud. Beyond that is the fact that we introduced technology; automation of the process of collection, and when you have a process that has less interference of people, then fraud is significantly reduced. I can’t say eliminated. We also have our checks in terms of controls, which we believe is helping us in the reduction of fraud. We cannot say fraud is completely eliminated because people would remain people, and humans are difficult to really change but the magnitude of this is what we are trying to reduce drastically, and what has helped us significantly to do that is process of automation, and people with the right kind of values; well motivated in charge of tax administration.
Effect of poor economic performance on IGR of the state
Obviously, where you have poor economic performance, it will reflect on taxes collected, and this is why again, the economy is brought back to life through adequate public service because it is the public service policies that determine the direction of the economy. In Kwara, just like other parts of the country, public service has not been what it is supposed to be, and public policy has not also been directed appropriately towards areas that would bring vibrancy into the economy. We have tried to look at the economy of the state and had paid more attention to ensuring that the civil service that makes the economy vibrant gets its salaries promptly. We realise that with the payment of salaries, there is multiplier effect on other businesses because that money is actually going to be spent with the landlord getting his rent. The okada rider, taxi driver, market woman and fuel stations would also be patronised. Without that, there would be a lot of hiccups because money would not flow. And if money is not flowing, all these people would not be able to pay taxes. So, if you look at it, a civil servant that is paid, for instance, N50,000 this month, would pay his tax on that, if his tax is 10 per cent, for instance, he pays N5,000, he pays his landlord his rent out of it, N20,000, who equally pays another N2,000 tax. The civil servant who is left with N30,000 balance, and the landlord that collected N20,000 rent go to the market, and buy foodstuff of N10,000 each. The market woman that collected the money would pay another N2,000 tax, the balance that is left with the civil servant, the landlord, and the market woman is used to patronise recharge card vendors, petrol stations; and all these people would also pay taxes. So the N50,000 salary paid to the civil servant, who has paid tax of N5,000 is spread over 20 people who would pay taxes of another N50,000. The significance of that N50,000 salary to the civil servant must be brought to the fore. And that is why salary payment is the first priority for Kwara State because of the understanding of its economic impact. So, that is the way government should look at its policy and see which direction a policy is going in terms of impact. And that impact measurement is what determines which policy should be pursued, and what should not be pursued. I believe we don’t do enough at the level of government to measure the impact of policies before making those policy pronouncements. And we don’t actually pursue those policy pronouncements appropriately. Majority of the people are too selfish in their approach. They look at themselves first instead of looking at the people. And for us in Kwara State, that is why the Federal Government allocations in the last four years had been dedicated fully to salary payment, while a portion of taxes collected has also been dedicated to salary payment in public service. We have seen that without salary payment, quite a lot of things happen in the economy.
