By Monday Onyeme
The concept of democracy, in contrast to military dictatorship, has been a well-touted form of government in which the people form the bedrock of its operation and success. That explains why Abraham Lincoln, the revered American statesman and lawyer, who was the 16th President of the United States of America between 1861 and 1865, defined democracy as “A government of the people, by the people, and for the people.”
A democratic government, especially in party politics, is usually elected on the strength of a manifesto, which is a carefully articulated list of policies and benefits which the people will enjoy if that political party is voted into power. These benefits, gains or reward are referred to in local political parlance as “dividends of democracy.”
The purpose of government, as an institution, is the advancement of the welfare and security of the people. Welfare and Security are all-embracing and encompass all issues of development, peace and national stability. The cost of providing social amenities, infrastructure and guaranteeing peace and security are essentially the exclusive responsibilities of government and they require huge capital outlay with limited opportunities for raising such funds.
History and experts have shown that taxation is the most dependable source of funding for governments the world over. Tax, defined, is simply a contribution that an income earner, individual or corporate entity is compelled by law to make to government through an authorized legal entity for developmental and regulatory purposes. Flowing from the above, taxation involves the identification and location of the taxpayer, assessing his taxable income, taxing him accordingly and enforcing the payment of same. The payment of tax is a mandatory statutory requirement at section 24(f) of the 1999 constitution as amended, which provides that:
“It shall be the duty of every citizen to declare his income honestly to appropriate and lawful agencies and pay his taxes appropriately.”
Though the above apparently refers to Personal Income Tax, there are other laws which extend the scope of taxation to corporate business entities. These include, but are not limited to, the Company Income Tax Act, Education Tax Act, Capital Gains Tax Act, Stamp Duties Act, Petroleum Profits Tax Act, amongst others.
EFFECTIVE TAX ADMINISTRATION:
The prosperity of any state is, to a large extent, dependent on a vibrant tax administration system. Taxation covers a wide spectrum of human activity and to be able to get the benefits maximally, an efficient and effective tax administration system is indispensable. This is because unless taxation is properly administered, its purpose will be defeated to the failure of the government, and the disappointment of the people.
The agency saddled with tax administration therefore needs to be proactive, vigilant and visionary, fully exploiting existing revenue generation opportunities. Tax administration must focus on ALL aspects of taxation; the evaluation of each must be constantly undertaken to ensure optimal performance. There must be constant enumeration, tracing and location of taxpayers for the purpose of ensuring that they are brought into the tax net; assessment, monitoring and investigation, as well as enforcement, to guarantee best results.
Therefore, effective tax administration and dividends of democracy can be expressed as a mathematical equation, where Effective Tax Administration (ETA) is regarded as the numerator, while Dividends of Democracy (DD) can be considered as the denominator, to arrive at the Impact on Citizens (IOC): ETA+DD=IOC. This mathematical model formulated will help us understand that effective tax administration is beneficial to the citizenry, and as such provides the platform for convenience, equality, certainty (sure payment) and economic values, while ensuring that the citizens enjoy the dividends of democracy to better their lives.
The core tasks of tax administration are centered on the implementation and enforcement of tax legislation and regulations. These activities include identification and registration of tax payers, processing of tax returns and third-party information, examination of the completeness and correctness of tax returns, handling of administrative appeals and complaints, collection of taxes and provision of services and assistance to taxpayers.
An important and critical part of the tax collection function of tax administration is to enforce tax debt collection. Tax debt collection should be considered as an important and integral party of the overall tax administration process. This, in my view, is not a function that can be readily separated or outsourced, from mainstream operations.
Furthermore, it is advisable that tax administrators enshrine in a written code of professional practice, the specific rights of taxpayers in the tax administration process. These rights may be enumerated in the tax laws. This will provide clear guidance to tax payers regarding their rights and responsibilities. Ethical standards and rules of conduct for employees should also be set down in writing and employees should be trained on a strict code of conduct. There should also be a means of redress for taxpayers whose rights have been violated.
Also, as part of building public confidence in the tax authority, the tax paying public should be affirmed in its expectation that the tax authority will administer the tax laws consistently and fairly so that similarly situated tax payers are treated equally and all tax payers pay their fair share. In addition to receiving value for their money paid as tax, the public would expect that the tax authority and its employees are free at all time of corruption or undue influence.
Consequently, in designing an effective tax administration system, the following guiding principles are required:
i. Political will and commitment to the sustenance of the reforms;
ii. Simplification of the tax system to facilitate effective administration and reduce cost of compliance;
iii. Encourage voluntarily compliance;
iv. Formulate a clear, unambiguous strategy;
v. Identify the tax and accounting laws that require change;
vi. Take an integrated approach to the tax collection process;
vii. Differentiate the treatment of tax payers by size;
viii. Ensure the effective management of the reform process;
ix. Set priorities and establish a timeline for achieving them;
x. Begin fundamental reforms with pilot projects;
In its fiscal blueprints, the European Commission set out the following as what it considers to be the essential requirements for a modern or effective tax administration system:
ü A tax authority that is guaranteed an adequate level of autonomy;
ü Its obligations are clearly translated into its mission, vision and objectives;
ü It has its own structure and powers allowing for efficient and effective operations;
ü It is provided with adequate resources to implement and manage the tax system;
ü It is provided with a stable legal framework ensuring proper administration and enforcement of dues.
ü It is accountable for its operations, which are subject to control and assessment; and
ü Its operations are managed and assessed on the basis of the performance management system.
TAX ADMINISTRATION IN DELTA STATE:
Before the 13th of May, 2020, tax administration in Delta State was anchored on the Delta State Internal Revenue Consolidation Law, 2009. That law created a seven-man board with the executive chairman, secretary to the board, one member representing each of the three senatorial districts and two civil service directors in the service of the board.
In order to address the observed gaps and shortcomings of this law, as well as comply with international best practices, Delta State House of Assembly enacted the Delta State Internal Revenue Service Law, 2020, which was accented to by His Excellency, the Governor, and came into effect on the 13th of May, 2020.
As a marked improvement on the old law, the new law has a number of highlights, which include:
i. The establishment of an operational body to be known as the Delta State Internal Revenue Service- Sections 3(1) and 10(2);
ii. The conferment of exclusive right on the service to control, administer, impose and collect different taxes and levies, as well as other forms of revenue within the state- Sections 4(1) and 2;
iii. The establishment of a 12-man board of directors for the service, the membership of which include 4 executive directors in charge of accounts and finance, operations, ICT and legal services respectively. Section 5(1), and
iv. Specific functions for the executive directors, Section 13(2) (a-d), amongst other provisions.
Effective tax administration is that which manages the tax process in a manner that produces maximum revenue yield, and this is best guaranteed where there is constructive collaboration among the tax authority, the taxpayer, and the government who must commit themselves to the vision of prosperity through taxation. On the part of government, particularly, it is important to show to the people that tax revenues will not be frittered away, but used judiciously with undebatable physical evidence in terms of projects and services.
At the Delta State Internal Revenue Service, operations have been largely computerized in the areas of payment of taxes, application and issuance of electronic tax clearance certificates, issuance of a consolidated billing system for MDAs, online/real time revenue monitoring and reconciliation systems, issuance of electronic receipts, etc. More is still being done to ensure that our tax system meets international standards devoid of corruption, revenue leakages, and implementing modalities for the recovery of secret hidden revenue through whistle-blowing mechanism, regular tax audit and investigation, and prosecution of tax defaulters. The commitment to improving revenue generation in Delta State will eventually lead to the delivery of dividends of democracy to the people of the state.
THE WAY FORWARD:
In answering this question, what is the way forward? We must recognize that tax is everybody’s business¬: a collaboration where all stakeholders play a role. The government, the tax administrator and the taxpayer must discharge their respective responsibility for maximum benefit to society.
1. Refloating the economy: The more buoyant an economy, the greater the tax revenues. So, in a fractured, disrupted and dwindling economy resulting in low tax revenues, government’s capacity to provide the dividends of democracy is reduced. In appropriate cases therefore, government has a duty to take decisive steps to revamp, refloat, and stimulate the growth of the economy through bail-outs, loan schemes, waivers, tax reduction and empowerment programmes. The crash of the world’s economy as a result of the COVID-19 pandemic is a recent case in question: The world was literally shut down in addition to a crash in oil prices which dealt a devastating blow to our national economy. In the absence of revenue generating activities, taxing people is out of the question. As a consequence of this situation revenue generating activities suffered a crushing blow, and this also affected the ability of people and corporations to pay tax. In Delta State, government granted tax concessions to many businesses in some sectors, ranging from tax waivers, reductions, to comfortable installment payment arrangements. This was to help aid recovery and restore tax payment ability.
2. Adequate funding: Taxation is one business government must engage in if it must deliver the dividends of democracy to the people. Taxation is a massive and audacious business enterprise requiring huge funding if the entire tax jurisdiction must be covered. This requires vehicles for staff movement and operational purposes. In the coastal areas for example, boats will be needed to access the interior creeks and other difficult terrain where some corporate tax payers operate in cognito.
3. Provision of adequate security: Cases of resistance, criminal threats and intimidation, assault, vandalization of facilities and other unwholesome activities are common experiences in tax drive. These take a huge toll on task revenues as no sane tax officer will expose his life to danger. It is therefore important that the state works out an arrangement with security agencies to offer protection to tax officials in deserving cases. With adequate security, confidence will be boosted and the exercise will be driven to its limits.
4. Close Monitoring and Evaluation: It is not enough to put an administration in place. It should not just be nurtured by the provision of the enabling environment and facilities; it should be closely monitored and its performance constantly evaluated. This is because the business of taxation which the tax authority manages, supervises and superintends on behalf of the government is a partnership in which the government’s stake is the highest.
This explains why the Delta State Government has put in place several initiatives to ensure that the Delta State Internal Revenue Service is put on its toes, and I make bold to say that the result in terms of harvest of revenue is encouraging.
5. Youth Empowerment Programmes: Youth empowerment programmes such as the Skills Training and Entrepreneurs Programme (STEP) and the Youth Agricultural Programme (YAGEP) which are the exclusive initiatives of the Okowa administration have transformed thousands of idle youths to entrepreneurs and with this, the ability to pay tax evolves. They are therefore now contributors to the revenue of the state. This initiative, I must say without any fear of contradiction, is worthy of emulation.
THE TAX ADMINISTRATOR:
Apparently, tax administration centers on the rule of law. With a good law in place, achieving effective tax administration become easier. Therefore, let me use this opportunity to inform the general public that any demand notice or assessment notice that is not signed by the executive chairman of the service should be ignored and forwarded to the service headquarters for necessary action. All state revenue must be collected within the ambit of the law and must be paid into the state government designated accounts and adequately accounted for at each accounting period. The era of monopolizing state government revenue by any ministry, department or agency is over and we are much determined to ensure that tax payers are not subjected to any form of tax, levies and rates outside the provision of the law. For effective tax administration to thrive and citizens to enjoy the dividends of democracy or agencies, we must do away with illegal revenue collections emanating from touts and self-acclaimed revenue consultants appointed by ministries, departments and agencies. The Delta State Internal Revenue Service, by law, is the only authority vested with the responsibility in collecting any form of tax in Delta State, except this authority is expressly delegated. To this end, the state governor has approved a task force to put an end to illegal revenue agents in the state. These are geared towards effective tax administration.
In an effort to administer an effective tax system, the new revenue law provided key changes to the previous law by also giving the new service the power to determine the salaries and remuneration of workers and other performance benefits. Surely, staff of the service would be motivated to contribute their quota to ensure good service delivery that aids effective tax administration. Also, the Delta State Attorney- General and Commissioner for Justice, Mr Peter Adogbejire Mrakpor (SAN) contributed immensely to the drafting and passage of the law. He gave the service a fiat to undertake all tax litigations in any court.
`Undoubtedly, this will help the service to build a strong legal team, professional and well equipped for tax and tax matters for effective tax administration. We cannot rule out litigation in our tax process where voluntary compliance is less than 30%of total tax payers in the state. However, the service is yet to migrate to a full autonomy, but the process has started with the assistance of His Excellency the Governor. Tax Administrators are entrusted with the day-to-day implementation of the relevant tax laws. Therefore, are charged with respective responsibilities as stated below.
As a Service, we have formulated measures and are currently implementing them to ensure effective tax administration in Delta State. We are mindful of the effects of taxes on every taxpayer, especially this period of COVID 19 where some of our businesses have suffered setbacks and some closed operations. These measures therefore mitigate multiplicity of taxes, ensure fairness and equity, sustainability, clarity, simplicity and provide the enabling platform for voluntary compliance. Among these measures are:
1) Call for Annual Returns from Taxpayers: Prior to this administration in 2015, tax payers in Delta State had consistently failed to submit their annual tax returns as stipulated in Section 81, PITA 2011 (as amended). We have witnessed a steady progression of taxpayers’ compliance. This submission assisted the service to quickly respond to the tax payers on shortfalls in tax remittances and provided guidance on how to maintain their books of accounts to mitigate shortfalls. This is a quick feedback mechanism that has yielded results every year before the regular tax audit exercise.
2) Whistle Blowing Mechanism: We have introduced a whistle blowing mechanism into tax administration in Delta State. This platform provides the tax authorities with privileged information on companies and individuals who have indulged in tax evasion and avoidance and aggressive tax planning to under deduct taxes or willfully refuse to deduct or deduct but fail to remit the adequate taxes for a given period to the state government. We have also made tax recoveries from government agencies, companies and individuals. These are tax revenues secretly hidden by taxpayers, and their recovery has bolstered the provision of democratic dividends through effective tax systems in the state.
3) Consolidated Ministries, Departments and Agencies Billing System (CMBS): In our effort to ensure that businesses operate without any form of hindrance from touts or unauthorized persons, the service developed a system that harmonized all taxes, levies and charges collectable by the state’s MDAs into one platform known as CMBS. This strategy is to ensure that all revenues due to the state government are completely paid into the state’s designated bank accounts. This also makes it easy for taxpayers to know what to pay at the beginning of the year and plan on how to pay without any compulsion or disruption of their business activities. Currently, the service is working hard to ensure that all levies are brought into the CMBS. We are determined to provide a good working environment for businesses in Delta State to grow which will also grow the IGR of the state.
4) Notice of Non-Compliance: The service maintains a compressive database of all tax payers in Delta State. It is expected that before the 10th day of the new month as stipulated in PAYE regulations, employers are expected to remit PAYE of employees to the state. Any tax payer that fails to comply, the service issues a notice and penalty as applicable. This notice puts the respective taxpayers on alert to know the importance of voluntary compliance. We monitor every taxpayer for total compliance and to ensure effective tax administration in the state.
5) Integrated Revenue and Administrative Suites (IRAS): Delta State Internal Revenue Service, in carrying out her responsibilities, developed a comprehensive integrated revenue and administrative suite to warehouse all systems application of the service. This application, with the support of our lead consultant, ICMA, effectively provides a one-stop shop for all tax purposes in Delta States. The system warehouses the service CMBS, Tax mates, Reemsonline, Data e-service, and Delta State IRS website (www.deltairs.com). Therefore, taxpayers can confidently unveil the system platform to explore the new age of tax administration.
We must not lose sight of the fact that the security and welfare of the people is the purpose of government. In order to have adequate funds to provide the dividends of democracy, government must find other revenue sources to complement the dwindling federal allocations. This is the reason for taxation. In real terms therefore, by making contributions through the payment of tax, the people are only helping the government to help them. That is why the government projects and service are said to be funded with “taxpayers” money.
For optimum results and benefits, the people have a duty to be tax compliant. They should pay their taxes voluntarily without subjecting the tax authorities to hide and seek games which is commonplace. The tax process has been simplified and the atmosphere for compliance made more conducive than it ever was. Machinery for the resolution of disagreements is put in place through the Tax Audit Reconciliation Committee (TARC). The people should take advantage of and make use of these, rather than resort to tax evasion and avoidance. They should be truthful.
Intelligence gathering is one other area in which the people can co-operate with tax authorities. They should give information under protective cover, uncover new companies or businesses in their environment, particularly those businesses tucked away in some remote, desolate and difficult to access places. The tax authorities should provide necessary incentives in this regard.
Government is like a family which sees to the overall well-being of its members. It does not do business in the classical sense, but survives on contributions from its members. The richer the members of the family, the more sizeable their contribution and ipso facto, the more prosperous the family.
In the contest of government, the major source of income is federal allocations which are not adequate to meet government’s developmental responsibilities. This is because our economy rests largely on a single source- oil and gas. The receipts from this source are unstable and unpredictable due to a lot of factors. Vagaries in global oil prices therefore, easily translate in vagaries in the economy.
The only alternative funding source open to government is tax, which we have defined to be a monetary contribution by every income earner towards the funding of development projects and provision of service. This complementary source is not smoothly tapped due to the range of factors or obstacles enumerated supra. This is where tax administration comes in.
The government puts in place a tax authority to collect taxes through a carefully articulated process of identification and location of the tax payer, assessment of tax payable and collection and remission of same into government’s coffers.
At the federal level, the tax authority is the Federal Inland Revenue Service (FIRS), while the states have its equivalent with necessary adjustments. In Delta State, the tax authority is the Delta State Internal Revenue Service, established by the Delta State Internal Revenue Service Law, 2020. It is this body that manages the entire spectrum of taxation. Taxation is a huge and painstaking enterprise and unless it is competently managed, the desired goals may not be met.
The benefits of taxation are huge. It puts the government not only in a position to embark on developmental projects, but also to intervene and provide necessary relief in time of distress. Only recently, the Joe Biden government in the United States approved a COVID-19 relief package of US $ 1.9 trillion. This is in addition to the earlier package under the Trump administration. Back home, the federal and state governments rolled out COVID- 19 palliatives, granted subsidies and bail-outs. These are funded through taxes.
Provision of security is another area where tax receipts are deployed. Security personnel are paid with revenue generated from taxation. You can imagine what life would look like in the absence of security.
In summary therefore, the payment of tax is ultimately in the interest of the people and only an effective tax administration can squeeze out the revenue for use by the government for the benefit of the people.
Onyeme, the Executive Chairman of Delta State Internal Revenue Service, writes from Warri
By Monday Onyeme