Ekene Nnamani is the executive chairman of the Enugu State Internal Revenue Service. His agency recently commenced sealing up tax defaulting firms and institutions in the state. In this interview with CommunityReporters, he lamented that less than 10 percent of taxable adults are presently captured in the tax net and paying taxes in the state with about five million population.
Sealing of some hotels, schools and other business ventures in Enugu
We embarked on another enforcement for tax compliance in Enugu State. We visited and sealed 16 institutions so far. And they include hotels, companies, consulting firms and schools. We started our enforcement on tax payment and tax compliance this morning because several institutions and businesses in the state do not pay their tax as it’s supposed to be.
We did what we call tax audit on these institutions. We served them demand notice. We served them warning letter. We even served them intention to sue them to court and when those things failed, we instituted a case against them in our courts, and after court have heard our applications, they rejected some asking us to go and do more work on them, and then granted us an order for 16 corporate entities who have failed to comply with the tax laws.
And today, we started enforcement to seal those companies and demand immediate compliance to our tax liability.
You know that sometimes people believe they cannot take the tax authorities serious. They believe sometimes they can get their way out. But this time around we are very much committed. We are proactive and we are diligent in what we are doing.
So this is not time for us to begin to say I know this person, I don’t know this person. Let them go and pay their tax and that is what we are doing currently. So our intention is not actually to destroy businesses, but to announce to the whole people of Enugu that we are not joking with our taxes. Pay your taxes. We are reiterating it with this outing that every business must comply with the tax payments and tax liabilities.
Allegations of not following due process in sealing up defaulting businesses
Every action that you see us take in the revenue service is in line with what the law asks us to do. We gave them tax liabilities, gave them time to cross check and equally gave them warning notices. When they fail to do that, the law stipulates the next action. That’s exactly what we are doing.
Before taking action, we first of all went to court to obtain an injunction allowing us to do that.
Locking customers of defaulting hotels in
You see, when a hotel is sealed, it means it is locked. So, the hotels remain sealed and locked until they clear the debt.
When we seal a hotel or a business premises and you go and unseal it, it has an offense of its own.
So it is the duty of the owners or managers of the hotel to make their customers comfortable by complying with the tax obligations.
If you comply immediately, the hotel will be unsealed even immediately. You can actually make transfer and the hotel is unsealed immediately. So, let nobody begin to complain about their customers being locked inside by our taskforce because we have given everyone ample time to do the right thing.
Estimate of the total amount owed through tax evasion
It will shock you because we have hundreds of millions of naira unpaid taxes. These are ranging from 2015 up till today.
While some of them refused to pay tax since 2015 till date, some others underpaid. Imagine a company that has 30 staff remitting N10,000 or N5,000 as tax to the government on monthly basis.
When you do that, what we do is to go on tax recovery and tax audit. We will check what you are supposed to pay as tax and subtract what has been paid, and raise a liability. So, when we raise the liability, we inform you through a demand notice for you to pay. When you fail to pay, we give you a warning letter. After warning letter, we also tell you that we have intent to sue you in the court. We serve you all these and there must be acknowledgment. With all these evidences, we go to court because the court would ask us to provide the evidence that we have complied with all the requirements of the law.
It’s not in all cases that the court will grant
Improvement in tax payments level in Enugu
We’re seeing great improvement in the tax payments by residents of Enugu State. Even in the informal sector where nobody has ever paid government tax, we’re recording massive improvements. We have recorded over 200 percent increase in tax collection in the informal sector, be it in the transport sector and in the markets.
Even in the formal sector, where people have remained adamant in paying taxes on their own, we’re seeing a lot of companies paying their taxes.
So, what we’re doing with this enforcement is that we’re just sending a message that this time around, we’re not leaving any stone unturned. So, if you one if those who have not been paying, please go and pay.
I’m also using this opportunity to call on all the shopping malls, hotels and other business centres in Enugu to pay their purchase tax. That purchase tax is everything to us. So, we will stop at nothing to ensure that every organization complies with it.
You can see a lot of projects that His Excellency, Governor Peter Mbah has embarked upon. These projects which will have massive effects on the economy of the state upon completion, will not be done by mere wishes. It requires money. And we are not telling people to pay more than what you are supposed to pay. Pay exactly what you are supposed to pay is in line with the laws of the land. Don’t add to it.
Parameters of measuring individuals’ income or company’s profits?
For companies, we’re not the ones collecting their income taxes. We only collect the taxes of individual employees working for these companies. That’s what the law empowers us to collect. Deduct their pay-as-you-earn in accordance with the law.
For the informal sector, we’re using presumptive tax model. A keke man cannot tell you how much he makes in a day or a year. So, we do what is called presumptive tax model.
In our markets, nobody will tell you how much profit he makes in a year. So, it is difficult to pry into. It’s the secret of business as an Igbo man. For, we also use the principle of presumptive tax to calculate how much tax they should pay. And what we are assessing them is the minimum possible.
Level of tax compliance in Enugu
We’re not yet satisfied with the level of compliance. We have enormous data that says that people who pay taxes in Enugu are not up to 10 percent of the number that should pay taxes. What we are trying to do to get everybody to be in the tax net.
So, how much is the state losing to tax evasion?
It’s a huge. It’s in hundreds of millions. We may not be able to give you the exact amount owed to the state in taxes. If we say that less than 10 percent of supposed tax payers is captured, that tells you what we are saying that what we are losing is humongous. Going by available data, Enugu has over 5,000 companies and entities. And when it comes to pay-as-you-earn, you can only see less than 500 or 600 companies and entities fulfilling their tax obligations.
Status of tax waiver given to traders and artisans by previous administration
Anyways, we are not going back to the previous administration. What we are saying is that from the time we started our administration, we don’t have any waiver.
Let me let know this. Any government that waives tax, also waives development. Because we have not been able to assess the level of waiver in development, we are only interested in the waiver of tax.
The question is, how much do you pay as tax that you will seek waiver compared to the development you should have sought for? Pay your tax and demand responsibility from the government collecting your tax. Don’t seek waiver because what they want to waive for you cannot be compared to what you should have benefited. This is because you cannot bring development yourself. But when one million individuals pay N1000 for instance as tax, you have given government N1 billion. That N1000 is two bottles of beer. Can you imagine what N1 billion can do in resurfacing street roads?
But, when you seek waiver, everybody remains without paying that N1000. You have invariably given this money to entertainment, beverage makers, and others. People will go and begin to enjoy themselves and these street roads will remain unconstructed for years. You only continue to complain because you don’t know what you have done to yourself.
I don’t seek waiver. I should pay my tax and demand responsibility from the government. So, let us remove this mindset of waiver for taxes. It is a wrong approach to governance.
These things happen because many a time we believe that money from donor countries is enough to develop our economy. It’s not true. We’ve been receiving these donors since our independence, we have not been able to develop.
In those early days of independence and before independence, the government of the Eastern region were taxing our people and used the money to bring the level of development we witnessed before the war. They built companies for our people. They NigerCem, Presidential Hotel, Ikengas, Nigerglass. They built universities, colleges, hospitals among several other ventures.
Since people have become reluctant to paying taxes, where have we been in terms of development? Are we actually growing compared with the achievements in the 1960s and 70s and the achievements in the recent past? No, because we don’t pay taxes.
Tax is not what you pay too much. Tax is a small amount you contribute to the development of your state. Let us do this contribution and hold government accountable and I can assure that that the government of Dr. Peter Mbah is ready for development of Enugu State. You can all attest to that. Hitherto, water became a luxury and the biggest problem of residents in Enugu. But you can all attest to it that water is now closer to you. Some people may say that it has not got to my house. It will eventually get to every household. But the truth is that less than some meters, you get access to portable water.
So, all these projects require funds. We’re not saying somebody should give us his house to enable us raise this fund. What we are saying is pay your tax by contributing small amount.
What did we ask the market people to pay? N21,000 per year. Divide it in 12 months, it becomes N1,750 per month. If you don’t want to do that and you want to pay what you earn everyday, you pay just N200 per day. It’s fair enough. Some people may begin to campaign against it, but enter the streets and market, you see that people play lottery worth N1000 daily without winning any money. But when you ask them to pay tax that will ensure that the development of the state, they will say, why do we pay tax?
You know, these things are as a result of orientation. We’ve not had the orientation of tax. We’re bringing that orientation back because tax is everything.
Do you know that in South Africa, the personal income tax they generate in a year is more than the entire tax collected in the entire country called Nigeria. I didn’t mention company tax. I said only personal income tax. What it tells you is that tax is everything.
Those abroad, have you ever heard them say they were given waiver for tax? Why do we seek waiver even as an underdeveloped nation? We should all contribute to develop our state and nation. But when you pay, you hold the government responsible.
When we say purchase tax, people think it’s on everything purchased. No. We don’t ask you to pay purchase tax on food. We ask you to pay purchase tax on those items that are luxury. They include drinking bear. A business man goes to a hotel. A poor man doesn’t go to hotel. Also a poor man cannot go to a hotel hall to do his wedding. He can do it in village square, school or church premises.
In the same vein, a poor man doesn’t buy car or heavy electronics, gold. So, when people say that purchase tax is killing business, I begin to wonder if those opposing it actually know what it really means.
If you travel outside this country and visit any hotel, you will see federal tax, state tax and municipal tax. You see those in hotels abroad and pay it without complaints. Why would you come to our own state and people begin to complain? If you waive tax, do you also enjoy waiving development? I have told you that we commissioned 81 roads in Enugu and these 81 roads are going on simultaneously. From Emeka Ebila, to Abakpa to New Enugu even in areas you never envisaged that would receive attention, the projects are going on.
Governor Peter Mbah does not sleep. Every day he’s strategizing, ensuring that Enugu gets better. He challenged us that when he is finished with his administration, people will have no reason to say they are looking for visa to travel abroad. You may not even have need to go to Lagos except to go and buy goods. I can assure you that by the end of this administration, Enugu you know will no longer be the same. You will be proud to identify with Enugu once again. Please let’s encourage our people to pay their taxes.
Sometimes ago you launched an electronic ticketing for revenue collection. But since then, we now have more revenue agents collecting cash from traders and tricyclists on the roads. What happened?
Let me correct an impression. The e-ticket is for the informal sector. Those agents can collect cash. Why the agents collect cash is because the payment is small. When you ask somebody to pay N200, you insist the person must do it through transfer and then charge the person. You see the person will do it through POS and they will charge the person N100 for it. This means that somebody is paying more than 50 percent service charges for paying M200. So, we allow them to pay cash.
Let me tell you how it works. Those agents that you see, come here to get their tickets by paying money upfront. When they go to the field and begin to vend these tickets, they can collect cash to recover their money and their commission.
The impression people have is because it is e-ticket, cash can no longer be collected. No. We have not got to that level. We will get to that level where we will no longer deal with cash but people will be issued with cards for tax payments. We will also get to another level of technology where you just tap in your card with your pin, and you have paid. We’re still in a bit of crude economy. We have to transit from where we are to upgrade to that level.
Our next stage is that in the next few months, we would have provided jobs for these revenue agents working currently. We will begin to phase them out and come completely with technology. Ours is still a cash-based economy. That’s for the informal sector.
As for the formal sector where corporate organizations operate, none of them pay cash. Every transaction in the corporate sector is end-to-end.
