The Lagos State government and the federal government have signed a bilateral agreement to harmonize tax administration, increase system effectiveness, and offer solutions to the problems associated with multiple taxation.
Yesterday, the Federal Inland Revenue Service (FIRS) and Lagos State Inland Revenue Service (LIRS) signed a memorandum of understanding (MoU) to establish a joint tax audit system that would address duplication of efforts and facilitate the exchange of data that are pertinent to the enforcement of current tax laws. Governor Babajide Sanwo-Olu oversaw the signing ceremony.
A statement says that Mr. Clem Agba, the minister of state for finance, was present when the agreement was signed. Other witnesses include Dr. Rabiu Olowo, the commissioner for finance, Mr. Moyosore Onigbanjo, the attorney general of Lagos, Mr. Sam Egube, and Mr. Gbenga Omotoso, the commissioner for information and strategy.
The scope of the MoU enables both tax authorities to exchange information sourced under International Tax Treaties in accordance with global protocols, as well as creating a common tax collection platform to prevent double taxation, in addition to providing joint jurisdiction in tax audit and bringing about an integrated system of tax compliance.
Sanwo-Olu described the collaboration as “epoch-making”, noting that the conversation for the harmonisation of the two agencies’ mandates started about a year ago, based on the need to forge a common front in widening the tax net to raise the country’s tax to GDP ratio.
Despite both FIRS and LIRS posting yearly record-breaking turnovers, the governor noted that Nigeria had maintained an unsatisfactory tax to GDP ratio of between 6 and 8%. According to him, this has increased the strain on the country’s resources and led to an imbalance in the government’s spending.
Sanwo-Olu said Nigeria must operate at the same level with other nations within sub-Saharan Africa doing between 14 and 15 per cent in tax to GDP ratio in order to support the Government’s development programmes and improve accountability.
He said: “We have just witnessed an epoch-making ceremony between the Federal Inland Revenue Service and Lagos Inland Revenue Service. This collaboration did not just happen by chance; it is a conversation we started about a year ago with the chairman of FIRS when both parties reviewed their successes and limitations.
“It was clear there was a need for a relationship to be consummated. Both FIRS and LIRS have been breaking records of their tax collection and administration yearly, but this is not enough. We have an unimpressive tax to GDP ratio, which ranges between six and eight per cent; this is totally unacceptable.
“Studies have shown that there would be better service delivery to the citizens and improvement in efficiency of tax collection when the two agencies work together. The cost of tax collection would be reduced, we would see better customer satisfaction and more resources would be generated for the government to deliver more dividends of democracy.
“For us as a state, we are humbled by this collaborative effort and we believe our citizens will be the ultimate beneficiaries of this initiative. The MoU is in the best interest of the public, as it affirms the reason why we need to come together and strengthen the cordial working relationship between the two agencies.”
Sanwo-Olu emphasized that the goal of the bilateral agreement was to increase the tax base and bring more people into equity rather than to overburden tax-paying residents. The Governor claimed that a sustainable tax administration system will provide the government with additional resources to ease social burdens and care for the weak.
The governor pointed out that Lagos’ budget was much smaller than what the State ought to be allocating. Given the size of the State’s GDP, he claimed that the market study suggested a benchmark budget for the State, of N5 trillion.
Sanwo-Olu reported that, thanks to the group effort, Lagos may have been on the correct track to raise its budget level to the proper level.
Agba said the dwindling oil revenue necessitated the need to expand the nation’s tax base to fund development projects. The minister said duplication of efforts by both agencies would lower the efficiency of both Lagos and Federal governments in resource generation, while limiting both parties to collect tax.
According to the minister, cooperation would not deprive either party of anything; rather, it would help both sides earn money to fill infrastructural gaps in their respective fields.
The MoU, according to Mr. Mohammed Nami, chairman of FIRS, would assist both organizations in strengthening their respective areas of expertise while assisting the Lagos and Federal governments in generating income for initiatives and development initiatives.
LIRS chairman, Mr. Ayo Subair, said the collaboration would bring about quick solutions to tax disputes and incidents; thereby creating seamless reconciliation of issues. He listed other expectations to include reduced administration costs for both tax authorities and the elimination of hiding places for recalcitrant taxable persons and entities.