 We're back with the breakfast and plus TV Africa ready for our first major conversation. Let's quickly give you a background, well, the monetary policy committee of the central bank of Nigeria. At its last meeting, raised the benchmark interest rate from 15.5% to 16.5% in order to rein in inflation and maintain the economic stability in the country. However, the Chartered Institute of Taxation of Nigeria has raised the alarm over the increasing rate of tax revenue leakages in the digital economy. They said that despite the advantages linked to the expansion of the digital economy, challenges arising from tax implications of the digital economy are perhaps the most urgent that the devil revenue authorities, policy makers, international organizations and tax professionals President and Chairman of the Council, CIT Adeshina Adedayo, revealed this during the institute's 47th ceremony where over 800 presidents were inducted as members of the institute. Now this is a fourth time the committee apologies for that mix up, well, we have to take that from the top. Again, I guess I got my script mixed up, it happens from time to time, but let me just take it from the very, very, very top. So the Chartered Institute of Taxation of Nigeria has raised the alarm over the increasing tax rate in the country and the increasing rate of tax revenue leakages in the digital economy. Now the institute said despite the advantages linked to the expansion of the digital economy, challenges arising from tax implications of the digital economy are perhaps the most urgent that the devil revenue authorities, policy makers and the international organizations as well as tax professionals. Now the President and Chairman of the Councils of the CIT Adeshina Adedayo revealed this during the institute's 47th induction ceremony where over 800 presidents were inducted as members of the institute and we want to know how important this sector is to the Nigerian economy. So as I say, we have our guests joining us this morning to do justice to this topic and he is standing by, I'd like to say a very good morning and welcome to the director of the Center for Economic Policy Analysis and Research, SEPA, our professor in the BC, Wokoma. Prof, good morning to you and thank you very much for your time. Thank you, University of Lagos. Yes indeed, University of Lagos, Akoka Lagos. Prof, this digital sector of the economy, I mean it's relatively new if you want to look at how many years we've had, for instance, fiscal management of the economy, since independence really, it's a relatively new sector. How important is this sector and the overall fiscal stability of Nigeria in your opinion? Yeah, I think the emergence of the economy that we're talking about that is clearly digital is because of the growing trend of globalization and we know that the world has become a global village, like we always say and there are four key areas that we can talk about that defines globalization. One of them is trade, increased trade among nations. The other one is ICT, internet, it's very, very high. The other one is immigration, it's a critical issue globally and the other one is financial flows. So these areas have made the world very, very small globally. So trade is a key component, increased trade and also the impact of the content manager is a key component of globalization and when we talk about that, every country wants to maximize its earnings in this process and that is why you talk about the acknowledgment of being able to recognize income that is earned from your shores because you are dealing with many countries in terms of the flow of goods and services, you know, tangible goods and intangibles and then at every point in time income is earned by the various economic agents and how can you now tax them is a challenge. Now with the protection of the economy, with the great use of the internet and the flow of services particularly, you know, via the online channel, every country has this challenge of being able to recognize income that is earned through its shores and that is why it's a challenge for FIROS or for the tax, you know, a person has to be able to recognize income and to be able to help the economy enhance the revenue in flow. So it's a challenging area and it will keep on becoming relevant because the economy or the world is becoming more and more globalized, we are becoming smaller and smaller. So trade flows are becoming more frequent and becoming more rapid and for a country like Nigeria that is just green, it's a challenge for us to now know where the income is earned, particularly among companies that have branches across the world, but personal corporations, you know, that have branches across, you know, cross-border transactions. So if income is earned in one particular institution, how do you pay tax? It's a challenge and it's something that has to be properly addressed. Even the OECD has been able to talk about how to handle transfer prices across various countries within the same group. It's a challenge and will keep on being something that for some time to come. So do we attribute this to the fact that we're not so swift in terms of, you know, technology and the 21st century, if you like to say, kind of economy? I wouldn't say we are not so swift. Nigeria actually has a deep level of internet penetration currently, even in Africa. But the last government under Jonathan, they really did a lot when it comes to this penetration issue about the internet use or technology use globally. But it's an emerging trend and the country is trying to write education by being able to make sure it tries to capture income because the key thing is income recognition. For example, we have Nestle Foods. Nestle Foods may have a parent company abroad. And there's a subsidiary here in Nigeria or there is a branch here and they do transactions, they buy raw materials from each other. And the income that is made by Nestle Nigeria should be taxed. And these things are, you have so much transaction parallelism, talking about offering of market services or selling online. People now make sales online like Jumia, there are goods that are sold online or you sell in amazing, people sell goods and the income is earned. Then the seller earns income. Then how then do you recognize that? That is the key issue. The point is now we've been able to enhance technology. So we have to recognize income earned and that's the job of the tax officers. At what point has Nestle Nigeria earned income by dealing with Nestle UK or Nestle America? And those are areas. So at what point which income belongs to the branch of Nestle in the UK or the branch of Nestle Nigeria? Those are the challenges. And so technology has to be properly enhanced. And when there's a flow of goods or services, when once let's say Dan Gote group, Dan Gote Zambia, there's Dan Gote cement in Cameroon, there's Dan Gote cement in Zambia and so on. So when they transact within the same group, how do we know the income earned by Dan Gote group of Zambia and Dan Gote group of Nigeria? And to properly recognize the income that belongs to who it is, when you recognize the income that you can talk about applying the appropriate tax by Nigeria, not by Zambia. So it's about technology on one hand, but not more about income recognition. And that is a key job for the tax officers. So Professor, I mean just before Kofi steps in, are we not saying one and the same thing? That, you know, because of inability to understand the dynamics of technology to solve the problems seem to be the issue. Well, depending on how you look at it, because the point is that there is an increasing flow of transactions because of globalization. The flow has increased. It is not easier to transact like it was before. It is more of the growing trend of globalization. So I can easily buy something from abroad now. It is easier than I could buy 10 years ago. So yes, from your own point of view, if we enhance technology for us to properly know when the income has been earned by either party, and then know how to do it, because so much is happening online, a lot is happening online. That is what government has talked about, being able to earn income through this means, because there are a lot of people sell goods now, people to hardly own shops. You can stay in your house, have an online presence, and you transact yourself, and then you earn income. And then this income is not recognized by the authorities as to how to apply tax. So it's a matter of, yes, enhancing their own capacity technology to know when income is earned. I can be here and I'm selling, and I'm selling millions of Naira without having a shop. So it is the growing trend of globalization and technology can also assist. So I agree, for example, with you that yes, we're able to enhance capacity in this area. We can also be able to know when the income is earned and want to apply their proper taxes. All right. You mentioned the OECD, very important, you know, because one of the important questions that they had to answer was how best to tax the digital economy. Let's go practical. Before we go practical, I mean, I mean, we're seeing that the cost of living in the country is going up, you know, almost every single day. Inflation is galloping, or should I say, it's flying these days, it's developed wings and it's just flying. You can't even catch up with it. Is this the time to be talking about increasing the tax burden on Nigerians? I mean, people who take advantage of digital economy are people who are trying to make daily income. Is it the man or the woman who is using his car for a ride-hailing service to make money to survive? We can see that they are complaining. A lot of them complain because I use these services myself and they complain about what they get charged as percentage by the companies, you know. The companies themselves are also being pressured by government, not just federal but even state governments to pay taxes and it's telling on the percentage that the ride-hailing driver or rider has to go on with. You know, you look at those who are selling, you know, maybe using online mediums to sell. These are people who are surviving. So the question I'll ask you to call this shot is won't this affect the business people, those who are in the MSME sector, you know, because we do not simply need, you know, more taxes maybe. Okay. Thank you very much. I think the point here is that Nigeria is not taxed as other African countries. If you look at the tax-to-GDP ratio in Nigeria, it's about 8%. So actually, Nigeria is under taxed. Compared, I'm talking about comparison, compared to other African countries, where it's about 6% of GDP. So there's room for more taxation. However, we don't tax those who are already paying their first year of tax. That is the little difference that most times we have multiple taxation in certain sectors and in some other areas, there's no tax at all. The ultra-rich, the very rich actually are not paying, in my opinion, not paying their first year of taxes. The very, very rich. Those who have these private jets who have a lot of money, both onshore and offshore, they're not paying their first year of tax. And then you have a lot of persons in the informal sector who are not even paying tax at all. So for those who are already paying tax, I think government needs to structure their tax programs such that they capture those who are not paying and not overtax those who are already paying. Like there are those who are struggling, who are trying to survive, who are saddened. If they pay tax normally, their first year of tax, that would be fair because the government needs the revenue. But my problem with government approach is like trying to tax those already paying who are not being overtaxed. So there's need for that rearrangement. But the country is not paying sufficient tax compared to the GDP. It's among the lowest in Africa. So there's need for government to make more money through taxation. However, they should shift their focus on those who are not paying. There's a lot of persons, the traders in the marketplaces, the market women, those who are in the, even the underground economy, they're not paying tax at all. Some are paying almost nothing. And there are those who are paying SMEs, many of them are paying state-fed levies, local government levies, federal levies. And there are those who are struggling to survive. Like you said, they're having a high level of inflation. And then they are being taxed more. That is where government now needs to restructure to make sure that it is properly distributed across the economy. So, but what do you make of these thoughts or school of argument where some people are saying that they are overly taxed? At this point in time with the taxation, you have some people who say government is taking so much. Some people are scared of having businesses established because of several tax that will come afterwards. And on the other hand, we're still saying that Nigeria is on the tax, taxed. Yes, like I said earlier, Nigeria is on the tax, as an economy globally. Nigeria as a country is not, if you compare the tax revenue to gross domestic product, it's a money-lowered snafkrika. If you go to other countries, you pay tax for almost everything. The problem with Nigeria is the distribution of this taxation. That is the problem with Nigeria. Those who are not paying, many are, those who are paying are paid to pay more. That is an area I say that government has to look into. They are those who are not paying, or those who are paid very little compared to their level of income. They need to be identified and made to pay their fair share of tax. If you do that, the money that will come out will be so significant. And then government has to deploy technology, even able to enhance this increase in tax revenue. However, as I said before, government should not overtax those who are, and that's a very small portion of the population, but those who are in employment, they pay. And then they have to also pay through other means. There is this proposal that government should increase the VAT beyond the current rate. So there are many proposals on how to increase tax revenue. But my focus is distribution. There are many who are not paying their fair share. That is where the focus should be on. And not on those who are already paying. People like maybe you and I, who are in employment. We are already paying our fair share of tax. And then those who are not paying are not called. So the tax program should be proper to capture all that. Finally, the large informal sector, many of them are not paying tax, or the ultra-rich, they are not paying tax as they ought to pay. That should be the focus. If we are able to capture that, then the tax revenue will now be compensated with our level of GDP. I think that's so there's no need to overtax from people, people who are already paying. That is actually where the work is. I hope your authorities are listening. Because indeed, you know, the tax net is not as wide as it should be. And I hope authorities, but if care is not taken, I think it's already happening in some sectors. Multitaxation is a problem. You know, before you realize you are actually playing the same tax over and over again in different names. It's very important that that is looked at so that people do not suffer. And businesses do not suffer. Already we have a conversation about businesses going under because of an increasing interest rate. Businesses are also trying to struggle to stay afloat because of the increasing cost of fuel, which is not even easily available these days. But let's look at the issue of location. I mean, existing international tax rules assume that you need a certain level of fiscal presence in a country, maybe an office, a factory, a workshop, et cetera. In a foreign country, before you can make any significant stable revenues and therefore before you are taxed. But a lot of these companies are not resident in Nigeria. They don't have an office. They're based in the country. Twitter, for instance, doesn't have a base in Nigeria. You know, how will government work around this, you know, to tax the main people who are making the money, which are the big, you know, tech companies, for instance, Twitter, who makes money of advertising, for instance, Facebook, who makes money of advertising, for instance, LinkedIn, who makes money of advertising, for instance, Google, who's making monster money of advertising. If they don't have offices in Nigeria, can they be taxed? Is there a way to go around this? Yes, in my opinion, the markets that they are exploiting is in Nigeria. The market that's generating the income. If somebody is selling some goods to me from the U.S. and is offering a service and they are paying for it, or the market, or those who are paying and leveraging on my participation in the process to earn income, then Nigeria needs to have part of that income. I think, in my opinion, that is the work in progress for there to be an arrangement where which both the location of the company as well as the location of the market, there will be some kind of a need for a proportional arrangement in sharing of the revenue. For example, in the capital market, when they say sale, when they say transaction in the sale, there's some portion of the income, if you are selling that goes to the stock exchange, that goes to the to-sale, and there's some portion, if you are buying, they say, where you do a proportional arrangement on sharing income. So I think it's a matter of income apportionment being able to talk about who gets what if a company, Facebook is based in the U.S. and the income is generated because of the market based in Nigeria. There had to be a proportional arrangement for sharing so that not all the income, because we have been liberated to enhance the income of Twitter or Facebook or whatever, Instagram. So the digital economy actually is challenging. Then there's need to be an apportionment. So it's so much proportion of the income and we'll go to the particular country and the other proportion. So the issue is about other arrangements and the thing could be either maybe cost based or market based, being able to determine what income is earned, what is the pricing, and what is actually how do we share the income between the location of the company and the location of where the market is. I'm in Nigeria and I'm patronizing amazing or actually I'm going to be so true amazing. So how does Nigeria as a country earn income? Because any country, because I'm the one paying, I pay online and income is earned by the country based in the U.S. How does Nigeria, so it's a matter of an arrangement which has to be done globally to know who gets what portion of the income and what is the proportion that has, but everybody should get something. All right. Prof, we have to leave it at that and I would like to thank you very much for your time. Am I seeing you have a question? Just quickly before we move on, because we still have some time, we've been told that we have some time to continue. Well, I'd like to ask the primary reason that we pay taxes is that the government would use this taxes to improve public infrastructure among others. Do you think that as much as we are on the tax as a country, do you think that the taxes that the people have paid has been justified in terms of maintaining? Well, when I say on the tax, I mean if you compare to the... No, I understand. I understand. My point is compared to other countries. Yes, compared to other countries, I'm saying that with the little that has been paid, do you think that there's a justification for it? Because the essence for paying tax is that government would use this to maintain public infrastructure among other issues. So if you look at the public infrastructure across the entire... I agree. Will you agree or will you say that there's a justification that this taxes that the government collect has been justified by public infrastructure across the country? Yes. I wouldn't say it is justified because many people actually don't want to pay that because the country benefits. So that is the reason why many people are trying to evade tax, because they think that this money actually is not going to benefit me. It's like money for government officials. So government needs to do more for the little that they are collecting. Chief, Professor, sorry, we look at the cases built or the rules or the ideas considered by the OECD. They're talking about establishing new bases for determining when a digital economy is liable to tax.