Curbing menace of illegal tax collectors at subnational level

Tax policies are laws enforced by statutorily approved agencies. Sadly, our weak justice system has created copious avenues for criminally minded people to create and enforce their own tax laws. Subnational governments contend with a preponderance of illegal bodies forcefully and dubiously collecting revenues meant for them on the roads, business premises, commercial motor parks, markets and shopping centres and offices. In Lagos State, motor park touts under various nomenclatures and authorities forcefully collect different forms of fees and levies from motorists. Unofficial estimates indicate that more than 60 percent of these collections do not get into the coffers of the government. In Anambra State, illegal revenue collectors mount roadblocks unchallenged in the border towns of Onitsha and Amansea, where they use sticks, clubs and other dangerous weapons to enforce their illegally imposed revenue laws. These are only a few examples. However, the ugly trend appears to cut across the entire country. Virtually all state governments complain about the menace of illegal revenue collectors. As of 2017, the Ogun State government estimated that it lost between N3 billion and N5 billion monthly to illegal revenue collectors. According to the 2021 estimates by the International Center for Investigative Reporting Lagos State government loses N6.75 billion each month, and N82.125 billion each year to agberos [motor park touts]. Similarly, in June this year, the Anambra State government lamented that it loses 50 percent of its IGR to leakages and revenue thieves.

Illegal government revenue collectors and extortionists operating in Nigeria are classifiable into four. The first category is the area boys operating mostly in Lagos and, to a lesser extent, in Rivers State. Area boys operate in specific neighbourhoods or localities and often extort money from businesses, street vendors, and residents in their territories under the pretext of operating on legitimate authority. The area boys differ only slightly from the touts or agberos who extort money from commercial drivers, especially at bus parks or motor parks. The touts and agberos impose arbitrary levies and taxes on drivers and often resort to intimidation and violence to collect the money that ordinarily would have been paid to the government. There are also fake law enforcement agents. These criminals pose as law enforcement agents, such as police officers, or traffic wardens, to extort money from unsuspecting victims. They may set up illegal checkpoints or target individuals on the streets, demanding bribes or fake fines. Closely related to the fake law enforcement officers are illegal tax collectors who pretend to be tax collectors but have no official authority. They target businesses, demanding payment of fake taxes or levies. They often use intimidation and threats to coerce victims into paying.

Like many other ills in our society, effectively checkmating and containing the menace of illegal revenue collection is quite challenging. The first is because of the entrenched weakness in our justice system, which has created fertile platforms for a variety of illegalities and criminal behaviour. Flowing from this near absence of the rule of law, crime-prone persons and bodies effortlessly hijack the revenue collection responsibilities and the rights of the government. Second, is the calibre of personalities backing these illegal revenue collectors. There appears to be sufficient evidence to establish the connivance of security personnel such as the police and the Army in the activities of illegal revenue collectors operating mainly on highways. In some instances, particularly regarding the illegal tax collectors, some personnel of the Internal Revenue Services provide them with some cover such as confirming that such fraudsters are indeed the personnel of the service. Many traditional rulers have also been identified as providing cover and authorising such unlawful collections. For instance, in Anambra, Rivers and Lagos states some traditional rulers compel tipper drivers to pay some amount of money as charges for sand mining or for the extraction and conveyance of any natural resource. The third reason is the absence of political will on the part of state governments and chairpersons of local government areas in frontally addressing this menace.

The first lines of efforts in dealing with this menace will require focusing on these three identified classes that are invariably reflective of their illegitimate sources of authority and the government’s role. In addition to that, however, are about six key initiatives to drastically prune them. These include the automation of the tax management system, robust taxpayer education, tax collector verification, official demand notice documentation, assessment verification, the keeping of records and the deployment of law and law enforcement agencies to severely punish offenders.

Enhanced digitalization of the tax management process is the single most important way of controlling the menace of illegal tax officials. To a lesser extent, it might also positively control the illegal revenue collection activities of touts. Some of the key areas of focus in tax management system automation include data integration, the automation of tax calculation, e-filing and compliance, secure data handling, real-time reporting and analytics, and audit trails and documentation. Data integration will ensure that the tax management software of the IRS works seamlessly with other relevant systems and databases to minimise manual entry errors that also provide the gap that fraudulent revenue officers take advantage of. E-filing and compliance minimise interactions between tax officers and taxpayers by permitting the implementation of electronic filing of tax returns and also ensuring compliance with tax matters under regulations. Depending on the system’s design, it can also support reminders necessary to meet tax deadlines and eliminate room for visits by illegal tax officers. Again, implementing secure data handling as part of the automation process by implementing measures like encryption and access controls, safeguards sensitive taxpayer data from falling into the hands of criminals that use the same information to defraud the taxpayers.

Taxpayer education, on the other hand, by enhancing taxpayer appreciation of their tax obligations, rights and responsibilities can substantially minimise the window of deceit that illegal revenue collection officers take advantage of. A good taxpayer education provides a comprehensive knowledge of relevant tax laws and regulations applicable to different categories of taxpayers. It also provides a rich understanding of filing procedures. Taxpayers generally need to understand how to complete tax forms, deadlines for filing and available methods of filing. Regardless of whether the filing method is online or manual, taxpayers need to know how to execute them correctly. Taxpayer knowledge of the use of technology, online tools, calculators and e-filing options that simplify the tax filing process and reduce the likelihood of errors is important in blocking the activities of tax revenue fraudsters. This also minimises the need for assistance from illegal tax collectors who take advantage of such opportunities to defraud their victims. In addition to the maximisation of their tax benefits, taxpayer understanding of deductions and credits can help them with the knowledge of requirements and documentation needed to claim these deductions and credits properly. Another important area of education is record-keeping. When taxpayers maintain accurate and organised records of their financial transactions, expenses and income, it becomes very difficult for fraudulent tax officers to manipulate them into parting with their hard-earned income. Such education can also be designed to keep taxpayers abreast of common tax scams, identity theft and fraud attempts.

Another approach to controlling the menace of illegal revenue collectors is to verify the authenticity of those who present themselves as such. There are several ways to go about this. However, before embarking on the verification exercise it is important not to yield to the often high-pressure tactics and urgent demands by scammers or these illegal collectors. It is also critical to avoid sharing personal information beyond the one they already know. With these self-protecting details, the first step is to request the identification of the revenue collector either via their identity cards or letter of identification. Ideally, tax and general revenue collectors carry identification cards issued by their approving authority. The Internal Revenue Service must build security features into the identity cards of the personnel to make it easier to authenticate them. The second approach is to contact the revenue authority supposedly permitting the revenue collectors. Putting in a call to the phone numbers obtained from the official websites or other trusted sources of authority may help validate the legitimacy of those presenting themselves as collectors. Thirdly, it is important to cross-check the information obtained in the tax collectors’ identity cards with the tax authority to ensure that they are indeed in the employment of the government.

Albeit incomprehensive, these outlined steps are undeniably critical in protecting the taxpayer [individual or organisational] from the evils of illegal tax collectors. Most of the time, the missing link is the point at which the taxpayer identifies or suspects an illegal revenue collector and the failure to report such illegal activities. As mentioned earlier, the suspicion that these fraudulent operators connive with government officials and the police discourages victims that might be interested in reporting them. It is at this point that state and local government administrations need to step in to save themselves from these catastrophic losses. First, the governments must encourage taxpayers and citizens to identify and report all illegal revenue collection activities. They can offer incentives to encourage this illegal activity reporting behaviour. Second, the government must step in to ensure that those caught in the process are properly prosecuted. Severely punishing offenders and broadcasting such to deter others is a good approach.

Finally, subnational governments face unusual pressure to improve their internally generated revenue. What they do not need is to fold their hands while unlawful nonstate actors legitimately usurp a significant proportion of their revenue collection rights. There is an abundance of evidence showing that these illegal revenue collection officers do not act alone but in connivance with state government officials and even members of security agencies. Taxpayers who are first in the lineup of victims need adequate education to promptly identify and report suspicious illegal revenue collection activities. The state and local governments also need to act decisively on such reports and ensure that culprits receive severe and commensurate punishment.