As the need for more efficient tax administration continues to grow, we have started to see bolder attempts by Revenue Services towards automation of tax remittance processes.
The FIRS released the platform for e-filing Company Income Tax (CIT) returns last year and this year the Lagos Internal Revenue Service (LIRS) launched an e-filing portal for submission of employers’ tax returns. This story begins in January 2019 when we commenced the annual filing process.
Nigerian legislation requires every employer to file their tax returns with the relevant tax authority not later than the 31st day of January every year. An acceptable annual returns filing would include the following:
- Employer Annual Declaration and Certificate (Form H1)
- Evidence of tax remittances for the previous calendar year
- Evidence of reliefs claimed in tax computations for the previous calendar year. This includes pension remittances, life insurance agreements and premium remittances, mortgage agreements and evidence of interest repayments; and National Housing Fund (NHF) contributions
- Evidence of remittances for Business Premises Levy
- Evidence of remittances for Development Levy
At the end of this process, the tax payer is presented with an acknowledgement (receipt) which contains among other things the filing completion date. The filing completion date is noteworthy – failure to file on or before the deadline attracts a ₦500,000 fine for corporate organizations (₦50,000 for individuals).
Having made it one of our goals to develop and deploy technologies for efficient management of tax and related obligations, there was a palpable sense of anticipation at Taxaide Professional Services to see how this would turn out. That anticipation was short-lived as we got to find out that we were unable to file returns for our clients as the system kept spewing errors – a lot of them vague, but some were quite explicit. The continuous errors counted as a major factor to the extension of the deadline this year (to February 8th, 2019).
There are two main reasons why so much effort and time is dedicated to ensuring that an application is able to “crash gracefully”. The first is to avoid irritating users. No doubt, tax payers staring a ₦500,000 fine in the face would be peeved even by the most pleasant of error messages and the error messages displayed above fall severely short of such description. This will also be a big blow considering the fact that user acceptance for subsequent initiatives will be accompanied with several generous pinches of salt. If the previous images are too much for you to bear, you might want to look away from the next one.
Let’s look past the fact that for some reason, the server was taking more than 5 minutes to display a login page and focus on the bigger problem at hand. Such error messages should not be seen by anyone outside the development team –in the error log maintained for each application. The second, and perhaps greater reason for graceful error messages is to avoid potential exposure to vulnerability attacks. Hackers these days are good enough to give us sleepless nights without us giving them pointers to the flaws in our system – did you hear of the guy who reconstructed Angela Merkel’s fingerprints from pictures?
One might be inclined to wonder why the LIRS even bothered with the portal. After all government establishments are notorious for their underwhelming ventures where IT infrastructure (or any infrastructure for that matter) is concerned. Also, they already had a time-tested, trusted, and reliable system that allowed tax payers to file their returns as at when due.
If such a person is reading this article, please see this video taken on the penultimate day of the regular filing season (prior to the deadline extension) at the LIRS Tax Station Alausa. If you’re still not sure, note that there are 37 of such tax stations in Lagos State, each drawing an equal or greater number of taxpayers looking to file their returns. If you’re still not convinced, I pray on your behalf that you never have to pay half a million naira for a 12-hour sunbath (the tropical blend I might add).
When I was thinking of my closing statement, the first thought that came to mind was a quote from one of my favourite Nas songs,“…Get it right: you only have one first chance to make one first impression that lasts a lifetime. Reputation supersedes itself…”. There will definitely be a validated distrust of the system going forward. If this were an upcoming organization, we may as well consider this a self-inflicted knockout – the only thing more difficult than getting new customers is bringing a rightfully disgruntled customer back into the fold. But we are talking about the LIRS and we must always bear in mind that as much as the taxpayer’s wilful compliance is appreciated, the LIRS holds all the cards. In other words, it does not matter that the system has problems – the only thing that matters is that it is in line with guidelines set out by the LIRS. If you do not agree, please watch this video one more time. Whether we like it or not, we will be filing our 2019 annual returns online (unless the LIRS says otherwise). And with that thought, this is no longer a knockout- at worst it’s a bloody nose in the first round. There’s still plenty of time to make things right and thanks to the law, the LIRS has several other opportunities to win back public trust. They have the right strategy, they just need to tweak the technique.
On a technical level, there has to be a more concerted effort at testing. This is beyond ensuring that the code works properly but deliberately stress testing the system as a whole to its limits and beyond. This testing cannot be done without an understanding of the filing process and current realities. On average, the system would face mild stress in the first week of the year -organizations would be resuming after the Christmas holiday and only the most enterprising (Do I hear a Taxaide in the crowd?) would seek to take advantage of that period. The number of requests would climb as more organizations complete the remittance of their December payroll obligations. The deadline for December tax remittances is January 10 and after this, the real fun begins. Organizations have a 20-day window (between December remittance and January filing) to make any accompanying remittances and obtain appropriate documentations – assuming one wishes to file on deadline day. By deadline day requests would be through the roof. Think of all those people in the video sitting at their computers and trying to submit their requests at the same time to the same server(s) for storage on the same database. Testing without this in mind would most certainly give a false impression of solidity whereas the system is more akin to a house of cards. This kind of testing cannot be completed in a day. At worst a single test cycle would last as long as the filing season (a month) and would need to be run at least twice (perhaps thrice) to get a rounded overview of the system’s limits. Needless to say, patience cannot be in short supply for a task of this magnitude.
The subject of patience brings me to the emotional side of software development people (myself included) tend to overlook occasionally. I am constantly reminded by my boss of the need to be more than a “coder”. I am constantly encouraged to sit with my test subjects (the amazing professional department) and “feel their pain”. A shared understanding of the current realities and flaws of any system (or process) is essential to building a better one. As inconsequential as it seems, I have found system requirements, designs, specifications, testing strategy, and surprisingly source code; turned on their heads in the presence of this understanding.
I cannot speak for the LIRS but the decision to switch from a manual process to an automated one has to have some roots in the realization that it could/should be easier (whether for the tax payer, tax manager or tax official) to file annual tax returns. Granted there were hitches along the way but it’s not all gloom and doom – we were eventually able to file the returns for our clients online. Unfortunately, I cannot share images of those as client confidentiality behoves me to refrain from revealing such. Also, while we were able to obtain an e-acknowledgment for earlier filings, we noticed with filings closer to the deadline (initial and extended) that this feature was no longer available. The response we received from the LIRS on the issue was that some features on the system had to be disabled to cope with the demand. But online filings would surely be accompanied by a timestamp (as evidenced in the previously obtained e-acknowledgements) which can go as far as the microsecond the submission was accepted (nanosecond if you’re up for the challenge). This makes it irrelevant whether the e-acknowledgement was printed before or after the deadline – however please consider the environment before printing this receipt.
It is still unclear if the online filing would be enough this year as the system only allowed users submit their Form H1 and a schedule of tax remittances for the previous year – it remains to be seen how we will go about providing the other requisite documents. But it’s better than nothing and we will continue to monitor the next steps they take towards automating the process. Will it remain a one-way interaction or will the tax payer gain access to previous records via the portal? Needless to say, the LIRS’ next punches in this fight will be absolutely crucial.
Rereading these thoughts, I am forced to change my closing statement. It may not be as smooth as we would like, but it’s better than what it was last year and at the end of the day isn’t that the ultimate goal? To add value to a system at every opportunity. I saw a tweet last week, “make it work, then make it better”. I should have been more attentive to the author, but I was tweeting at work hence I had to be quick. But I do remember what Robert McCall (all hail Denzel Washington) said to Ralphie in The Equalizer and I find it more apt in this story, and comforting as I continue to observe the coming updates on the subject: “Progress Not Perfection”