How 21 taxes are stifling hotel business in Cross River State of Nigeria

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Irrespective of size and location, hotels in Cross River State pay up to 21 different taxes annually. Though the amount paid as tax varies from one hotel to another, the tax rate is the same for all the 364 officially recognized hotels in the South-South state.

However, the distribution of available incentives seems to favour only select hotels in specific areas of the state such as the recent grant of N10 million given by the state to 10 handpicked hotels in Calabar Municipality. The state government did not explain the criteria used in selection of beneficiary companies. This unequal treatment highlights the challenges faced by hotels in the state due to government tax policies that benefit only few players.

The 21 taxes

There are 364 registered/operational hotels in Cross River State. All the hotels are mandated to pay a minimum of 21 taxes/levies every year.

First is the Tourism Development Levy (TDL), which is five percent of each hotel’s income. This is generating a lot of controversies in the state as hoteliers say it is eroding their earnings.

The second type of tax paid by hotels in Cross River is Business Development Rate, which is N10,000 paid annually.

Third is the Signpost/Advert annual renewal, which is N15,000 paid yearly.

Fourth, every hotel is mandated to pay Carbon Emission tax amounting to N50,000 annually.

Fifth is the liquor licence, which is three percent of drinks stock.

Food and safety tax attracts N40,000 per annum, while fire service levy attracts N20,000 per annum.

Also, general electronic licence (Radio/TV) tax and operational permit are discretionary but the Value Added Tax (VAT) is 7.5 percent on goods and services consumed.

Moreso, the Waste disposal, Waste Management Tax and Economic Development Levy are discretionary, but they are collected from time to time.

Other taxes paid by all hotels include: Tenement Rate (annual), Environmental Protection Levy (annual), Dislodging of Effluent and Waste Materials Fees (annual), Safety Fees (monthly), Certificate of Hygiene Fees (annual), and Fire Inspection Levy (annual), Federal Inland Revenue Service (monthly) and Business Premises Tax, Economic development levy, PAYE, tourism bureau (standards and licence fee).

Hospitality industry in Cross River

The hotel industry is quite significant to the development of Cross River State. It contributes to economic growth, provides employment opportunities to people and finances a large portion of the state’s internally generated revenue (IGR).

The state’s IGR has experienced significant growth under the current administration. The revenue has increased from around ₦1.7 billion from the same period last year to over ₦32.4 billion, marking a 101 percent growth by the end of May 2024, with 6.9 percent contributed by the hospitality industry.

This revenue growth was credited to the hardwork of the State Internal Revenue Service, which achieved an exceptional budget performance of 108 percent in the first quarter of 2024.

The United Nations World Tourism Organisation (UNWTO) recommends that 70 to 75 percent of annual tourist expenditure should be spent on hotel services. This confirms the strategic importance of this sector.

Thus, the current government of Cross River State says it is taking tourism seriously to make it a source of revenue and job creation.

The previous administration under Ben Ayade announced the stoppage of the Tourism Development Levy (TDL) from July 2020 to December 31, 2020. The tax relief and incentive package was announced by Cross River Internal Revenue Service (CRIRS) on Monday, July 27, 2020. According to CRIRS, the incentives were one of the many avenues to cushion the impacts of the novel COVID-19 pandemic.

The Ayade administration initiated an executive bill to abolish all forms of taxation on low-income earners in the state, culminating in the creation and subsequent establishment of the Cross River State Anti-Tax Agency in May 2020. This agency was to, among other things, ensure that people with low incomes did not have to pay taxes.

The anti-tax agency exempted small hotels with one to 20 rooms. There was 100 percent abatement on Tourism Development Levy, Business Annual Renewal, Economic Development Levy, Carbon Emission Taxes, On & Off Liquor License and Food Licenses for big and small hotels from February to November 2020. In addition, Business Premises Registration and Sewage/Effluent Discharge had 50 percent abatement for the same period.

However, the hospitality sector did not experience any form of relief from the state government until October 2023 when the new governor, Bassey Otu, announced a N1 million grant each to 10 hotels in Calabar as part of its efforts to boost tourism in the state.

This was, again, similar to what was done during Ayade administration as only a select few benefitted from the programme.

Disbursing the grant, Mr Ojoi Ekpenyong, Managing Director, Cross River Tourism Bureau, noted that the grant, which began with hotels in the state’s southern senatorial district, will continue through the first quarter of 2024 in the central senatorial district, then move to the northern district in the third quarter before moving back to south ahead of Calabar Festival 2024.

Multiple taxes hurting players

Hoteliers are concerned about the TDL, which is five percent of their total income. It is collected monthly by the state government through the CRIRS.

Chairperson, Cross River State chapter of Hoteliers Association of Nigeria, Charles Ogar, told Nigerian Tribune that multiple taxation is threatening to put several hotels out of business.

“Adding another Economic Development Levy to our list of taxes is absurd because we don’t even know what it’s all about. This is weighing down on the hotel business. It needs to be removed,” Ogar told Nigerian Tribune.

Hoteliers in Ikom Local Government Area said some of them have raised the room rates to meet up with the multiplicity of taxes imposed on them. But this action has led to a decline in hotel visitors as most guests now prefer to stay at the homes of relatives or friends when visiting the area.

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Even as the hoteliers contend with these multiple taxes, they still have to grapple with poor or inadequate infrastructure and services by the government.

The manager of Geno Hotel, Ikom, Abel Mgbe, disclosed that there has been no electricity for eight months around the border road where the hotel is situated. To keep the hotel running, he said he uses about 20 litres of petrol in a small generator and about 50 litres of diesel in a big Lister generator to power the air conditioners and other appliances.

“If we can have stable power supply, we won’t have any reason to complain about taxes. But after spending so much on generating power for the smooth running of this hotel, some people still bring huge taxes, not minding your day-to-day expenses,” he said.

Hoteliers in Calabar have their fair share of experience with tax consultants. The Manager of E-System Hotel, located in Calabar South LGA of Cross River State, Ubong Ekanem, expressed concerns about the TDL in particular, which is having a negative impact on his business margin.

“I pay all my taxes to the state and Federal Government. I pay VAT to the Federal Government, whereby I remit 7.5 percent of my income every month.

“The question is, why should I pay five percent of my income as TDL? What happens to my utility bills? What happens to my staff salaries? Where will I get money to buy diesel?” he asked.

“That’s the only thing we are fighting against now because when they see your books on bar and lodgment, they will not want to know your expenses. They only go into calculating the figures without considering your expenses.

Which money will I use for the maintenance of my facility? Which money will I even use to pay for the license registration to the Tourism Bureau or renewal of the fire service registration which is done yearly?”

A hotel manager in Calabar Municipal, who would not want his name in print, said hotels should be allowed to pay all taxes and levies directly to government accounts instead of paying through consultants to prevent corruption and diversion of funds to private individuals.

Another hotelier, who simply gave his name as Mr Esu of Rhema Light Hotel, Calabar South, said several hotels have been converted to a housing estate or private schools, citing Nollywood Homes and Apartments at White House Street in Calabar as an example.

“Because the profit margins were insufficient to cover the 21 different taxes imposed by federal, state, and local governments and agencies, many hoteliers have resorted to selling or leasing of their properties for other forms of businesses,” he observed.

“Due to the heavy burden of paying multiple taxes to various levels of government in Nigeria and the high cost of daily operations, many hoteliers in the state are facing the possibility of shutting down. The current tax system is taking up around 40 percent of our revenue, leaving us with very little capital to keep our business running.

Recently, the Government of Cross River State expressed readiness to meet the 30 percent counterpart funding requirements of the federal Rural Electrification Agency (REA) to provide mini-grid power supply in rural communities to achieve energy security for the people of Cross River. This in turn will cut the cost of buying diesel to run hotels.

Mr Ojoi Ekpenyong, the Managing Director of the Cross River State Tourism Bureau, stated that the agency is updating regulations to keep pace with the rapid growth in the hospitality industry. He also mentioned that government grants to support the hospitality sector will be distributed on a rotational basis among hotels in different Senatorial Districts.

Dr Patience Egwu of the legal department of Cross River Internal Revenue Service, revealed that the state has more than 20 tax consultants. Each tax consultant has their revenue point of collection.

“These consultants are registered with the Corporate Affairs Commission (CAC). The Personal Income Tax Act gives the revenue authority power to engage consultants to collect revenue on her behalf.

“However, these consultants are not to assess nor collect these revenues directly. They work with the revenue authorities by assisting in serving assessment and demand notices. They follow up to ensure that tax payers comply. Their payment is based on what they collect and these collections must be in line with the provisions of the law. It is most times based on a percentage, say 10 percent or 20 percent. So as government revenue drops, they get their percentages,” she said.

Nigerian Tribune attempted to find some tax consultants mentioned in demand notices sighted but some of them were not found at their given addresses. For example, the revenue consultant for Carbon Emission and Air Pollution Levy, Dragonaires Resources Ltd, with address listed as 101 MCC Road, Calabar Municipal; and De-Cyril Executives Venture collecting Economic Development Levy in Calabar South Local Government Area, with address at 23 Bassey Duke Street, Calabar were not found at the addresses.

Additional research showed that with the exception of Hon Saviour Nyong, who served as a member of the Cross River State House of Assembly for Bakassi State Constituency, the other individuals engaged as consultants are predominantly businessmen and do not have a public profile. The consultants mentioned include Joe Asuquo Tax Consultants, Samuel Martins and Co, John Ndifon and Co, Adedayo Adewale and Co, Dan Anko and Co, and Maroct Consultants Limited, among others.

Nyong, a politician is one of the directors of Dragonaires Resources Ltd, which is registered as a Private Unlimited company and is the revenue consultant appointed by the Cross River Internal Revenue Service for the collection of revenue accruing from Carbon Emission and Air Pollution Levy.

State government reacts

Cross River State Commissioner for Tourism, Arts and Culture, Abubakar Robert Ewa, does not think that there is multiplicity of taxes in the hospitality industry.

“The key mandate of this ministry is to ensure that Cross River State remains the tourism destination of Nigeria as it has always been,” he said.

“Government is doing everything possible to bring in visitors to the state and ensure their safety. Last year, the state government declared its support for the business in the state and also assured of every incentive and support to businesses, including tax holidays. So, we are creating fantastic government policies, regulations, and conducive business environment to rejig the hospitality sector,” he said.

The Director, High Networth Individuals/Digital Economy, Cross River Internal Revenue Service (CRIRS), Mr Okpo Ojah, stated that all persons making use of tourism and leisure services in the state pay a Tourism Development Levy (TDL).

“This levy is used for the development and sustenance of tourism facilities and infrastructure in the state,” he said.

“The enterprises to which this levy applies shall include the following: hotels, guest houses, lodges, resort and leisure parks, tourism camps, travel agents/tour operators, restaurants/bars and eateries.”

In his words, “the enterprises listed above shall keep proper records of account in relation to all their transactions and make the same available for inspection, on demand, by officials of the Board of Internal Revenue or such agents as may be authorised for that purpose.

“The board may, as it deems fit for the effective implementation of the law, appoint some other person other than the proprietor of any particular enterprise, as an agent for the collection of this levy.

“For instance, if the room rate of a hotel is N10,000, they’re expecting to add five percent of that amount, which is N500, to their rooms. Customers will have to pay N10,500. So, at the end of the day, the hotel still gets the normal rate for their room and gives N500 to revenue service. I don’t see how that is affecting their business. So, what if tomorrow we say no TDL? Won’t they still collect their normal N10,000? he asked.

He said his office has told hoteliers to make enquiries whenever tax agents conclude their assessments.

“Not all tax agents that bring demand notices tell you to rush to the bank and pay without asking questions. You need to be sure that it is applicable to your kind of business and the rates differ.”

He also said that there is no disparity in taxes collected from big and small players, noting that even some small players have better liquidity than the big ones.

“There is no disparity in hotels tax administration as such. Most of the so-called small hotels may have higher turnovers than the bigger hotels because many low- and average-income earners tend to patronise small hotels than the bigger ones.

“As a matter of fact, any hotel that is complaining of low patronage may not have been strategically located or have poor management. You don’t expect the government to pity you by not taxing you because you cannot effectively manage your business,” he further said.

Experts speak

Richard Inoyo, a Sustainability and Policy Guidance Consultant, emphasised that multiple taxation is not the problem, noting that the major issue is the amount of taxes paid.

“For example, three different agencies come and tax you N10 for the same thing and then we choose to have just one tax which expects you to pay N100. I believe more people will prefer paying N30 to three different agencies than paying N100 to one agency.

“So, you can see that the aim is not multiple taxation, but the overall tax volume taken away from the business.

“I know there are illegal taxes that are not connected to the government, but some persons in government back them to go around taking illegal taxes into their own pockets. You can resist it but at a cost. This is because you have to report it to the agency, write to the Nigeria Police Force, probably the EFCC, to help you to fight against those people, but it’s also risky because they might harm you.”

He said businesses are not afraid to pay tax, but they are not seeing value for the money spent.

“My concern is not really about multiple taxation but how we can pay lesser/cheaper tax in order to allow businesses to grow,” he noted.

Inoyo stated that to ensure transparency in tax administration, the government should set up an online portal where people can fill in their business information and pay their taxes.

“Government should also have a downloadable tax guide on how to pay tax. When businesses pay their taxes, everyone should be able to go online and verify the payment. And when the government makes withdrawal from the tax account, they should be able to state clearly what the money is being used for.

“The citizens should be able to see the projects that the government used the tax money to facilitate, so that level of transparency is very vital. The government should also create a tax board that will have representatives of not only those in the tax office, but also people in the business community in Cross River State,” he added.

Another tax consultant in Lagos, Nnenna Ojo, said there is a need to digitise the whole process of tax administration in every state in Nigeria.

“It is unfair that all hotels are paying 21 taxes in Cross River. But it is much more concerning that both small and big players are paying the same number of taxes. The government must change this. Small hotels are small and medium enterprises. You should never compare them with large enterprises,” she said.

This report was made possible with support from the International Budget Partnership (IBP) and the International Centre for Investigative Reporting (ICIR).