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Lagos begins implementation of consumption tax, seeks cooperation of Lagosians

By Omoh Gabriel, Business Editor
The Lagos state government has started the implementation of the recently introduced consumption tax which is meant to enhance the state revenue generation effort to sustain the ongoing development of infrastructure as well as maintain the social services being provided to Lagosians.


Speaking to journalist in Lagos Tuesday, Special Adviser to the Governor on Taxation and Revenue Mr. Ade Ipaye said that Lagosians should see the consumption tax as a price “we all have to pay to keep the pace of development in the state”.

He said “After due passage by the State House of Assembly, the Lagos State Hotel Occupancy and Restaurant Consumption Bill was signed into Law by His Excellency, the Governor on June 22, 2009. This Law imposes a 5 per cent charge on goods and services consumed in hotels, restaurants, events centers and short let apartments throughout Lagos State with effect from August 1, 2009.

According to him “Simply put, Governments raise taxes when public revenue projections are incapable of meeting their essential obligations. All over the world, the power to tax is an attribute of sovereignty. The only precondition now attached is that it must be consented to by the people through their elected representatives.

“Fortunately or unfortunately, nothing else has proved to be a viable substitute for taxation as a public revenue provider. This, and no more, is the secret of the so called better societies. For example, eating out in Chicago is taxed at 11.25 per cent. In Ontario its 13 per cent; in Johannesburg or Cape Town, its 17 per cent; in Accra, its 12.5 per cent and in London, its 17.5 per cent. In Cairo its 19 per cent while in Kenya its 16 per cent, Lagos is only 10 per cent when the 5 per cent VAT is added to the consumption tax. We usually rebuff this kind of comparison by saying that those cities have better facilities and that it is much easier to live or do business there. What we tend to omit is the fact that most of them have higher income and property tax rates aside from the sales tax or value added tax which is chargeable on goods and services.

“Within the limits of available resources, the Lagos State Government has demonstrated clearly that the new Lagos is not just, a dream. It is reality well within our reach. By recovering and beautifying our public spaces, we have promoted the growth of businesses, especially in the hospitality sector. By banning street parties we have compelled our people to more edifying and more organised function halls provided by the same industry. By driving down the crime rate, we have promoted patronage of hotels, clubs and restaurants. By improving transportation and sanitation, we have made Lagos a more attractive destination for business and pleasure. By using tax money to initiate several infrastructure projects we have created employment opportunities and continue to put money in circulation, in spite of the gloomy economic climate pervading the world now”.

Continuing Ikpaye said “State and/or Consumption Tax being left for States was not an accidental matter. This revenue source measures the level of development or otherwise in the local economy and rewards the State Government appropriately, enabling her cope with the attendant pressure on infrastructure and services. With a consumption tax, public revenue will grow in a booming economy and fall in depressed time. It tells the story most accurately because, while income is hard to track in an informal economy such as ours, consumption is easily detected. Also, it is an indirect tax whereby sellers act as collection agents and consumers are not necessarily conscious of the additional charge.

“Perhaps more importantly, it is a tax that targets the richer ones to achieve an income redistribution objective. This is more so when it is imposed on relatively luxurious items such as goods and services purchased in hotels and restaurants. A consumer buying a few donuts and drinks for N500 only pays N25 extra while another one who incurs a bill of N500,000 in a hotel will pay N25,000 extra. As compared to the total charge, the tax in both cases in quite insignificant.

“Lagos State has adopted a Consumption Tax to distinguish the phraseology and administrative process from VAT, which has a multi level, input-output mechanism, and Sales Tax which may be charged at every point of sale. Consumption tax does not target the resale market as it is charged at the point of final consumption. It is therefore always an intra state affair”.

According to him “Today, there is a clear roadmap to make Lagos a model megacity and a conducive place for both residents and visitors. Some readily attribute the pressure to the bigger projects like the ten lane highway to Badagry, with a light rail corridor coming all the way from Agbado through Marina; a bridge from Lekki to Ikoyi and another from Lekki to Ikorodu are major landmarks, but they are not at all exhaustive. Truly, even when implemented in phases, these massive undertakings that would give Lagos the decisive forward movement could well eat up the budget and leave other projects starving”.

“However, for the Fashola Government, the inability to find ready money to complete them is simply not a deterrent factor. As is the case when the various commissioned model city plans were unveiled, the Governor insists that it cannot be his lot to get everything done. He would simply do what he can and leave the rest for governors to come.

“The main problem are those little things which we must get done today and sustain tomorrow and the day after. Education remains free, with free textbooks to make it work; public school classrooms are being rebuilt across the state with new supplies of school furniture. In the health sector modernisation, equipment and infrastructure development are proceeding rapidly while the people are treated to a series of free public programs on preventive and corrective healthcare.

The task of giving Lagos a world-class environment and making it a preferred destination for business and leisure compels us to have the most efficient clean up and waste disposal machinery in sub Saharan Africa. Both the KAI Brigade and LASTA4A have proved to be very essential necessities which must be expanded further. Fortunately, every achievement along these lines set in motion an impressive multiplier effect, boosting businesses, creating employment opportunities, and making every Lagosian richer in one way or the other” Mr Ikpaya said.


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