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Lagos: Of tax efficiency and infrastructure development

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By Nuru Alabi

NIGERIANS usually get into the fray each time popular footballers are charged by the Spanish authorities for alleged tax offences. Lionel Messi, Cristiano Ronaldo and Neymar have at various times been linked to tax fraud, triggering outbursts in Nigeria about the propriety of such actions. The emotional attachment to these footballers or their clubs often beclouds the underlying issues – tax evasion, manipulation or underpayments, which are unlawful. Messi and his Argentina teammate, Javier Mascherano, were found guilty of tax offences last year and sentenced to prison. But the convictions were suspended and replaced with fines. As a people not given to paying taxes, moreso without corresponding social benefits to citizens, arresting anyone over tax issues, to an average Nigerian, represents an overreach by government. The finer details of how taxation is linked to development are lost in the heat of argument.

In the modern world, the overarching purpose of taxation is to fund government’s expenditure. Taxation itself is a major tool with which to generate income for government, and employed in dealing with some non-revenue objectives such as curtailing objectionable conduct, lessening inequality and allocating resources and incomes in society and shielding local industries from unfavourable competition.

: Removal of the dilapidated pedestrian bridge for replacement at Fadeyi bus stop along Ikorodu road by the Lagos State Government.

Because taxation has become an acceptable practice in more advanced societies, which itself is anchored on the belief that sustaining government is a shared responsibility, everyone understands and respects the imperative of tax payment. It is a duty. Tax avoidance is seen and treated as criminal and despicable disservice.

Regardless of how we  feel about taxation, whether as  individuals or corporate entities, there is no denying the fact that it is one of the tools that empower the people to hold their leaders and governments accountable. By paying your tax, you are handed an instrument to query the government and demand accountability and transparency. In doing so, the government will have no choice but to perform and strive to meet our expectations in terms of social projects and developmental objectives.

Using the instance of Lagos, Nigeria’s commercial capital, despite unwavering efforts of the state government, huge gaps still exist in the provision of pivotal infrastructure to drive economic development. Ranging from roads, power, housing, transportation, water, schools and hospitals, to even recreation centres and courts, there are so many things requiring attention. Everyone feels  the need and effect.

The government, according to available records, depends on three major sources of revenue, namely Internally Generated Revenue , IGR, federal transfers and capital receipts. A closer look shows that IGR is the main income earner for the state, contributing an average of 66 per cent between 2012 and 2016. In 2016, this revenue source yielded N291 billion, translating to about N25 billion per month.

However, owing to the huge infrastructure deficit and the vision to build a  Mega City that is safe, secure, functional and productive for all of its projected 24 million people, it is very clear that the current revenue position is grossly inadequate to achieve the desired outcome. On the flip side, the state has the potential to improve on its IGR to the projected N50 billion per month from next year.

This is what makes tax efficiency imperative. What is tax efficiency? There are several ways of looking at tax efficiency. Given a natural aversion to taxation, people consistently seek ways to get around paying taxes.  But in countries where payment of taxes is inevitable, the common resort is to seek ways to reduce the amount paid as tax. Amongst issues commonly cited for tax avoidance are high tax rates, lack of transparency, uncertainty and arbitrary exemptions; complexity and corruption as well as massive tax evasion by the rich and powerful. In a nutshell, people dodge taxes when the system is not efficient.

Experts say that an efficient tax system is one that is fair, simple, well-organised and enforceable. Underlining this conclusion is the understanding that the well-being of society demands the contribution and cooperation of everyone. Therefore, people must be convinced that paying taxes is in their interest since the system has taken into account their interest and capacity and that the proceeds will be utilised for the common good. This is why a closer look at measures taken by the Ambode administration in Lagos indicates an ambition to enhance the efficiency of the tax regime that is beneficial to all stakeholders.

In the words of Ambode, “Even with the kind of resources we have in Lagos, it is very clear that there is a huge infrastructural deficit in the state. In addition, the resources are not so huge as to make Lagos globally competitive and deliver the social infrastructure we all crave. So where will the money to drive the Lagos of our dream come from? The economy is not doing as well as we want it to. We cannot tax the people any more than we are doing presently, but we have to become more efficient in tax collection because that is the major source of revenue with which we can protect the future, as well as improve the welfare and well-being of all Lagosians.”

To the extent that tax policy in Lagos has two key objectives, efficiency and equity, which I expect would benefit me and the economy, I proclaim myself a tax ambassador and encourage everyone to key into this goal and support the government. Everyone suffers when taxes are not paid. Nonetheless, making every Lagosian understand the imperative of paying taxes is a task requiring extensive enlightenment, underpinned by transparency in the utilisation of taxes to address collective needs, moreso in infrastructure development.

Recent news reports indicating that the Lagos House of Assembly is looking at ways of enhancing Land Use Charge collection in the state, are also encouraging. It is unfortunate that so far, only a relatively small fraction of houses pay Land Use Charge in Lagos. It is hoped that the House of Assembly will deploy the instrumentality of the law towards helping to ensure that many more houses are brought into the tax net to contribute towards developing the infrastructure that is so urgently needed in Lagos State, Nigeria’s economic nerve centre.


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