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Lagos imposes tax on ride-share services to boost COVID economy

By Oluwatosin Adeshokan
Posted on Thursday, 20 August 2020 16:21

Nigeria Election
A motorbike taxi on a street in Lagos, Nigeria, Thursday, Feb. 7, 2019. (AP Photo/Sunday Alamba)

In order for Nigeria’s Lagos state government to raise money in an economy devastated by COVID-19 and several mishits by central government policy from Abuja, it is introducing new taxes and regulations for ride-sharing companies operating in Lagos.

After the government of Lagos reintroduced a ban on commercial motorcycles and rickshaws in many of the residential and business neighbourhoods, traffic that infamously plagued the city has only worsened.

READ MORE Lagos motorcycle ban hits digital ride firms, chills investor climate

Traffic problems were reported to add up to four hours to the daily commute of residents. That, coupled with the repair of the third mainland bridge (therefore access to the third mainland will be shut), means a tax levied on ride-sharing companies will drastically reduce the quality of life in the city without any viable substitutes.

Taxes galore

The new regulation for the ride-sharing companies follows a culture of taxes and levies that are seen as excessive by policy experts in the state. Lagos state is ranked as the one that generates the highest level of internally generated revenue (IGR) in all of Nigeria, mostly from oil exports.

Already, the Performing Musicians Association of Nigeria has rejected a new 5% tax introduced by the state film and video censors board after it gave a 30-day notice to performers and “creatives” in the state to register their content with the body.

According to the board: “Practitioners and stakeholders are also informed that henceforth, all audio and visual contents produced and sold within Lagos State shall attract the payment of 5% levy on each item.”

Ride-sharing companies

The new regulation for all ride-sharing companies in Lagos means it must pay N25m yearly to the state government per 1,001 vehicles for an operational license while paying N10m yearly for renewal on every 1, 001 cars in their pool.

This new regulation for e-sharing taxi services is set to come into effect on Thursday 20 August. It comes just weeks after the Lagos government announced a 46% increase in the Lagos bus (LAGBUS) fares.

In addition, all operators of e-sharing taxi service must pay the state government 10% service tax on each transaction paid by passengers.

“Worsening macroeconomic condition”

“The new taxes brought by the government tells of a worsening macroeconomic condition in Nigeria. The country is broke and so this is a state where IGR and budget information are hidden in the shadows. It is a surprise however that there are taxes that are blatantly anti-business to favour a very few that erroneously think companies in the sector turn a profit,” Temitope Ekundayo, a Lagos based technology and business consultant tells The Africa Report.

Uber lost $8.5 billion in 2019 and was hoping to make a profit by the end of 2020. But the COVID-19 pandemic is expected to put a dent in those expectations.

Back in 2016, the government of Lagos tried to regulate Uber and Taxify by requiring the companies to register each operator with a fee of $320. For newer local startups looking to enter the ride-sharing space, the new entry requirements are rather steep.

But the new policies make Lagos a very difficult place to invest in.

Outside of the taxi-hailing space, several small scale enterprises are finding themselves to be heavily taxed. Whereas in other countries, governments are putting policies to support and restart business growth and investment following the devastation from COVID-19, it has not been the case in Nigeria, and particularly not in Lagos state.

READ MORE Coronavirus: Nigeria’s proposed economic policies give little hope

“Lagos may be the current destination for investments but I fear with the current policies, businesses will take their operations elsewhere. Other states will position [themselves] to attract businesses to set up their operations in their state and this might end up as a great thing. We need to ensure there are multiple economic capitals in the country to attract a diversified and increased FDI” explains Ekundayo.

Bottom line

Recently, Oyo and Ondo state passed several “pro-business” laws. They exist as viable and burgeoning alternatives to Lagos for investor’s dollars.

But, there is also the bigger fear that if this policy ends up passing without opposition, there will be more copycats in the country and this will mean businesses and governments will remain at loggerheads.