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Lagos: The taxman cometh

By Ayodeji Rotinwa in Lagos
Posted on Monday, 2 July 2018 10:30

The city state of Lagos dwarfs not only other states but even neighbouring countries. With a population not far under that of Côte d’Ivoire (estimates run from about 18 million to 21 million people, against Côte d’Ivoire’s 24.8 million), Lagos’s gross domestic product of $136bn in 2017 towers over Côte ­d’Ivoire’s $38bn. With that activity has come a tremendous rise in tax revenue – which in Nigeria is called ‘internally generated revenue’. This hit N503.7bn ($1.4bn) in Lagos in 2017. But if Lagos is to become the global megacity that politicians dream of, there is much to be done in terms of raising more revenue and providing services to Lagos’ richest and poorest residents and everyone in between.

With rapid urbanisation and population growth, the need for public services has never been greater for sub-Saharan Africa’s biggest city. Experts predict the population of the city could double by 2050. Already, each year, neighbourhoods flood due to blocked sewers. The light-rail project to decongest Lagos’s infamous traffic jams was announced in 2003 and is yet to be completed. The Lagos-Ibadan Expressway repairs are advancing at a crawl.

Meanwhile, the city’s ambitions continue to grow. Lagos State governor Akinwunmi Ambode wants the city to compete with metropolises like Singapore, Dubai and Miami as tourism destinations: “So when you see us reclaim 50ha of land at the Oworonshoki end of our lagoon; when you see us clear a whole stretch at the Badagry and Epe Marina; when we insist that our prime waterfront must not be taken over by shanties and slums; when you see us embark on some ambitious road, flyover and modern bus terminal constructions; we are preparing the grounds for a major source of employment and prosperity.”

Widening the tax base

But who pays for the city’s development? And who benefits from it? Lagos and its officials have won plaudits for their efforts over the past decades to generate cash by widening the tax base – by taxing previously informal enterprises like transport operators, for instance. All businesses are at different points on the spectrum of formal to informal, depending on their labour practices, how much the government regulates their sectors and how well they follow the law on various issues, but especially taxation.

While small and informal businesses are certainly paying more tax, there is concern that they are now being seen as an easy target, compared to more argumentative and well resourced sections of society. Worse still, the other side of the bargain of paying tax – benefiting from services in return – is not being fulfilled as it should be, with public services increasingly seen as a cash cow to be milked rather than a social contract to be honoured.

Barring traffic, the danfos (mini­buses) driven by Tunde Akintunde and hundreds others like him arrive at Lagos bus stops every 10 to 15 minutes to ferry 75% of all commuters across a city that is heavily dependent on road transportation. In Akintunde’s bus are the architects, bankers, engineers, entrepreneurs and goods and service providers that make the economy tick. The state government boasts that those people are a ‘booster stage’ in Lagos’s drive to reach megacity heights.

Drivers hand it over

Before Akintunde is allowed to call passengers into the bus in Mushin, an inner city suburb in Lagos, he is taxed N600. When his bus is filled with passengers, he is taxed a further N1,300. Along his route at different bus stops, he is taxed between N500 and N600 at each stop. There are four stops on his route. Akintunde makes an average of N15,000, which he shares with a conductor. Every month, he pays 27% of his personal income to the National Union of Road Transport Workers (NURTW), who in turn remit it to the state.

“Whatever amount they tell us is what we pay, we don’t have an option,” Akintunde tells me, at the bus park he rides out of. There is an endless row of yellow and black buses waiting for passengers, and countless conductors yelling in all directions for them to come in. Transporters and other economic operators regularly accuse agents of the state and the NURTW of using force to ensure they get their money.

Akintunde has been a danfo driver for 20 years, but he does not see that he gets much benefit from what he has to pay to the state and his union. “The money we have paid in the past 20 years has done nothing for us. You cannot access any loans. A driver [cannot] get assistance for car repairs. We are being bullied,” he says. “When they come to collect the money, it is painful. But there’s nothing we can do. They have taken it away, but we are living by God’s grace.”

New developments are surging into place in Lagos, with whole new cities like Eko Atlantic being added. But something is being left behind. “Development is not about high-rise buildings and flyover bridges,” argues Gbenga Komolafe, general secretary of the Federation of Informal Workers’ Organizations of Nigeria. He argues that development should also be about people and “how their basic needs are taken care of”.

Moving business along the spectrum from informal to formal is one of the great developmental challenges. Workers like Akintunde are gradually brought into the formal net through road taxes, personal income taxes and local government levies; the first two are critical sources of Lagos’s revenue.

Bullying tactics

According to the National Bureau of Statistics, the Lagos informal sector employs 5.58 million people, some two-thirds of the state’s working population. Nationally, the value of the sector is said to be worth N38.7trn, going by a 2016 estimate.

“Most people are in the informal sector because they don’t have a choice,” Komolafe says. There are few formal jobs and the government does not have the capacity to regulate actors at all levels and in all sectors of the economy.

Like a bloodhound, the taxman has sniffed out the value of the informal sector. According to a 2017 report – ‘Lagos’ Informal Sector: Taxation & Contribution to the Economy’ – by BudgIT, a non-profit that advocates transparency and accountability in government, the contribution of the informal sector to Lagos’ tax base is about 40%.

The state collects this revenue via an opaque, inefficient, imbalanced system of oftentimes repetitive taxes, charges and levies at the local government level, according to Atiku Samuel, BudgIT’s head of research. “Income is not the determinant of how much tax you pay, rather people are blackmailed into paying,” says Samuel. “If they don’t pay, their operations are stopped.” He argues that the principles of progressive taxation are yet to be implemented in Lagos.

According to an insider who works on the revenue collection team of one of the biggest local councils in Lagos, informal sector taxpayers are disproportionately taxed for a number of reasons. “You have area officers who collect money in a certain area and then are transferred someplace else but still go back to the same area to collect the same charge,” says the source. “There’s no database. You can’t tell who has paid, who hasn’t paid.”

The local council source attributes the strong-arm tactics often used on informal sector workers to the low calibre of officials appointed. He says: “There are a lot of people that are not skilled. They do not have communication skills. They are not educated. So when it comes to tax paying, they come with aggression instead of explaining.”

Samuel argues that this aggressiveness is a case of the state bullying uninformed workers. In contrast, he says: “Local government officers will not walk into a private company, harassing its workers, asking for different taxes.”

The Lagos State government is making things even more difficult for small-time operators. In the past year alone, it demolished three major markets in the city, some without any warning. Market women and men lost goods valued at millions of naira that had been in their stalls.

So why the assault on the informal sector? “In Lagos, if you are in government and you discover that a sector is recovering almost N2bn in tax, it’s either you maintain it or you try to capture that market,” says BudgIT’s Samuel. “They may argue that [the new initiatives] are to solve societal problems, but it is more like building a monopoly system.”

This more predatory approach is damaging the social contract – a dangerous road to go down in a city already under severe migratory pressure as youths from poorer rural areas head to seek their fortune in the big smoke.

Friends in high places

Examples of informal workers crushed by corrupt government deals are not hard to find. In 2008, the state introduced the bus rapid transit system that operates in physically segregated lanes as an alternative to informal-sector transportation. There was no open bidding process to allow contractors to send in proposals for chosen routes. The state simply empowered a company to run the system. The lucky one was Primero Transport Services, a company run by Fola Tinubu, a relative of a former governor of the state, Bola Tinubu. Bola Tinubu was a mentor to the governor at the time, Babatunde Fashola, who had served as his chief of staff.

Companies say there were similar issues with a waste collection contract. Private sector operators who had been doing the job previously sued Lagos State in April of this year over the awarding of a deal to Visionscape, a firm that claims it operates waste collection in Mumbai, Dubai and Johannesburg. Premium Times, a Nigerian daily newspaper, found that there were no records of Visionscape managing waste in those cities.

On the board of directors of VisionScape is Adeniyi Makanjuola. Adeniyi’s father, Remi Makanjuola, is the wealthy former chairman of the Lagos State Security Trust Fund. An investigation by the Sahara Reporters media group says the elder Makanjuola oversaw the use of a security apparatus purchased with public money for private use – specifically his company Caverton Helicopters.

Another example is found in the destruction of one of the city markets. When the stalls and kiosks were demolished in Tejuosho, Yaba, a new block of ‘modern’ shops suddenly sprung up. It was built by private developers who ask for rental rates beyond the means of the average market woman. According to a market leader speaking anonymously to the Daily Trust newspaper: “What we learnt was that the so-called developers, which have secured approval from government, wanted to rebuild the whole market, which was why they demolished the lock-up shops.” Some of the new buildings are now being used by richer tenants, from banks to pharmacies.

This is Lagos’s megacity development at its worst. Public commentator and human rights lawyer Ayo Sogunro tweeted in February: “It seems Lagos State has finally lost its identity as a government and fully morphed into a corporate board of directors […]. Lagos is now fully invested in maximising profit from market gaps [rather] than in providing functional public services and utilities.”

That is probably a stretch. Certainly, the Lagos State government may contain elements who are in it for themselves. But there is also a real need for cash that may be driving some of the more toxic ways in which the state government goes about its task. There is one obvious alternative to further taxing the informal sector: to look up.

Tax expert Adedamola Jaiyeoba says that Lagos loses a lot of money by not taxing the rich significantly. According to a report by AfrAsia Bank and New World Wealth, Lagos is the fourth wealthiest city in Africa. It is home to $120bn worth of wealth, four US-dollar billionaires and 360 multimillionaires. Jaiyeoba also argues that the Central Bank of Nigeria’s introduction of the Bank Verification Number system for accounts across the country could be better leveraged by Lagos to track non-compliance and suspend accounts.

There are already some moves to tax the rich: a new progressive land-use charge law launched this year has property owners howling. That may just be what the city needs.

This article first appeared in the June 2018 print edition of The Africa Report magazine

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