Lagos and the challenge of widening the tax net

Monday, 18 March 2013 00:00 Rasak Musbau

All over the world, without taxes to fund their activities, governments can hardly make progress0. Governments use tax revenues to provide jobs, to build dams and roads, to operate schools and hospitals, to provide medical care and for hundreds of other purposes. Taxation is used in developed countries as an important tool for maintaining the stability of a country’s economy. Payment of tax in turn empowers citizens to demand, not beg, that government fulfils its responsibility. It makes the people more conscious in monitoring government and holding public officers more accountable for their use of public resources.

Today, with substantial increases in the cost of governance in Nigeria, the urgent need for infrastructural renewal and rising youth unemployment rate, we don’t need any soothsayer to tell us the danger ahead if other sources of income, beyond oil, are not quickly harnessed. What we need are good and creative leaders to turn our economy and political space around just as good citizens who understand their duties and perform them accordingly. A columnist, Niyi Akinnaso, recently gave an incisive and logical explanation of correlation between good governance and taxation in a piece titled ‘How much of your government do you own?’ published in The Punch (Tuesday, February 12, 2013).  “Although a country like US collects rent on its oil resources like Nigeria, the mainstay of the American economy is taxation,” wrote Akinnaso. He went ahead to explain how, as a rule, American politicians often meticulously document their achievements in office, knowing very well that they will be evaluated by voters when they campaign for re-election.

In this wise, Lagos State has been widely acknowledged as one to shape Nigeria’s future. Lagos State remains the only one showing the way that the nation is expected to go to ensure sustainable development – diversifying the economy away from oil. The state has proved that the country can build an economy that is more productive and not reliant on oil. It has convincingly communicated why Lagosians must pay tax through many developmental projects it has done and hundreds of ongoing projects. Razia Khan, vice president, African Region, Standard Chartered Bank, UK, has commended this model of development which has seen the Lagos economy moving beyond oil to make internally-generated revenue its major source of revenue.

As good as the efforts made so far to have all taxable adults in the tax net are, it is lamentable that only about 3 million Lagos residents out of a taxable adult population of about 8 million in the database pay taxes, leaving 5 million non-compliant. The implication is that 3 million people are bearing the burden of the estimated 20 million Lagosians. It is, therefore, disheartening to note that only a fraction of eligible taxpayers, about a quarter of the working population, is still bearing the tax burden. Thus, whilst everyone is taking the benefits of democratic dividends in the state, the burden of funding is squarely placed on hardworking civil servants and the organised private sector that constitute a minority of income earners. This is inequitable, un- sustainable and unfair.

It is therefore not out of order that Lagos State government has reiterated its commitment and resolves to wield the big stick against tax defaulters. The government has made it clear that a life without tax is a lie as no nation or state can effectively thrive if its citizens pay lip service to issues of paying their statutory taxes.

The point here is that there is no magic wand that can bring development without money. It is noteworthy that the most successful democracies in the world where governments are accountable to the people are those societies with a strong tradition of paying taxes. That great leader, Obafemi Awolowo, put the matter clearly on the floor of the House of Representatives in Lagos on August 16, 1954, thus: “I would therefore wind up by saying that we, on the threshold of this new constitution, are on the crossroads; there is that broad, smooth road, with promises of no taxation, and efforts to get money from other places, leading nowhere but  perdition, poverty, disease and economic enslavement; and there is the other road people who go therein pay tax. They also have to apply self-help and self-sacrifice to get where they want. But this road, Mr. President, leads to success, prosperity and to the exploitation of natural resources by the people of this country.”

The importance of taxation to the growth of any economy cannot be over-emphasised as it is the major tool by which states can develop, and any state where there is meaningful development will be seen to take the issues of taxation seriously. This is exactly why the Lagos State government is doing all it can to encourage individuals and corporate organisations to pay their taxes, as this will help the state boost its revenue and carry out its responsibilities to the citizens.

Increased IGR through robust tax administration is vital to sustain investment on infrastructural development by the state government. For Lagos to achieve the kind of development being witnessed in some other developed cities of the world, residents as well as corporate bodies must pay their taxes regularly. This is the truth. Any campaign to the contrary is deception.

The public also needs to be reminded that budgeting and planning in our mega city is based more on revenue generated outside what is accruable from federation account and this is why the state cannot let off on taxation. Ultimately, for the sustenance of the state modernisation initiatives, individuals, commercial organisations and aspiring political leaders should adopt the admonitions of the holy books that taxes should be paid by all. All levels of government in the country should rather take a cue from the approach adopted by Lagos State in bringing all stakeholders, professionals, artisans and religious leaders to understand their obligation under the law.

Finally, no meaningful state or national transformation can take place at both the state and federal levels if the prevalent apathy among citizens in respect of taxation persists, and the realisation of Vision 20:2020 might turn out to be a mirage if the trend is not checked through intensified public enlightenment campaigns to educate the populace.