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How to grow states’ IGR without increasing taxes

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Governor of Lagos State, Mr. Babajide Sanwo-Olu. PHOTO: Twitter/jidesanwoolu

The projected monthly Internally Generated Revenue (IGR) of Lagos State Government for 2018 was N60bn, but at the end of the year, it got about N382bn instead of N720bn, according to the Nigeria Bureau of Statistics (NBS), which is just about 53 percent of the targeted IGR.

Despite the shortfall, the state’s IGR was huge compared to what other states declared as IGR. The N382bn IGR is more than the IGR of 29 other states. Outside Rivers, Ogun, Delta, Kano, Kaduna and Edo, the rest 29 states had N363.48. In fact, the monthly IGR of Lagos is higher than what some states generate through out the year.

For about two decades now, Lagos’ IGR has experienced a yearly increase, except in 2000, 2010 and 2015, when there was a drop, compared to the previous year’s IGR. Though the present governor, Mr. Babajide Sanwo-Olu has promised to be people and business friendly in his policies and programmes, he is also expected to grow the state IGR from the last figure by his predecessor.

To grow its IGR, which sector of the economy should government look at? And how should the tax revenue be driven without subjecting businesses and individuals to double or excessive taxation? Where are the likely leakages that should be blocked? Also, are the people getting value for money to serve as encouragement to pay more?

A tax consultant, Dr. Godwin Oyedokun maintained that for any reasonable government, it is not fashionable to increase IGR through introduction of new tax.

Though there are ways to increase a state IGR, he said deciding if the increase is for short or long-term would help shape the approach to adopt.

“If it is for long-term, it means when the efforts start yielding result, the administration that initiated the idea may not benefit, because the effect of the work will start coming out after second year or third year, which most politicians do not have time for.”

Oyedokun observed that most political leaders usually want immediate result from efforts to increase IGR, which is not the best way.

“When they want quick-fix result from increased IGR, what they can do is to increase tax rate, which leads to more money, but there is a danger in that, as it is only those paying currently that will also pay the increased rate. With that, you are creating more burden for same set of people.

“And so many things can happen, it is either they move out of the state, if they have a choice, to a more conducive environment or look for ways to minimize their tax by engaging tax professionals. At the end, the state may not benefit and there might be a backlash for the governor.”

He, nonetheless, suggested that widening the tax net would help increase the IGR, through maintaining the same tax rate, but looking for people qualified to pay tax, but are not yet paying.

“Another thing that can help is consolidation of taxes. This is academic in nature, but we will continue to talk about it. For instance, if I attended a church and when the offering basket is passed round, I dropped a thousand naira, I dropped that despite that I have lower denominations in my pocket. But if I have seen in their agenda for the day that the offering would be ten times, I will not drop the one thousand naira at once.

“Rather, I will look for lower denominations, so that when it is time for each of the offering sessions, I have something to drop in the offering box. But it is inconveniencing to go repeatedly to drop the money during each offering time. So, consolidating taxes by a state government will also do a little magic to increase the IGR.”

He argued that if taxpayers know that as a company or individual, they know what to pay as tax at once to government, it would encourage them to pay and pay right. “If I have to go to different banks to pay different forms of taxes, it makes it tiring paying and discouraging.

“The other has to do with ease of paying taxes. This has to do with, before paying a tax, do I need to talk to anybody in the tax office, the answer should be no. Can I be educated about what to pay and how to pay without interfacing with human beings by simply going on my system or phone, just like I buy airtime? People use more airtime when they can buy with ease, so also people would pay tax more when they know what to pay.”

Also, some tax experts have argued that Lagos State has the capacity to double its present IGR. They claimed that there are a lot of leakages in the system, aside that some residents and businesses do not pay or pay below what they ought to pay.

For instance, many in the transportation sector carry out their operation through unregistered businesses, which means they are not being taxed appropriately, if at all. This is beside that the state government seems to have ceded the responbility of tax collection from the transporters to the unions.

At each bus stop, persons claiming to be representatives of the National Union of Road Transporters Workers (NURTW) or Road Transport Employers Association of Nigeria (RTEAN) unusually engage transporters to collect levies often dubbed dues.

A commercial tricycle driver, operating on the Cele-Ago Palace Route, said he pays about N1,500 for booking and loading to persons working for the NURTW, though he is usually issued a N300 ticket. This is aside another N100 meant for the state chairman of the union called Owo Chairman.

An Urvan bus driver, plying the Oshodi-Egbeda route, disclosed he pays about N3,000 daily. For his first trip in the morning through Oshodi, he pays N700 and every other trip before noon attracts N100. Once it is 12pm, he is expected to pay another N200, and N100 for any other trip, and N50 at other bus stops, where he picks passengers.

He added that at the Egbeda end of the trip, he pays N800 in the morning and N500 in the afternoon. He further pays N250 at Ikeja-Along bus stop in the morning. A molue bus driver on the Mile 2-Oshodi route, revealed that on the average, he pays about N8,500 daily.

Surely, these cannot just be dues; it is something much more. And sometimes, when the unions are confronted on the huge monies some of them collect under so-called dues; they often claim they remit part of the money to government.

From the Nigeria Bureau of Statistics (NBS) data about Lagos IGR in 2018, about N9.3bn was generated from road taxes. This means that the state is being hugely shortchanged from the estimation recently published in an online media by Ettu Mohammed, who projected that about ₦282.6 billion is generated annually by transport unions in Lagos. He said the average tax on bike in Lagos is ₦600 per day, sampling six locations, while the average tax on Keke Marwa in Lagos is N1000 per day, sampling six locations. He also said average tax on yellow bus and molue is ₦3000 per day, sampling six locations. According to him, there is a minimum of 120,000 bikes in Lagos, while there is a minimum of 120,000 Marwa keke (tricycle) in the state. He stated that there is a minimum of 145,000 registered Danfo buses and molues, when joined with the unregistered ones, there are about 250,000 buses being taxed.

He therefore said on Okada, the unions rake in about ₦ 72,000,000 daily, while on tricycles, about ₦120,000,000 in is collected a day. From drivers of small and big buses, he said about ₦ 750,000,000 is got from them daily. And when summed together, it means about ₦ 942 million is generated by the union daily and for 300 days, it amounts to N282.6 bn annually, excluding public holidays and Sundays.

Speaking on leakages, Oyedokun said it would stop if the tone and stand of the leadership are tough and strong. He noted that leakage is about having people that are not trustworthy as tax administrators. “I am not saying those there now are not trustworthy, but if you have professionals that are not trustworthy, you will continue to experience leakages, as the staff could collect bribe from a tax payer, who will pay N2m instead of N10m.”

He suggested that enumerating state taxpayers and automating the system would help to reduce leakages, as the major leakages are from administrators.

The tax consultant also noted that aside leakage; there are fraudulent activities, where government officials steal part of the money collected as tax.

“Leakages happen through tax authority, but fraudulent activities happen on the part of government officials and through the misuse of tax revenue by them.”

He also believes that tax justice could help grow a state IGR. “It has to do with what the tax paid last year was used for. If you are coming from Ibadan and you get to Berger Bus-stop, you will see the presence of government, unlike between Mowe and Shagamu. Even if the money used for the project is from development partners, people still believe it is taxpayers’ money working and they will willingly pay, because they enjoy good service.”

On his part, Chairman, Lagos District of Chartered Institute of Taxation of Nigeria (CITN) Mr. Adebayo Adeyeye said leakages could be reduced to the barest minimum if government has the infrastructure to know what people are supposed to pay and what they pay.

“If we look at the way Federal Inland Revenue Service (FIRS) is going about it, where they have access to taxpayers’ accounts now, hardly can the income of a taxpayer be dodged.”

Adeyeye however noted that there is discrimination in the handling of high net-worth individuals, in terms of ensuring that they pay appropriately. He observed that they often get preferential treatment payment, thereby reducing what they should pay. “It is only the poor and unconnected that are being pursued and made to pay appropriately.”

To grow the state IGR, he also suggested expanding the tax net. “But to what extent can that go with all the combing that had been done in the past. Is there any area they want to comb to bring in people outside the tax net? There is a limit to everything because there is hardly any area that has not been fully combed.”

He nonetheless said the state could explore further the informal sector. “The National Union of Road Transport Workers (NURTW) is not yet well combed just like the informal sector. And if you look at what is happening in that sector, there is serious leakage there, because what the transporters are being made to pay is high, but substantial part of it does not go to the government. And the transporters cannot be levied more than what they are doing now, because at present they are complaining.”

Providing some insight into how government could generate revenue in the informal sector is a research on informal sector taxation practices in Lagos State by Community Life Project (CLP), which revealed that government has the huge opportunity to drive revenue substantially through informal sector taxation. It noted that the sector is massive and viable, contrary to government officials’ uncomplimentary judgment of operatives in the informal sector.

“The people are ready to be partners in progress and contribute to revenue drive of the state through taxation. The major challenges are perceived/experienced corruption in the tax system and architecture, cumbersomeness of the process, lack of transparency and accountability, exclusiveness, poor collective bargaining and insufficient development of the areas in terms of infrastructure.”

CLP concluded that if state actors can address these challenges, tax revenue in the state will experience growth and development financing will be more inclusive, fair and sustainable in the short and long-term.


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