Expanding the tax net in Lagos

All over the world, governments use tax revenues to provide jobs, build dams and roads, operate schools and hospitals, provide medical care, and for hundreds of other purposes. Without taxes to fund its activities, the government could not exist.

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 the government fulfills its responsibility. It makes the people more conscious of monitoring the government and holding public officers accountable for their use of public resources.

It is in this wise that Lagos State is charting the course of sustainable development through the diversification of its local economy. With its army of faithful and committed taxpayers, the state has proved that it is possible to build an economy that is more productive and not completely reliant on oil.

On its part, the state government has been making efforts to convincingly justify why more Lagosians must pay tax through prudent management of public funds and the numerous developmental projects it has completed as well as hundreds of ongoing projects.

Perhaps more significant is the government’s success in tapping into the resources of the business community in the state. The state government has effectively cleaned up its finances to the point where it can seamlessly convince investors to take up a series of bonds offered to finance infrastructure projects in the state.

It needs to be stressed that there is no magic wand that can bring development in any society without the availability of required resources. The most successful democracies in the world where governments are accountable to the people are the ones with a strong institution of taxation.

Late sage, Chief Obafemi Awolowo, puts the matter with characteristic clarity on the floor of the House of Representatives in Lagos on 16th August 1954, when he said: “…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 …”

From the late sage’s exposition, it is evident that the significance of taxation to the growth of any economy cannot be over-emphasized as it is the major tool by which societies can develop. Any society where there is proven development must be one where the twin issues of taxation and careful administration of public finance are taken seriously.

There is vast empirical evidence that taxation correlates highly with economic growth in addition to some spill-over effect on effective service delivery. Lagos is a good example of research work in this direction. At the global level, no economy in history has ever achieved high per capita growth without a sustainable tax system.

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In fact, the advanced capitalist economies depend heavily on taxation to run their economies. In Europe, the U.S.A., and Latin America, tax evasion is a punishable offense without the option of a fine. The global economic power of Japan is Personal Income Tax.

It is, therefore, to move Lagos to the league of such societies that the government has been encouraging individuals and corporate organizations to pay their taxes, as this will help the state boost its revenue and carry out its responsibilities to the citizens.

Increased IGR through a robust tax administration process is critical to sustaining investment in infrastructure development. For our society to achieve the kind of development being witnessed in developed climes, the issue of taxation must be accorded utmost importance by all and sundry. There is no other alternative to this.

This is the reality and any analysis to the contrary might not hold water. To this end, the public needs to be educated on the fact that no strategic planning or vision, no matter how well-meaning, could yield concrete results in a mega city like Lagos except the needed funds are readily made available.

Meanwhile, it is important to stress that more taxable Lagos residents should willingly comply by promptly paying their taxes. The recent revelation that only a tiny proportion out of possible taxable Lagos residents pay tax is quite disturbing.

It is rather unfair that such a tiny fracture of Lagosians is saddled with the enormous burden of the whole state. Considering what the state government has been achieving in terms of developmental strides across the state, more could still be achieved if only more Lagos residents were up-to-date in paying their taxes.

Being a melting point of people from diverse parts of the world, Lagos has peculiar infrastructure needs. Therefore, taxable Lagos residents must continue to partner with the state government through prompt and regular payment of taxes.

If Lagos is to truly operate a 21st-century economy, the state needs to pay more attention to taxation as well as other means of boosting its internal revenue.

Implementation of financial policies such as widening of the state tax net, expansion of the tax base, updating/upgrading of databases, improvement of administrative processes, and operational efficiencies, among others would certainly boost the economy of the African foremost city-state.

Ogunbiyi is Director, Features, Ministry of Information & Strategy, Alausa, Ikeja, Lagos