Lagos, taxation and economic development

SEVERAL years ago, fourth President of the United States of America, James Madison said that the power of taxing people and their property is essential to the very existence of government. Similarly, Franklin D. Roosevelt, the only US President to serve three terms also underscored the importance of tax when he asserted that: “Taxes, after all, are dues that we pay for the privileges of membership in an organised society.”

Roosevelt relied on taxes, particularly from rich taxpayers, to fund programmes designed to pull the country out of the Great Depression. The various New Deal revenue acts in the mid-1930s substantially boosted the tax burden on the wealthy, raising the effective income tax rate on the top one per cent from 6.8 per cent in 1932 to 15.7 per cent in 1937.

Scholars of development economics have written a lot on the issue of taxation and its import to economic development. Amidst the penumbrae of arguments, the central tendency is that taxation is the price people pay for government services. Most often, because of the inherent tendency of people to resist payment of tax for essential services, taxes are compulsory payments individuals make to government.


The element of coercion is justifiable in that legitimate government activities can hardly be carried out without fiscal resources. These activities include defense, protection of life, property and individual liberty – which are fundamental rights enshrined in the Nigerian Constitution. Irrespective of the school of thought one belongs, one is doubtless bound to contribute a certain portion of his income to government for the provision of essential social services. Similarly, it is the duty of government to apply such monies in the most efficient way to improve the living standards of the people.

Since the return of democratic dispensation in 1999, successive administrations in Lagos State have had to contend with the knotty issue of attempting to boost the State Internally Generated Revenue, IGR, through the implementation of a viable and sustainable tax system. With about N600 million in 1999, when Asiwaju Bola Tinubu took over, the IGR rose to between N10 billion and N11 billion by 2007 when he left office.

With continuing reforms in the internal revenue system, aggressive tax drive, capacity building and professionalism of the Lagos Internal Revenue Service, LIRS, the IGR of the state had by 2015 when Mr. Babatunde Fashola, SAN, left office, risen to about N23 billion monthly. What has been the secret of Lagos’s economic growth under the current administration is a revenue enhancement reform which has achieved higher IGR and providing a sustainable financial base for bridging the huge infrastructure deficit estimated at over US$50bn.

Implementation of financial policy such as widening of the State tax net, expansion of tax base, updating/upgrading of databases, improvement of administrative processes and operational efficiencies, among others has so far achieved an average monthly IGR of N34 billion in 2018 compared to monthly averages of the last three years. It could be recalled that in just two and half years, the Lagos Government constructed Abule-Egba and Ajah bridges among several other capital projects.

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 for research work in this direction. At the global level, no economy in history has ever achieved high per capital growth without a sustainable tax system. In fact the advanced capitalist economies depend heavily on taxation in running their economies. In Europe, U.S.A and Latin America, tax evasion is a punishable offence without the option of fine. The global economic power of Japan is Personal Income Tax.

Taxes available to state governments to collect from the citizens across the country include: Personal Income Tax in form of Pay-As-You-Earn, PAYE, or Direct Taxation (Self-Assessment), withholding Tax (Individuals Only), Capital Gains Tax (Individuals Only), Stamp Duties on instrument executed by individuals, Pools Betting, Lotteries Gaming and Casino Taxes, Road Taxes, Business premises registration fee in respect of urban and rural areas which includes registration fees and per annum for the renewals as fixed by each state, Development Levy (individuals only) not more than 100 per annum on all taxable individuals and Naming of street registration fees in the State Capital.

Other classification of taxes are: Right of Occupancy fees on lands owned by the State Government in urban areas of the State, Market Taxes and Levies where State finance is involved, Land Use Charge, where applicable, Entertainment Tax, where applicable, Environmental (Ecological) fee or levy, Hotel, Restaurant or Event Centre Consumption Tax, where applicable, Signage and Mobile Advertisement, jointly collected by the State and Local Government among others.

It is, thus, surprising that today many states and local governments still give the impression that their entire operations depend on the statutory Federal allocation. It is an aberration that even the Federal Government still depends heavily on oil.

In Lagos, the impacts of enhanced revenue base in development strides in the state are quite visible to all. For instance, in 2016 alone, the state government commissioned 114 roads across the state while another 181 roads were built in 2017.   In the health sector, 14 additional LASAMBUS operational points were created while 26 new ambulances for General Hospitals and LASUTH as well as 20 new Mobile Intensive Care Units were inaugurated.


With a view to bridging the housing deficit gap in the state, between February and April 2017, 500 lucky beneficiaries of the Rent-To-Own Housing Scheme were presented with keys to their home.   Similarly, numerous giant strides have been made in education, sports, transportation, food security, tourism among others.

Governments across the country need to borrow a leaf from Lagos State and be committed to expanding their tax net, updating/upgrading of databases, improvement of administrative processes and operational efficiencies of their tax agencies.

Source: Guardian