Lagos state and the politics of taxation

The government of Lagos state seems to be currently in the eye of the storm over its introduction of a law, a property tax as it were, known as the Land Use Charge Act of 2018, which repeals a similar law of 2001, and consolidates ground rent, tenement rate, and neigbourhood development levy. The Land Use Charge is payable in respect of all real estate in the state. But it is probably the most controversial move that has been made by the Akinwunmi Ambode administration in Lagos state, an administration that has so far enjoyed tremendous goodwill on account of its huge investment in infrastructure and human capital development in the last three years.

Stakeholders have complained about the rate of increase (up to about 400%), lack of adequate consultation and communication, and the impropriety of increasing taxation at a time of unmitigated economic hardship, even in the presence of multiple taxes, including the taxation of boreholes and alcoholic drinks. Real estate valuers and surveyors as well as other stakeholders including landlords and tenants are asking the government to take another look at the law. Sooner or later, every government faces a baptism of fire. But where taxation is involved, the key issues are governance, trust, transparency and accountability, communication and more importantly, strategy. These are the key areas for consideration with respect to the current controversy over the review of Land Use Charge in Lagos.

Ordinarily, however, nobody likes to pay taxes, and there is a historical and cultural context to this. The taxman is not often a popular member of the community. Wars and revolutions have been fought on account of resistance to taxation. Many of the wars in the Southern part of Nigeria, particularly Yorubaland in the 18th and 19th centuries were fought as a result of objections to what was known as “isakole” (ground rent to the sovereign), or owo asingba (service to chiefs and kings as a form of tribute), which were symbols of dominance over political authority and/or economic activities, creating a slave/master relationship among dominant/dominated groups.

The famous Aba women’s riot of 1929, was a protest against the draconian warrant chiefs introduced by the colonial administration but it was even more significantly, a rebellion against the direct taxation of market women. In the late 1940s, the Abeokuta Women’s Union (AWU) led by Mrs Funmilayo Ransome-Kuti also objected to the taxation of women in the Egba Division. For six months, over 10, 000 Egba women challenged both the colonial authorities and the Alake of Egbaland, and insisted that they would not pay tax. In the end, the tax policy was suspended, the Alake had to abdicate the throne and the women got up to four positions in the decision-making Native Authority.

Nor is Lagos new to anti-tax agitations. When the colonial authorities introduced electricity in Lagos in 1897, there was an attempt to ensure that this was paid for through indirect taxation, which was stoutly opposed by the people. Later, in 1907, the colonialists also proposed to provide a pipe borne water system for Lagos; the plan was to place a tax on houses to cover the cost. The African members of the Legislative council of the Lagos colony and Southern Protectorate, the traditional rulers and chiefs of Lagos and the people in general kicked against this proposed tax. They insisted they would rather drink water from rainfall or wells, rather than pay any tax.

When in 1908, the colonial authorities introduced a House Assessment Ordinance, the people of Lagos shut down all markets and marched on Government House. Women in Central Lagos also organized protests against the water rate. The battle was soon taken over by the educated elite who formed a group called the Lagos People’s Union (1908), led by John K. Randle, an Edinburgh-trained medical doctor.

Taxation tends to bring out the best and the worst in both people and governments. Of J.K. Randle as he was known, the deputy Governor of the colony at the time wrote that he was an “agitator pure and simple…political disturbance was his main hobby in life.” The struggle over water rate in Lagos went on for more than 17 years and was responsible for the eventual collapse of the Lagos People’s Union and the deposition of Eleko Eshugbayi in 1925. Herbert Macaulay came on to the scene, and he championed the reinstatement of the king in 1931. The white cap chiefs of Lagos still insisted, all the same, that paying for water was against “the tradition of the people of Lagos.” The colonial authorities were unyielding. They cracked down on the people and soon introduced direct taxation, resulting in riots across the country.

In post-colonial Nigeria, the pattern of revulsion to taxation has not been different. Between 1968 and 1969, there was in the defunct Western region, a peasant farmers’ revolt, popularly known as the Agbekoya. This particular revolt, like all revolts may have been politically motivated, and it may have been a class revolt, but the trigger was the peasant farmers’ rejection of higher taxation. However, since independence in 1960, there have been attempts to review the taxation system in Nigeria beginning with the Raisman Commission, and the enactment of the Tax Management Act, 1961, and the Companies Income Tax Act No 22 of 1961.

During the Second Republic (1979 -1983), the Shagari administration established a Task Force on tax administration. In 1991, there was the Emmanuel Edozien study group on tax, in 1992, Sylvester Ugoh led another study group on indirect taxation, in 2002, yet another group was led by Professor Dotun Phillips, and in 2004 yet another one was led by Seyi Bickersteth of KPMG and in 2012, the Federal Government had another study group led by Mckinsey, an international consulting firm. In 2017, the Buhari administration introduced VAIDS, a Voluntary Assets and Income Declaration taxation programme, and a new National Tax Policy (NTP). Many Nigerians consider the VAIDS, a joke.

Indeed, the objection to the new Land Use Charge in Lagos thus fits into a natural response pattern. But it is important to go beyond sentiments and understand the issues. To enjoy development, the people must be prepared to pay tax, the leaders must also be transparent and accountable, provide value and inspire trust. To ensure voluntary compliance, the people must not be made to see taxation as a form of punishment. At face value, the justifications provided by the Lagos State Government, on paper and at a recent Town Hall Meeting with the Governor seem convincing enough. To keep up with the current pace of economic development, population growth and volatile oil revenue, state governments in Nigeria are under pressure to look for additional sources of revenue beyond Federal Government’s monthly allocation. This in itself is a good development.

Lagos, the 5th largest economy in Africa, with a population that would be far in excess of 35 million by 2030, faces special challenges. Infrastructure deficit in the state is currently estimated to be about $50 billion (N14.47 trillion). The state’s current revenue profile is therefore unsustainable. Oil revenue in general has proved unsustainable in Nigeria in real terms. The country’s tax ratio to GDP is also relatively one of the lowest in Africa. Tax compliance is similarly low, and the extant tax codes are at best outdated. The alternative in Lagos would be for the state to borrow, but with current interest rates, that would amount to mortgaging the financial future of the state. What the Ambode administration is proposing in essence is a far more efficient taxation system which brings more people into the tax net and which requires the people to make sacrifice in the overall interest of public good. I don’t have a problem with that.

But where the problem lies is in the twin areas of strategy and communication. Whereas many Lagos residents have not actually seen a copy of the proposed law, their objection is based largely on the report that the law expressly imposes a 400% increase on land use charge, and the worst hit may probably be the organized private sector and owners of commercial buildings. In 1999, the Bola Tinubu administration in Lagos state had sought to reform the tax process in the state through the introduction of electronic payments. Internally Generated Revenue in Lagos state subsequently increased from 600 million in 1999, to 22 billion in 2015, and N341 billion in 2017.

Communication is important in tax administration. While it is natural for people to oppose any form of taxation, a tax system must be seen to be fair, just and equitable. The current resistance to taxation in Lagos and other parts of Nigeria – FCT, Anambra, Benue, Edo, Cross River- in part raises governance issues. Widespread reports about corruption, the lavish lifestyle of public officials, the high-handedness of tax officials and the reality of multiple taxation make Nigerians even in the face of rational arguments about the need to generate non-oil revenue, suspicious of any form of tax. In Lagos, the State House of Assembly held public hearings, but the story out there is that government has sneaked the law, with increased charges on the public, without adequate notice or communication. But how much interest did Lagosians themselves show? Do they even know who their representatives are? Do the representatives brief the people on developments of this nature? Landlords are saying when the effect of this indirect taxation is considered in absolute terms, they would be turned into tenants living in their own homes.

Tenants are protesting that the new charge will be passed on to them by landlords, and with inflation already at 15%, and the country’s macroeconomics in a fix, greater pressure and hardship will be invariably imposed on people and businesses. As presented however, the Lagos state government seems to have anticipated these concerns and created opportunities for negotiation and voluntary compliance, but how many people are aware of this? In addition, the Land Use Charge is a progressive tax, not a flat tax, with in-built disaggregation to provide reliefs for aged owner-occupiers, pensioners, old buildings of 25 years and above, owners with proof of long occupation, non-profit organisations, places of religious worship/education, the physically challenged and registered educational institutions. Besides, more than 70% of the properties are valued under N10 million, equivalent to a land use charge of N5, 000 annually.

Nonetheless, there are persons and landlords associations in Lagos already threatening to either go to court or organize street protests. The more incensed stakeholders are threatening to use their voters’ cards to remind Governor Ambode that he would need the people in the coming 2019 elections. In other words, the Land Use Charge could become the main decider of whether he gets a second term or not. When it comes to taxation, the electorate can indeed be vicious. Margaret Thatcher lost her position as Prime Minister, within her own party in the UK, 1989-1990, partly due to the crisis over a Community Charge, better known as poll tax, which made the Conservatives unpopular.

Governor Ambode is on that score, quite a courageous man. He must be looking at the future of Lagos, and not the next election. But he needs not sacrifice his own political future. Whatever may have been done in Lagos since 1999, there is a lot more that can be done to improve the standard of living in the state. Nigerians like to protest but it is also important to realise that the days of dependence on oil revenue may soon be completely over. When the people pay tax, and they understand the justification for it, they are probably in a much better position to hold their leaders accountable.

I believe there are steps to be taken to improve the communication process on this issue and that may mean putting the implementation of the charge on hold for a while until various stakeholders have been conscientized to take ownership of the core messages about standardization, efficiency and the need to prevent the culture of whimsical assessments by state tax officials. Landlords have to be assured that the proposed percentages are not absolute.

Government should also consider the possibility of a downward review of the percentages, allow instalmental or graduated payment, and reconsider the threatened penalty of up to 200% for defaulters. Tenants of commercial buildings also need to be protected from Shylock landlords who may hide under the law, to increase rent. The objection to multiple taxation should also be addressed; if the Land Use Charge is a consolidation of three other taxes, perhaps there are other taxes in the state that should be similarly reviewed to reduce the burden on the citizenry. The relevant revenue institutions in Lagos must also be strengthened and opportunities provided for seeking redress against rogue tax administration officials. There must also be guarantees for transparency in the preparation of a necessary data-base for the ownership of properties in the state.

With all the best intentions, any form of politicisation of the tax administration process is bound to be counter-productive. This must be avoided by all means.