Powered by non-oil revenues, Lagos State’s economy accelerates as others stagnate

The economy of Nigeria’s commercial capital, Lagos State, is fast outpacing economic growth in other parts of the country, as the state’s non-oil revenues help sustain increased investment in infrastructure and other social amenities.

While other Nigerian states have been left almost bankrupt, following the drying up of oil-based allocations from the Federation Account, Lagos raked in N287 billion in Internally Generated Revenue (IGR) in 2016, well above the total budget size of more than 20 of Nigeria’s 36 states.

  Over the last 18 years, the IGR of Lagos has risen from a mere N600 million monthly in 1999 to about N24 billion in 2016, with a projection of hitting N30 billion in 2017.

“IGR is the energy that keeps us going and puts the state on a sound financial footing to continue to meet its obligations to the citizens, despite the economic recession” says,  Akinwunmi Ambode, Governor of Lagos State.

The state is thriving   at the time when over 28 of the 36 states of the federation, inclusive of major earners of 13 percent oil derivation, like Akwa Ibom and Bayelsa, are struggling to meet salary obligations to various categories of workers and pensioners.

Powered by the significant revenues generated internally, Lagos raised planned expenditure for 2017 by 23% to N813 billion, the biggest annual expenditure plan by any subnational in the country.

The Lagos state budget is   more than what the five states in the South-East plan to spend in 2017. Also, the budget of Lagos exceeds the combined budget of the six states in the North Central by N31billion, which indicates the overwhelming spending power of the state.

But Lagos state’s spending power is largely dependent on its capacity to generate revenues internally.  Of the government announced budget of N813 billion, with a targeted total revenue of N625 billion, approximately N478 billion is expected to be generated from IGR, representing 74% of the total revenue. Of this amount, the Lagos Internal Revenue Service (LIRS) is to generate N360 billion, which comes down to about N30 billion monthly.

The balance of N170 billion for the 2017 budget is to come from  a N100 billion bond issuance programme and a combination of internal and external loans.

Lagos’ success story is predicated on a number of factors: Aside the commercial nature of the state and its huge population (estimated at 20 million people), Lagos has enjoyed stable governance, such that each new administration not only built on existing structure, but improved on what it inherited from the previous government.

With about N600 million in 1999 when the former governor, Bola Ahmed Tinubu took over from the military, the IGR rose to between N10 billion and N11 billion by 2007 when Tinubu left office. With continuing reforms in the internal revenue system, aggressive tax drive, capacity building and professionalisation of the Lagos Internal Revenue Service (LIRS), the internally generated revenues of the state had by 2015 when Babatunde Fashola, Tinubu’s successor left office, risen to about N23 billion monthly.

Under Ambode, the state has kept up pace with growing its internally generated revenues.

To realise the projection, the state set out in 2016 with plans to expand the tax net without introducing taxes. “We do not intend to introduce new taxes in 2016 but rather bring more citizens into the tax net, especially the large informal sector and also through the adoption of an automated process, to block all leakages,” said Ambode at the presentation of the 2016 budget to the state House of Assembly.

In keeping to the promise, the government, through the LIRS, unveiled a tax policy in January, that ensured that domestic servants – nannies, cooks, security guards, gardeners, among others, pay taxes from their earnings. It also announced the readiness to strictly enforce the payment of taxes and prosecution of defaulters, in accordance with relevant laws.

“In consonance with Section 82 of the Personal Income Tax Act (as amended), the LIRS wishes to formally notify the public of its intention to commence the prosecution of tax evaders and offenders in Lagos State, beginning from April 1,2016.”

Under the Personal Income Tax Act, a taxable person is statutorily required to file a return of income for the preceding year within 90 days from the commencement of every year of assessment (March 31 is the deadline), whilst any employer of labour is required to file all emoluments paid to its employees for the preceding year, not later than 31 of January each year.

Against this background, any taxable person or corporate organisation who fails to file their tax returns with LIRS by the stipulated date, is in breach of the provisions of the law, which is a criminal offence that is punishable under the tax laws,” said Olufolarin Ogunsanwo, former executive chairman of LIRS.

Ogunsanwo had gone ahead to say that “in the wake of little or no proceeds from the Federation Account” the focus of the state government in renewing infrastructure and general development in 2016 would be difficult to achieve without payment of taxes.

To create convenience for tax payers, the state developed various initiatives to facilitate payment, starting with the simplification of tax payment processes, through the compression of the ‘Tax Form A’ from 6 pages to 2 pages, introduction of new payment platforms, e-submission of annual returns, creation of the LIRS hotline (0700CALLLIRS) and help desks in all tax stations, relaxation of requirements for replacement of lost e-TCC among others.

“We have a robust database that captures all taxable individuals and firms in Lagos State, as well as transactions for the purpose of audit, so there is no hiding place for any tax evader,” said Ogunsanwo, adding that taxes were needed to provide services to the public.

“Without revenue, all of the things that facilitate our progress as a civilised community will not materialise. If there are no infrastructural developments like roads to get to business sites, businesses cannot thrive. If we do not have all the services that government is compelled to offer e.g. security, education, healthcare, and law and order, as it is being proffered by the court, then we cannot make progress collectively.”

Affirming the position of the LIRS, Ambode, said “The tax payers are the ones giving us the energy that we have. Even though they say Nigeria is in recession, somehow, Lagos has been able to do it and it is because people are paying their taxes. The taxes paid have been judiciously utilised to upgrade infrastructures and provide various services,” Ambode said, while appreciating businesses, residents and taxpayers last year.

According to Steve Ayorinde, the commissioner for information and strategy, much of the projects undertaken by the government could not have been achieved without strong internal revenue in the face of decreasing Federal Allocations to state.

Ayorinde listed the construction of 114 roads, various laybys to ease off traffic congestion of some critical roads within the state metropolis, ongoing construction of flyovers at Ajah and Abule-Egba, the Lagos light-up project, the injection of 50 additional buses into the BRT fleet, and the purchase of massive security equipment for the police and other security agencies operating in Lagos, to secure lives and properties. Ayorinde also pointed to the ongoing work at the Ayinke House (maternity complex at the Lagos State University Teaching Hospital (LASUTH) and construction of the model Magistrate and High Court complexes at Ajegunle, Ajah – Badore and Badagry, ongoing multi-agency office within the secretariat complex, Alausa, and the 6-floor multi-level car park being embarked upon at Onikan, Lagos Island, among others.

With the robust internal revenue mechanism already put in place, Akinyemi Ashade, the state commissioner for finance, and budget, said 2017 would continue to focus on “massive investment in security, infrastructure, transport and traffic management, physical and social infrastructural development, environment, health, housing, tourism, power, e- governance, education and agriculture.

JOSHUA BASSEY