BusinessDay
Nigeria's leading finance and market intelligence news report.

Killing the golden geese

Small businesses in Nigeria’s economic nerve centre are squeezed by multiple taxes, and they want quick government action, writes ODINAKA ANUDU

As I alight from a commercial bus, popularly called ‘Danfo’ in Lagos, on December 2, I am greeted by the usual cacophony of confused voices.

It is Charity, a busy bus stop at Oshodi—considered as one of the most crowded places in Lagos. So many things are happening at the bus stop, but one particular scene catches my attention. A haggard-looking man is pummelling a younger fellow who sells sweets in packets.  It is a usual sight in Lagos to see touts, often called ‘agberos’, harassing and battering their victims. So, no one pays any particular attention to this situation, except me and another agbero who is an interested party.

It is a brief fight, but it has left the sweet seller with a bloodied nose.

The tout had asked the sweet seller to part with N500, but the micro trader had told him he would not be able to.  And this angered the tout.

“How can they ask us to pay N500 every Tuesday even when we are not sure of making up to that?” he asks, rhetorically, after the brawl, gazing at me.

On enquiry, I find that micro traders in the area pay N500 every Tuesday, N300 every Thursday and N150 any other day, including Saturday or Sunday.

Pure and bottled water sellers, plantain hawkers, biscuit sellers and other micro businesses are all compelled to pay these. Many of them are helpless and the total values of their wares are sometimes less than what they pay in one week.

I ask the sweet seller how much his goods are worth and he says all of the sweets are valued at N2, 500. Each pack is sold for N50 and he has 50 of them. Mathematically, the sweet seller and other micro and petty traders pay N1, 700 each week. For the sweet seller, this is 68 percent of the total value of his goods.

To add insult to injury, the touts collecting these taxes and levies provide no evidence of payments to the payers. So, the petty traders would go to another part of Oshodi and fight over the same taxes and levies they have earlier paid. And there is no guarantee that the tax collectors would render an honest account to the government or anybody they are collecting the taxes and levies for because of absence of tracking tickets or receipts.

Happening across Lagos

This is not happening at Charity only.

My trip to nine local council development areas (LCDAs) in the state, including Oshodi, Isolo, Mushin, Alimosho, Ajeromi-Ifelodun, Apapa, Ikeja, Kosofe, and Surulere, convince me it is all the same everywhere.

I find that small businesses in these parts of Lagos, including tricycles and motorcycles riders, have gory stories to tell.

At the main Oshodi Market, the Kick Against Indiscipline (KAI) officials are chasing micro traders from pillar to post on December 2. KAI is an environmental law enforcement unit established by Lagos State government to monitor and enforce environmental laws in the state. On this day, KAI officials are chasing micro business operators who are not in established shops.

Why the chase?

At Oshodi, shop rents go as high as N1.2 to N1.8 million yearly. One gigantic building at Oshodi Post Office rents one shop within the building at N1.2 million (upstairs, front) and N1.5 million (for the premium class). The cheapest on that building—perhaps at Oshodi—goes for N800,000. Only a two-year rent is acceptable. Assuming that I go for the cheapest, I will pay N1.6 million ($5,245) as rent. Other places at Oshodi accept no fewer than three years.

Many small and micro businesses cannot afford such expensive rent. So, they rent make-shift shops or stay in open places to make both ends meet.

KAI considers these businesses as environmental threats and chases them whenever they come.

However, the business owners tell me that they are not running because KAI will prosecute them, but because of how much they will part with if their foods are confiscated by the agency.

I am told that KAI officials collect between N1,500 and N10,000 for goods they seize.

“Every now and again, we give KAI officials N200 to stop them from ‘disturbing us,” a woman, who identifies herself as Ajala Okebukola, says.

The exploitation continues

The petty traders at Oshodi, who are being chased by KAI and other government agencies, pay N550 each day from Monday to Wednesday, N850 on Thursday, N950 on Friday and N1, 050 on Saturday. Only a N50 ticket from Oshodi LCDA is given to the traders out of all the fees and charges they pay.  Worse still, the charges have no name. One tout, identified as Ishola, asks a micro trader to pay N200 for land use. This is different from the Lagos State government’s Land Use Charge, which is paid into an official account.

All of the taxes and rates are collected as cash, contrary to the pronouncements of the Lagos State government. Tricycle riders at Oshodi pay between N1,200 and N1,800 each day, while their motorcycle counterparts pay N600 to N800 to touts.

At Isolo, a neighbouring local council, the situation is not different. Tricycles pay N1,500  to N2,100 every day. One ticket (N100) is for the state government; one is for the Tricycle Owners Association of Nigeria (TOAN), and another for the National Union of Road Transport Workers (NURTW), which takes the largest share. Two hundred naira is for the police, and N200 for the Lagos State Traffic Management Authority (LATSMA), the riders tell me. More so, commercial motorcyclists pay N4, 000 to N5,000 for riders’ card each year.

Once you open a shop at Isolo, you are mandated to pay N5,000 to N6,000 as trade license fee/lock-up shops rate, and N250 for radio/ television license annually. The small business is also compelled to pay the Lagos State Signage and Advertising Agency (LASAA) rate of N14,000 to N200,000 if they have  signposts.

At a popular Aswani Market at Isolo, which is busiest on Tuesdays, micro traders pay between N400 and N500.

“Alhaja collects N200; Alhaji collects N100, and local government council takes N100,” a female trader tells me on December 10.

Alhaji (male) and Alhaja (female) are male market heads.  Many markets in Lagos also have ‘Iyalojas’ and ‘Babalojas’ who are female and male market heads respectively. They wield so much power—sometimes to the detriment of small businesses.

At Otigba Cluster, popularly known as Computer Village, located at Ikeja LCDA, traders without standard shops at Ogunbiyi Community Development Authority pay as high as N1,800 every day. The money is collected by three sets of touts who do not issue receipts or tickets for the payments. Some of them claim to be ‘land owners’ while others pretend to be working for the local government.

“Some of us have decided to stay outside of that place. Yet, we pay N25,000 every year to the ‘area boys’,” a trader, who prefers anonymity because of her safety, tells me.

‘Area boys’ are special touts who operate within a geographical area, claiming ownership of the community as land owners.

If you are a tricycle rider operating between Ikeja and Ogba, you will crisscross four LCDAs and pay N600, apart from the regular N1,200 to N2,000 given to four groups of revenue collectors.

In Apapa LCDA, the situation is not different. Motorcycle riders, also known as ‘Okada’, plying from Ijora to Apapa are given two tickets: One for the local government, and  another for  the Motor Cycle Association of Lagos, an arm of the NURTW. Despite that N50 is printed on the NURTW ticket, touts along that axis collect N100 from motorcycle riders.

At Boundary Market in Ajegunle, Ajeromi-Ifelodun LCDA, touts collect N1,000 from motorcycle riders and another N200 for those plying in the evening.

“The police, who are supposed to protect, take N200 every evening,” one Adamu Muhammad, a motorcycle rider, tells me.

Micro businesses pay between N400 and N1,000 in this area. Once again, no evidence of payment is extended to these payers.

At Mile 12 Market and Ketu, both located in Kosofe LCDA, the situation is not different. Micro businesses are hunted like preys by uniformed NURTW officials who are more powerful than even state-designated tax collectors.

Traders pay N400 to N600 each day, while tricycles register their business with N5,000 to N15,000, and pay N1,500 to N2,000 each day.

“Life in Lagos is hard. No jobs, but when you take up anything, the agberos, police, and others will squeeze you,” one tricycle rider, who says he is a polytechnic graduate of Banking and Finance, tells me.

At Mushin, each tricycle rider pays M3, 300 every day to four different groups, which include the NURTW, the local government, the state government and to the Tricycle Owners Association of Nigeria (TOAN). This does not include N200 each day for the police and another N200 for the Lagos State Traffic Management Agency (LATSMA).  Only two tickets of N100 and N50 are issued by the payees. Motorcycles pay N600 each day, and roving micro businesses pay N500 to N650 each day without any ticket issued or shown them.

Undercover exposes corruption

Ogunbiyi Community Development Association where touts collect N1,800 each day

As small businesses bear the brunt, private individuals ensure the money enters their own bank accounts, rather than the state’s or the local government’s.  The first part of this story exposes how public funds belonging to the Lagos State Signage & Advertisement Agency (LASAA) at Isolo LCDA is paid into the private account of an individual, Assumpta Omozejele, who is in charge of the agency in the LCDA. I went undercover, posed as a trader at Isolo LCDA and paid money belonging to LASAA into her Zenith Bank account as she instructed.

In a recorded phone call, she reduced the amount I was to pay from N28,176 to N13, 000 and read out her account number to me. I paid the agreed amount on December 10 and demanded a receipt in a text message the following day.

“Don’t worry, it does not matter am the only one in charge of Ajao but if you still want it you can come around,” she had replied in an unedited text message.

At Mushin LCDA, I had met a man, Aliu Olaoye, who claims to work as a member of task force. I told him I had a shop at Isolo Road and he asked me to pay a parking permit of N30,000 and shop fee of N5,500 into his Polaris Bank account. In a recorded telephone call, he promised to pay N20,000 to Mushin Local Government, while he and ‘the leader’ would pocket N5,000 each.

“Oga, this is Mushin. As you know me, nobody will touch you except the person wants to die,” he had told me.

At Alimosho LCDA, I asked two young men the way to the revenue office and they claimed they were in charge of it. One of them gave me his account number to pay in shop permit of N3,500 for 2019, despite that it was fewer than three weeks to the end of the year.

This happened in many other LCDAs I investigated.

Lagos is Africa’s fifth biggest economy, with a gross domestic product of $90 billion. Its Internally Generated Revenue (IGR) exceeds N20 billion each month, but population (over 20 million) far outstrips government capacity. The state lacks good infrastructure projects but leaks revenue needed to build them to certain individuals.

 The golden geese

Small businesses are the geese the lay the golden eggs. A latest report by the National Bureau of Statistics and the Small and Medium Enterprises Development Agency (SMEDAN) says the number of small businesses in the country rose from 37 million in 2013 to 41.5 million in 2017. They contribute 47 percent to Nigeria’s Gross Domestic Product and create half of the jobs in the economy. They make up 95 to 98 percent of businesses in the country, providing easiest route for employment and entrepreneurship.

“One small business can employ three, four, five, six people once you empower it,” Waheed Olagunju, former head of small businesses at the Bank of Industry (BOI), says.

“They make more impact than even the large enterprises,” he further says.

Small businesses squeezed

As I move from one LCDA to another, I see why business experts say one out of three small or micro businesses in Nigeria dies within the first three years of life.

Small businesses in Lagos, like those in other parts of the country, are hard hit by lack of cheap and long-term funds for expansion, poor infrastructure and policy flip-flops. Roads are bad, and the state is, perhaps, the only mega city in the world without a light rail system—making logistics cost high.

In terms of funding, the Monetary Policy Rate (MPR), which is a benchmark interest rate in Nigeria, is 13.5 percent. Other African countries have done better.  Ethiopia which is 7 percent; Kenya is at 9 percent; South Africa at 6.75 percent; Zambia is at 10.25 percent, and Cameroon is at 4.25 percent. As a result of MPR, commercial banks in Nigeria lend at 20 to 35 percent interest rate to small businesses.

But multiple taxation remains a major challenge. But the greater challenge is, perhaps, taxes charged by the local government.

“Radio and television taxes are relics of colonial times,” Toki Mabogunje, president of the Lagos Chamber of Commerce and Industry (LCCI), tells me.

“I really do not think we should have them now. I think technology has changed the equation, especially now that lots of these broadcasts are done with completely different technology. So, these are things that should be reviewed,” she says.

Muda Yusuf, director-general of the LCCI, tells me that he knows of someone who has been asked by a local government to pay N200,000 ($656) as radio and television taxes.

Legitimate taxes/levies

The website of the Lagos Internal Revenue Service lists approved state taxes as personal income tax (imposed on individuals in employment or running businesses), Pay As You Earn(deducted from salaries), capital gains tax (paid on profit made from sale of capital assets like land), stamp duties (imposed on legal documents/ instruments), business premises (tax on property), land use charge (imposed on land used for business) and withholding taxes. Local governments have various charges ranging from shop permits to park rates. However,  I find that businesses merely dole out money to touts without knowing what they are paying for. Only one out of over 30 small business owners I have interviewed knows what they pay for each day.

Death of micro businesses

In Nigeria, unemployment rate is 23.1 percent, according to the National Bureau of Statistics (NBS).  Unverified data from Lagos State government say 6,000 people come into Lagos daily.

Many of the new entrants, in order to survive, start micro and small businesses. But experts say these businesses die because of many reasons, one of which is multiple taxation.

The latest report by the NBS and SMEDAN says 2,877 businesses in Nigeria shut down between 2013 and 2017.

In August 2016, the Manufacturers Association of Nigeria (MAN) and the NOI Polls reported that 222 small-scale businesses closed shops in one year, leading to 180,000 job losses.

Aswani Market at Isolo LCDA where ‘Alhaji’ and ‘Alhaja’ collect their own individual taxes

End haphazard tax system with                 

Experts want Lagos State government and all LCDAs to automate revenue processes to halt leakages and save small and micro businesses from demise.

“The state should designate accounts for payments of all levies and taxes, and start a campaign to educate people on why they must pay into official accounts,” Emeka Amadi, head of tax at the United Bank of Africa, tells me.

“Just automate the process. There must a mechanism for punishing people who extort money from businesses after they pay their taxes,” he recommends.

Yusuf of the LCCI says only automation of the processes can make a difference.

“Urge people to pay into the bank and monitor the process,” he further said.

Ike Ibeabuchi, managing director of MD Services Limited, a servicing and manufacturing outfit, says public offices should not be used to compensate individuals after elections.

“People who pay these fees into private accounts should know they are taking a risk. So they should also be bold enough to report any official who wants public funds paid into their private accounts,” he suggests.

Mabogunje, president of LCCI, has worked as a consultant for SMEs since 2000.

“There was something we did in Enugu State that Lagos can copy,” she says.

“What we did was education around tax. We educated tax payers on what they needed to know or do. The director of tax was engaged to draw up, in a single sheet, legitimate levies and taxes that small businesses were expected to pay.

“They were now educated on what these things were supposed to be so that if anyone came to demand anything not on that list, they would resist them. What they were encouraged to do was to report those issues. Once those things were reported, the state government took on those reports and took some internal actions.

“On the side of government, our view is as far as you are a micro or small business and you are earning below a certain amount, you would not exceed a certain level of payment as your tax contribution. Many countries in South-East Asia have tried it and it has worked,” she recommends.

 

Whatsapp mobile

Get real time updates directly on you device, subscribe now.

Comments are closed, but trackbacks and pingbacks are open.