• Thursday, March 28, 2024
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BusinessDay

How digital payments can help Lagos capture 2.8% additional tax revenues

As Lagos state continue to consider various strategies for plugging leakages in revenue generation, a new report said there is potential to add 2.8 percent in revenue using digital payments.

 

Visa’s recent research on digital payment titled ‘Cashless Cities’, suggests that governments that still accept cash for payment processes such as tax collections, licenses, social welfare payments, and pension payments, fuels the appetite for crime. The report finds that the biggest attraction of cash is the opportunity it gives many people to short change the system.

 

A survey conducted by the authors of the report found that over 30 percent of consumers said they or an immediate family member were robbed of their cash over the past three years in Lagos.

 

“Cash is easy to hide, and it facilitates bribery and tax evasion. Cash is the motivation for various crimes against merchants and individuals, such as burglary and robbery, which often involve assault,” the authors stated.

 

Visa reckons that if Lagos state was to increase its digital payment use to reach the next stage “digitally transitioning”, the state has the potential to achieve a direct net benefit of over 0.8 percent of its GDP. Furthermore, if the state was to reach its achievable cashless level, the benefits could grow to near 4 percent of GDP.

 

“If Lagos eliminated use of physical money altogether, the city’s cumulative benefits could be as high as 5 percent of GDP,” Visa stated.

 

Lagos State has the highest internally Generated Revenue (IGR) in Nigeria. As at December, the state’s annual IGR of N302 billion was higher than 30 states put together at N258 billion, according to data from Economic Confidential magazine.

 

Although the state is considered the most viable of all the states in Nigeria, it however has its fair share of developmental problems. Infrastructure deficit in the state constitutes a major headache for administrators as federal allocations shrink.

 

Early in October 2017, the Governor of the state, Akinwunmi Ambode said that the administration’s estimate of $50 billion to meet infrastructure requirements was no longer visible. He also pointed out the growing population at about 24 million. The population is said to be on track to reach 36 million or become the 6th largest city in the world after Mumbai, Delhi, Dhaka, Kinshasa, and Kolkata and ahead of Tokyo, Karachi, New York, and Mexico City by 2050.

 

A source who spoke to BusinessDay on condition of anonymity said generating more money is not necessarily a result of too much cash in circulation, rather lack of database or proper record-keeping.

 

The Lagos State government can expand the tax net or increase tax paid per user “and they need to automate their processes and put things in databases so they know what they should expect and who has not paid.

 

“If Lagos has no records, what should people pay for or who are the people paying for it? Today people pay cash and it disappears. The reason why it disappears is because the government does not have a record that X should have paid Y but X has not paid. Say X should pay Y but did not and paid an agent who spent the money. What you see is that Lagos will come to harass X who will begin to shout,” the source said.

 

He noted that Lagos State can change its revenue fortunes if it is able to digitise every piece of land in the state, for instance, such that they are able to monitor when payments are made, what is paid and what isn’t paid.

 

“And anyone can easily verify using web, mobile and USSD. They can chase after those who haven’t paid. Now this is where digital payment comes into play,” he said.

 

Johnson Ajani, Product Manager at Fidelity Bank said that digital payments will enable tax payers to pay from the comfort their homes, which plugs into the lifestyle of the elite. It also eliminates cash and ultimately reduces corruption in the value-chain.

 

“Digital payments like mVisa or the USSD technology will also allow for audit trail, reduce or almost eliminate leakage, provide peace of mind to the payer among other advantages.

 

“Powering tax collection through digital channels will also ensure better government income forecasting and monitoring. Government can know how much they expect to generate based on the volume of registered tax payers. The difference from the current situation will be that government can be sure this forecast will translate to revenue once the tax payer has been paid his services. So issues of tax avoidance will be minimal,” Ajani said.