(Bloomberg) Tunde Fowler used to get death threats when he began collecting levies in Nigeria’s commercial hub of Lagos 10 years ago. Today he gets hailed as Tax Muyiwa, a nickname that means “bring your tax” in the local Yoruba language.
His staff of about 3,000 administrators no longer need police escorts to prevent them from being attacked. They walk freely in their green and white Lagos Internal Revenue Service polo shirts, reflecting a growing acceptance among a taxpaying population that’s surged by half to 4.5 million in the past five years.
“Society has taken us as part of them,” Fowler, the 58- year-old chairman of the tax agency, said in an interview at one of Lagos’s members-only boat clubs, overlooking a lagoon on the affluent Victoria Island. “They know we’re working for them and it’s a partnership now.”
Lagos, the powerhouse of Africa’s biggest economy where about 12 percent of the nation’s 177 million population live, has reduced its reliance on oil-revenue allocations from the federal government at a time when crude prices have slumped. The state’s own revenue generated from taxes was almost double what it received from the government last year.
Rising income has allowed Lagos authorities to build schools, houses, roads and other infrastructure to transform the southwestern state, which is just slightly bigger in size than Rhode Island. Construction is underway on a new light railway that connects the western end of the state to its center and that may cut the commute time to 40 minutes both ways. The journey currently takes about four hours because of chronic traffic congestion.
Widening the tax base and improving the efficiency of tax collection will likely be a priority for the new government under President Muhammadu Buhari, said Stanley Achonu, the head of operations at BudgIT, a Lagos-based organization that works to bring transparency to public spending.
Buhari, 72, took office on May 29 amid a more than 40 percent slump in oil prices in the past year. Crude exports account for about 70 percent of government revenue in Africa’s biggest oil producer.
Nigeria is under “so much pressure, with the Treasury virtually empty, with debts in billions of dollars,” Buhari told reporters on June 22. “State workers and even federal workers not paid their salaries is such a disgrace for Nigeria.”
Declining oil receipts have forced the government to scale back its spending plans and devalue the currency as foreign-currency reserves plunged. The naira has weakened 7.5 percent against the dollar on the interbank market this year and was trading at 198.33 as of 8:20 a.m. in Lagos on Friday.
Aside from Lagos, Nigeria’s 35 other states mainly rely on oil-revenue allocations from the federal government to fund the bulk of their budgets. States can generate their own income from personal income taxes, while revenue collected from a 30 percent tax on company profits goes to the federal government.
Lagos’s economy makes up 20 percent to 25 percent of Nigeria’s gross domestic product, according to Fitch Ratings. Not only a hub for banking and telecommunications, where companies such as Standard Chartered Plc and MTN Group Ltd. have their country headquarters, Lagos is also site of the nation’s booming film industry.
Lagos earned 276 billion naira ($1.4 billion) last year from its own sources, which equates to about 56 percent of its budget, according to official data. That’s up from about 40 billion naira when Fowler took office in 2005 and compared with 140 billion naira received from the federal government in 2014.
Nationally, tax revenue covers about 22 percent of the government’s budget.
Fowler says the tax agency’s success lies in its use of electronic payments, trained workers and educating the public about the benefits of paying duties. He is using that same strategy to convince an additional 4 million people to pay taxes.
“Many states would like to do what Lagos is doing, but they don’t have the opportunity to do that,” Taiwo Oyedele, a partner at PricewaterhouseCoopers LLC’s Nigerian unit and head of its tax and corporate advisory services unit, said in a phone interview. “Lagos is the commercial nerve center of Nigeria. That’s not to say the others are not trying, but they’ll never get to the level of Lagos state.”
Nigeria has some way to go in transforming its tax system. The West African nation ranks 179th out of 189 countries in a World Bank and PwC 2014 survey on paying taxes.
Trying to convince Lagosians to pay taxes to the government is a difficult task, especially when illegal levies and bribes already eat into their income.
Bolarin Adeyemi, who earns a living driving a three-wheeled taxi known as a keke marwa, quit his job as a tailor four years ago when his employer announced that he would be deducting tax.
Four years later, Adeyemi, 31, said he has to pay 1,400 naira a day to the local council, transport association and police and traffic authorities to operate his vehicle, some of which are bribes to avoid being harassed. After earning between 4,000 naira and 7,000 naira a day, the money he is forced to give away “looks like a tax,” he said in an interview.
Fowler, who plans to step down from his position this year, said Nigeria’s economy needs to be more productive so that more people can be employed and the tax net widened.
“It’s the only way of having revenue and ensuring economic growth,” he said. “Even if we don’t get government allocations for a month or two, Lagos will still pay salaries.”
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access