Roads, Bridges and Tax: What connection?


Joseph Adedeji

Singapore, a city-state much smaller than Lagos State in landmass is often touted, and rightly so, as a marvel of rapid, yet sustainable economic development and advancement. It’s success in transforming from a third to a first world country in a period less than forty years has continued to impress if not astound people.

Singapore, before its transformation, faced the problem of overcrowding in the city, poor living conditions, a severe lack of infrastructure, and low technology, among others. Its current status as a thriving international business hub, characterized by a high standard of living, did not happen by chance. It was orchestrated through proactive and deliberate far sighted planning.

The problems that Singapore surmounted on the path to economic development and prosperity are some of the issues that Lagos State is today tackling as it aspires to transform into an efficiently run and more productive mega city with vastly improved living conditions. A review of Singapore’s model reveals that, among other things, there was a systematic approach to the development of infrastructure.

While Singapore’s experience shows clearly that infrastructure is central to socio-economic advancement, several studies by experts on other economies across the world have also identified a strong positive and even symbiotic link between infrastructure or infrastructure spending and growth. Any economy that wants to pursue sustainable growth must therefore invest in its infrastructure.

Lagos State’s current drive at giving a massive boost to infrastructure development must therefore be welcomed as a leap in the right direction. Addressing the huge infrastructure deficit is crucial to unlocking the potential of the state and attaining the growth and development that we all desire. However, infrastructure development requires funding.

If we agree that infrastructure development is that which must be done, then the required funding is equally that which must be secured. But the funds must be procured in a way that will ensure an effective and sustainable developmental programme.

In advanced economies, like Singapore’s, taxation constitutes a major source of government revenue and is an acceptable practice among their citizens. Taxation is also employed in other ways such as tariffs that protect local industries from foreign competition, checking undesirable practices and fostering inclusive development through asymmetric application.

These economies also prove beyond doubt that taxation is a veritable source of funding for sustainable development, perhaps with its added advantage of empowering the citizens to demand more accountability from governments and as well constraining governments towards more transparency and efficient utilisation of funds. Apparently, making development everybody’s business fosters better growth.

Tax to GDP ratio (total tax collected as a percentage of the market value of all officially recognized final goods and services produced within a country in a given period), and the tax contribution to a country’s revenues are good indicators of efficient tax systems. In 2016, tax revenue in the European Union was 40% of GDP (France 47%, UK 35%) and accounted for around 90% of government revenues. Tax is usually about 26% of GDP in the US and accounts for about 85% of government revenue. In Singapore, it is about 14% and 68%, respectively.
Nigeria’s tax to GDP ratio of 6% clearly depicts the poor state of taxation in the country while at the same offering the opportunity to significantly increase government revenues.

Lagos State’s internally generated revenue (IGR) for 2017 was N501b, amounting to an average of N41.7b per month. Governor Akinwunmi Ambode, of Lagos State has set an improvement target of N50b per month for 2018. But even this ambitious plan will have to be scaled up progressively and substantially, considering the fact that the cost of fixing the state’s infrastructure deficit has been estimated at $50billion.

It is small wonder, therefore, that Lagos State is embracing taxation as a major source to secure the required revenues to fund the massive infrastructure gap in the state. With current low awareness and compliance rates, an estimated population of 24 million people (with more than 7m gainfully employed) and thriving businesses, Lagos can rely on taxation to provide the funds to drive its development.

To get the full benefits though, taxation must be administered efficiently. This means there should be a high compliance rate by taxpayers and low administrative costs relative to the revenue collected. This is more easily achieved when the tax system is fair, simple, well organized and enforceable
Achieving this efficiency requires a new approach to tax administration by the government. For instance, ramping up the awareness of citizens to the imperative of taxation, bringing a lot more people and businesses into the tax net (with demonstrable efforts at attaining total compliance of all eligible taxpayers), and applying some taxes asymmetrically such that the poor may not be as burdened as the rich will create a sense of fairness while increasing total funds accruable.

The use of technology to improve the ease of remittance by citizens and businesses, the harmonization of certain taxes can also make taxation simpler for the taxpayer while improving the government’s ability at enforcement. Reviewing the tax rates that have become obsolete is also essential.
Efficient taxation leaves a fair burden on all citizens and businesses while accruing substantial funds to the state’s coffers. It engenders more participation of citizens in governance which in turn forces more transparency and fiscal discipline on the government on spending and more rigour in the selection of projects to deploy funds to.

The funds accruable from efficient taxation are also more predictable, unlike allocations from the federal government, which are subject to the vagaries of the crude oil market. Predictability helps to make proper and long term planning, which is essential for sustainable infrastructure development
Efficient infrastructure supports economic growth as it facilitates timely delivery of information, goods and services, while accelerating the attainment of social objectives such as improved healthcare, higher educational standards and higher standards of living. It also attracts foreign direct investments from multinational corporations which act in synergy with the efforts of government while improving the tourism potential.

Several Infrastructure development projects have already been initiated by the Lagos State government. The entertainment and transport hub under construction at Oworonshoki is visible to all commuters that ply the Third Mainland Bridge as well as the improved lighting and security of that axis. Light rail construction is underway along with road constructions and rehabilitations while the exploitation of marine transport opportunities are in the works. The provision of pedestrian bridges, lay byes and street lifting have improved the safety and security of citizens and also decongested traffic.

A lot still needs to be done to redress Nigeria’s infrastructure deficit. It is hoped that Lagos State can expedite the attainment of efficient tax administration so that the economic development Lagosians crave will be accelerated through well planned and proactive investments in infrastructure.

– Adedeji is a Lagos-based economic analyst and tax consultant