In the relentless Sahara heat of the Yan’lemo fruit market in Nigeria’s Kano City, traders racing against time to shift rapidly ripening stock don’t want to be troubled by the taxman. Yet, for these entrepreneurs, and for an estimated 875,000 businesses in the city, multiple taxation and harassment by unscrupulous officials have been a big headache, pushing up costs and suffocating trade and investment.
“We faced a lot of problems, especially with different people coming to collect tax. They would repeatedly come to our shops and offices to take revenue. We didn’t know which taxes we were supposed to pay,” explains local textile trader Bashir Omar. And he was right. In Kano, local governments were charging over 200 rates and levies, ranging from business dues to chinese tax.
Businesses were fed up. Two of the biggest associations, representing almost 200,000 members, called on the public to cease all payment of taxes to the government and to refuse entry of revenue collectors to markets.
Increasing trust
To rectify this failing relationship, Adam Smith International, funded by the Department for International Development (Dfid), has worked closely with governments, trade associations and businesses on a series of reforms. As a result, the number of rates and levies in Kano was reduced from over 200 to just 17; a policy legislated by the governor in January 2014.
New payment mechanisms and clearer tax forms were introduced, including direct-to-bank payments. Tax for service agreements between trade associations and the local government have also been created, defining how government revenues should be invested back into the economy. Trainings were conducted for over 300 government officials and sensitisation campaigns were launched to ensure businesses were aware of their rights and responsibilities.
Trust between the private sector and government has increased and government revenues have been reinvested in toilet blocks for traders, resurfacing of a regional coach and transport hub, and infrastructure for water and sewage.
“People were paying tax but they didn’t really know for what purpose, now people are more willing to pay as they can see the money is being better spent. For example, the government is improving the roads,” explains Mudassir Idris Abubakar, taking a break from his textile stall in the market.
Reducing corruption
“It brought not only business improvement in this market, it brought peace of mind too, no more harassment and business is thriving,” says Alhaji Muhammad Yelo, chairman of Yan’lemo Fruits Market Association referring to reduced corruption.
“Someone knocked on my door and asked me for some taxes. As I had been given the flyer stating all the rates, I refused to pay the man anything,” adds trader Mudassir Idris Abubakar. Over 175,000 enterprises in Kano have seen a reduction in out-of-pocket expenses of at least £5.3m.
The taxman is also benefiting from increased revenue due to reduced illegal payments and leakages, improved compliance and greater certainty for investment. Salisu Mu’azu is the revenue officer in charge of over 200 revenue collectors in Fagge local government area in Kano. “The tax system was so bad, with many untrained staff, frequent reported harassment of tax payers, uncordial relationships and leakages in collection systems, with collectors using the system to siphon money from the government. Local government staff have changed their practices and improved.”
Mu’azu’s views are reflected in the numbers. As of September 2014, Fagge local government in Kano has generated over NGN 100m in revenue, already a 17% increase from the previous year.
The programme is delivering similar reforms in seven additional states in Nigeria. By July 2015, over 1.8m enterprises are expected to have reduced their out-of-pocket expenses by £158m, which will help further stimulate local growth in Africa’s largest economy.
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