“Dear @jidesanwoolu, can you please instruct your folks at LIRS (Lagos State Internal Revenue Service ) to STOP estimating people’s income?read a Tweet from Tayo Oviosu, the founder and CEO of Paga, on X (formerly Twitter).They show my income from employment (which is correct) and then add something else based on their estimation. I mean, this is ridiculous and wastes people’s and the government’s time discussing it. That loss of productivity is bad for Lagos!the tweet continued.

Oviosu’s concerns about overestimation are not unfounded. In the city of Lagos, Nigeria’s commercial capital, a simmering discontent is brewing among employers and business owners. According to Adesoji Adejolu, another user on X, he had the same issue with the LIRS.Instead of the agency to develop strategies to widen the tax net for more revenue, they rather frustrate those who are already compliant,” Adejolu’s tweet stated. Beyond the daily grind of traffic congestion and the high cost of living, there is a growing concern about the Lagos State Internal Revenue Service (LIRS) and its approach to taxation. While some business owners complain about tax overestimation, others are plagued by the issue of double taxation. Some business owners report being taxed multiple times for the same income, particularly those operating in multiple local government areas or engaging in various types of business activities.

The Lagos State Internal Revenue Service (LIRS) is the primary tax authority in Lagos State, responsible for the administration of tax laws and the collection of taxes. Established under the Lagos State Revenue Administration Law, the LIRS has the mandate to ensure that the state maximizes its internally generated revenue (IGR) through efficient and transparent tax collection processes. One of these mandates is the ability to estimate in a process known as Best of Judgement. In this process, the Personal Income Tax (PIT) is assessed on global income and not only on employment income. However, Many business owners and self-employed professionals claim that the LIRS often overestimates their earnings, leading to inflated tax bills that do not accurately reflect their financial realities.  However, the fairness and transparency of the Best of Judgement process are crucial. If businesses feel the estimations are unreasonable or lack a clear mechanism for challenge, they might have grounds to dispute them legally.” One I hate is FIRS estimating one’s revenue from Bank charges. They’ll then calculate penalties and interest from their estimates,commented Tom Command, another user on X.

The lack of a streamlined and transparent taxation system exacerbates these issues, leading to financial strain and frustration among the city’s entrepreneurs. For example, the Nigerian Tax Research Network (NTRN) highlighted that 45% of businesses operating in Lagos face multiple taxations due to overlapping jurisdictions and inconsistent tax policies. A survey by the Lagos Chamber of Commerce and Industry (LCCI), showed that nearly 65% of small and medium-sized enterprises (SMEs) in Lagos reported receiving tax assessments significantly higher than their actual earnings. This discrepancy is exacerbated by the lack of transparency in how these estimates are calculated, leaving businesses struggling to contest the amounts levied against them.

In response to these challenges, some business owners are exploring alternatives to mitigate their tax burdens.Relocate your residence to Ondo state,suggested an X user under Tayo Oviosu’s post. Although controversial, some Lagos businesses are exploring registration in nearby states like Ogun, Oyo, and Ekiti, to potentially reduce the tax liabilities of Lagos.”These states offer less aggressive collection methods compared to Lagos,stated another user on X.

It’s not inherently illegal to register your business outside Lagos while operating within the city. There’s no national law against it. However, the key concern lies in taxation. A business will likely be subject to Lagos State taxes if it is generating revenue within its borders, regardless of the registration location. This can lead to double taxation issues if the other state also levies taxes. While not strictly illegal, this setup can create administrative headaches. A business might face challenges complying with regulations in two separate states and dealing with overlapping tax authorities. However, for some, the potential tax savings outweigh these difficulties.

The bigger picture for Lagos.

Lagos is a critical revenue generator for Nigeria. The National Bureau of Statistics (NBS) indicates that Lagos contributes approximately 30% to Nigeria’s GDP, making it the economic powerhouse of the country. The Lagos State Government relies heavily on Internally Generated Revenue (IGR) to fund its budget. In 2023, Lagos reported an IGR of approximately ₦500 billion, with taxes contributing significantly to this figure. However, if the state loses up to 10% of its IGR, this loss would amount to around ₦50 billion annually, a substantial shortfall that would impact the state’s ability to fund critical projects.

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