Lagos Assembly moves to harmonise taxes, end levy collection

Nigeria's informal tax ecosystem is about to face serious scrutiny. The Lagos State House of Assembly is moving forward with landmark legislation to harmonise tax collection and eliminate levies imposed by unions and unauthorised groups—a structural reform that could reshape operating costs for businesses across Africa's largest economy.

## Why is Lagos tackling informal levies now?

Nigeria's tax system has long been fragmented. Beyond formal federal and state taxes, businesses face a shadow tax layer: union dues, road tolls collected by groups without legal mandate, and levies from market associations. In Lagos—home to 60% of Nigeria's formal private sector—these unofficial charges can add 5-15% to operating expenses, distorting pricing and inflating cost-push inflation. By centralising and formalising tax collection, the Assembly aims to create transparency, reduce administrative friction, and give policymakers clearer visibility into true tax revenue and economic activity.

The timing is strategic. Nigeria's inflation remains stubbornly elevated despite recent monetary tightening, and structural costs (not just oil prices) are a culprit. When businesses cannot distinguish formal tax from informal levies, they lock in higher prices—a phenomenon economists call "price stickiness." Harmonisation should unlock downward pressure on costs, even if oil prices remain soft.

## How does this connect to Nigeria's inflation puzzle?

Here's the paradox: even if global crude prices fall, Nigeria's inflation may not follow suit. Experts cite three barriers. First, **exchange rate rigidities**—the naira has weakened, making imports expensive; formal devaluation takes time to transmit to retail prices. Second, **structural rigidities** include power costs, transport, and informal taxes that don't respond quickly to commodity shocks. Third, **price stickiness**: once businesses raise prices to cover informal levies, they rarely cut them when costs fall.

Lagos's harmonisation bill tackles the third lever directly. By consolidating levies into a single, transparent tax system, businesses gain clarity on true costs and competitive pricing becomes easier. A manufacturer paying three different groups for "road access" can suddenly see the real cost burden and adjust accordingly.

## What's the investor implications?

For foreign and diaspora investors, harmonisation reduces **information asymmetry**. Currently, estimating true operating costs in Lagos requires navigating informal networks; formalisation brings predictability. Compliance risk drops. Tax audits become less arbitrary. And over 12-18 months, if price stickiness eases, input costs should moderate—benefiting export-oriented and import-competing sectors alike.

However, risks exist. Informal levy collectors (often politically connected) may resist. Implementation requires buy-in from Lagos State Internal Revenue Service (LIRS) and enforcement capacity. If the bill passes but enforcement is weak, businesses continue dual-track payments—formal taxes plus informal levies—and costs stay high.

The broader macro win: if harmonisation succeeds in Lagos, it creates a template for other states and federal authorities. Nigeria's Central Bank has signalled that structural tax reform is prerequisite to durable disinflation. This bill is a proof-of-concept.

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