The research project was conducted by three academics from US and African institutions, who have backgrounds in quantitative methods and research interests in the political economy of development, inequality, and democratization, as well as field research experience in sub-Saharan Africa. They partnered with Lagos Internal Revenue Service (LIRS) to evaluate tax formalization and compliance among vendors within the informal sector in Lagos, Nigeria.
The study involved two interventions with marketplace vendors. The first intervention was aimed at increasing vendors’ knowledge of the tax registration process. The research team partnered with a local NGO, the Center for Public Policy Alternatives (CPPA), which primarily resulted in the use of office space and the organization’s trademark in field activities. The second intervention was aimed at testing the effectiveness of tax payment appeals by varying the framing of the appeal and the identity of the agent delivering the appeal. In one treatment arm, the appeal was delivered under the auspices of a marketplace association, while the other arm was delivered by staff from the LIRS agency. Within both treatment arms, framing of the tax payment appeal was delivered as emphasizing either the costs associated with non-compliance or the benefits of payment in the form of increased public goods.
Preliminary findings reveal that some assumptions by LIRS were validated, while others were repudiated. Before the project, LIRS had partnered with marketplace associations to help formalize vendors within these groups, which included an online tax registration form submitted by the associations. The intervention demonstrated that vendors are more likely to respond to appeals directly delivered by LIRS to formalize than if delivered by marketplace associations. This is particularly true for ethnic minorities, who have remained primarily out of the state’s reach or focus. Yoruba vendors, the dominant ethnic group in Lagos, had better tax compliance at baseline. This is likely due to LIRS’s partnership with marketplace associations that initially produced large gains in terms of tax compliance but have since tapered off. Findings also showed that a significant portion of vendors were not even aware of the agency or that they have an obligation to the state.
In the sections that follow, the brief outlines LIRS’s decision to partner with the research team, their working relationship, and discussion on dissemination of the findings. Information within this brief has been provided by interviews with Mr. Abideen Akande, Special Adviser to the Executive Chairman of LIRS, and one of the researchers, Dr. Adrienne LeBas.
Decisions to Partner with the Research Team
The informal sector often accounts for a majority of the labor force in African settings yet remains outside the state’s reach in terms of tax registration and payment. Akande described this to also be the case in Lagos where an extremely small percentage (approximately less than one percent) of the tax collected last year came from the informal sector. The state has tried different approaches in the past to “crack the nut” in achieving a “quantum leap” in reaching the informal sector, yet Akande described these efforts as having minimal traction on tax collection: “a lot of noise, but no sound.” Lagos had never done extensive research on the informal sector, basing past initiatives on guess work and assumptions. When the researchers proposed the project, Akande emphasized that they came at the right time and LIRS embraced it. Akande especially valued the opportunity to work with an objective, disinterested third-party, rather than from insiders who might have a rose-colored view on the issues. For example, he expressed that examining ethnicity would have been difficult for the agency alone because some would be uncomfortable with the topic; however, as outsiders, the research team was able to uncover valuable information vis-à-vis ethnicity.
For LIRS, research cannot be done for the sake of research, but rather to inform their work. Akande saw the purpose of the research as an opportunity to help improve governance. The more people in the pool who are being compliant to regulations, the more one can improve public finance management. Since so much activity is occurring in the informal sector of the economy, missing out on this population translates to operating at a suboptimal level. Akande’s position is to direct focus, to identify weaknesses, and find improvements where needed, so working with the research team came as a beneficial opportunity to fulfill this need. LeBas further noted the importance of technocratic competence for supporting this kind of research and that her contacts from previous work in Nigeria helped to connect her with such technocrats as Akande for this type of partnership. The relationships she has built and maintained over the years helped to contribute to the success of the partnership and the project.
Working with the Team
Overall, the partnership has been mutually beneficial and the research a useful exercise for LIRS. Akande stated that the agency first went through the proper channels to seek approval for research of this nature by forwarding a request to Lagos’s Honourable Commissioner for the Ministry of Finance. Approval was received almost immediately. LeBas highlighted that this research was done at much of Lagos State’s expense and to support such research without compensation is quite remarkable. LIRS’s role in the research project consisted of providing staff, information, and logistical support. LIRS staff accompanied the research team’s staff in one arm of the second intervention in order to test vendors’ response to tax payment appeals delivered directly from a LIRS agent. Beyond staffing for the fieldwork, LIRS also provided information and logistical support such as sharing their administrative data with the research team, submitting data queries to the external contractor running the tax payment platform, and organizing a working committee for administrative support. On the researchers’ side, the team hired staff and project managers to help carry out the interventions. Furthermore, LeBas has taken the lead in maintaining communication with LIRS and other partners in the project, which has contributed to a successful partnership with LIRS.
As with most endeavors, the research presented several challenges. LeBas noted that there seemed to be challenges at every step of the project including: logistical issues surrounding access to administrative data because it was not housed at LIRS; matching registration data with survey data; navigating expansive markets that were not demarcated in any way; difficulty relocating vendors after baseline in part due to lack of reliable contact information and accurate GPS data along with vendor transience; and maintaining staff morale. Originally, the research team requested LIRS to provide staff for three weeks as part of the second intervention. Because of some of the setbacks, particularly with locating vendors, the research team asked for two extensions which resulted in the intervention lasting approximately a month and a half. LeBas underscored that they received no resistance from LIRS to grant the extensions. The agency was understanding of the delayed timeframe noting the circumstances were beyond the control and reach of the research team. She found it extremely refreshing to work with an implementing partner that was so responsive and willing to help them. Indeed, Akande noted that there were some challenges, but that they were easily overcome. The agency had no reluctance or issue in providing extra staffing and resources requested by the research team.
Dissemination of Findings
The research team has conducted two major dissemination events to explain the findings to various stakeholders. The first event was with the chairman and head staff with a memo that also provided some policy recommendations. The second event was a full day workshop that included LIRS divisional chiefs for the informal sector along with ordinary tax station staff. The input and feedback provided by the tax station staff at the workshop was incredibly useful, and their on-the-ground knowledge helped the research team refine their analysis of results. The research team also went back to several markets to do some grassroots dissemination with marketplace associations and vendors. Other dissemination events have been discussed, but due to Covid-19 related disruptions, some events have been temporarily delayed or canceled. Akande stated that LIRS is currently awaiting a final report by the research team that provides further description of the vendors. The research team is also currently working to collect additional qualitative data to better understand some of the surprising and unexpected findings from the quantitative data. Once disruptions from Covid-19 are resolved and data collection can be completed, the research team will be able to finalize the remaining report.
Akande sees LIRS as beneficiaries of these reports and has already been able to use the findings to inform decision-making and reform processes. They have implemented changes as recommended by the research team including updating the online registration form to be submitted by individuals rather than via marketplace associations and appointing consultants to work with the associations since an arrangement is already in place with the intermediaries. The agency believes this research, coupled with other initiatives, will assist with the enumeration, assessment, and collection of taxes and in communicating with the informal sector to drive voluntary compliance. Furthermore, LIRS and the research team have kept open and frequent communication throughout the project. Akande noted that a quarter never passes without some communication. Although post-project communication has been less frequent, Akande characterized this as “no news is good news.”
This brief examines the collaboration between researchers and implementers who administer tax formalization and compliance interventions in Lagos, Nigeria. Akande recommended that reports be less technical, because people in the field tend to struggle interpreting the findings in reports written in more of an academic style. Akande noted that staff would often ask for his assistance in interpreting the results since he has a background in quantitative methods. Another consideration is the timeframe for completion of the final report. These reports are a valuable resource that implementing partners can continually refer back to as they make adjustments to improve their reach.
Because of the difficulty balancing dual pressures of publishing for academic audiences and presenting findings for policy-oriented audiences, the research team offered one solution moving forward with future projects. In addition to, or as part of, a dedicated line item in the budget for dissemination, they recommend budgeting funds for a research assistant to work with the policymakers to better understand the questions they would like addressed and to then collate and present the data in a relevant and digestible way to the policy-oriented audience. A research assistant dedicated to disseminating the findings to implementing partners can help address both concerns raised in terms of interpretability and timing of reports.
Altogether, Akande expressed that the partnership has been a worthwhile experience and that LIRS welcomes any support, because they are always in need of improvement. The Executive Chairman of LIRS, Ayo Subair, further stated, “The research has been quite rewarding to the agency as it covers an area of our operations that requires changes predicated on detailed analysis.” Akande expressed the wish to expand the project to other areas and transfer research capacity within the agency itself, because this experience has been so informative and beneficial. He indicated that the relationship with LeBas and the research team transcends the project, and he hopes to continue working with them. Subair also offered continued support and cooperation with the research team. LeBas likewise expressed the desire for continuing a working relationship, which illustrates how successful and positive the experience has been for both partners.