By Bassey Udo
The 36 states of the federation are finding it difficult to generate sufficient internal revenue that is taxable from their domains due to the worsening insecurity and deplorable economic environment, the Nigerian Governors’ Forum (NGF) has said.
The Director General of the NGF, Asishana Okauru, blamed the deteriorating insecurity situation in the country and other economic conditions, like declining value of the Naira, as some of the key factors affecting the business environment and their overall productivity and performance.
Okauru spoke in Abuja at a workshop organised by the States’ Fiscal Transparency Accountability and Sustainability (SFTAS) Programme Coordination Unit of the Federal Ministry of Finance, Budget and National Planning.
Okauru was represented by the Senior Programme Manager, NGF/SFTAS, Lanre Ajogbasile, who spoke on the topic: “Improving Internally Generated Revenue (IGR): Trend and Emerging Reforms”.
Okauru said although Nigeria was still recovering from the the impact of a number of negative fiscal and macroeconomic conditions that have influenced the fiscal sustainability at all levels of governments, the pressure on the states remains enormous.
He attributed the pressures on the fiscal capacities of the states to their over-dependence on the monthly allocations from the Federation Accounts, which is often affected by the unpredictable movements in the earnings from crude oil exports as a result of the volatility in crude oil prices at the international market.
“The impact of this pressure has been exacerbated by long years of increases in government permanent expenditures arising from increased cost of governance, new minimum wage, rising debt service and mounting fuel subsidy payments,” he said.
Besides, Okauru said the global coronavirus pandemic also took a massive toll on the economic activities of governments the world over, thereby impacting the internally generated revenue capacities of the sub-national governments.
Reviewing the performance of the states and Federal Capital Territory in terms of their IGR, the NGF DG noted a decline by N28.15 billion, or 2.1 percent, between 2019 and 2020,, primarily as a result of the. pandemic
In terms of Tax-to-GDP ratio in Nigeria, the NGF Director General quoted the Organisation for Economic Co-operation and Development (OECD) estimates for 2019 to have been six percent.
However, when compared with the average for 30 African countries, Okauru said the OECD Revenue Statistics in Africa 2021 report, showed a significant contrast of about 16.6 percent average.
He cited the Tax-to-GDP ratios in other African countries to include Ghana (13.5 percent), Niger (10.1 percent), Egypt (14.2 percent), DR Congo (8 percent), Kenya (17.3 percent), Uganda (12.1 percent) and South Africa (26.2 percent), adding that the average tax-to-GDP of Nigeria’s 36 states was a paltry 2 percent based on the NGF 2018 statistics.
He blamed the poor performances of the states on worsening insecurity and currency depreciation, which he said affect the business environment, productivity and taxable incomes.
“Tax revenues are essential for state governments to maintain fiscal sustainability given the boom and bust cycles the Nigerian economy experiences “The structure of the Nigeria economy reflects a predominance of the services sector, which accounts for nearly 55 percent of the GDP for Q4 2021. Unfortunately, economic activities under this sector still suffer low productivity and wages,” Okauru said.
A look at the 2017 GDP record for 22 states, Okauru observed that the Service sector contributed about 54 percent of the aggregate value, with Agriculture and Industry contributing 23 percent respectively.
With total population of registered taxpayers in the States and FCT estimated at about 35 million by 2019/2020, Okauru said this represents about half of the total labour force of 70 million people in the country, citing the National Bureau of Statistics (NBS) records.
For the states’ ministries, departments and agencies (MDAs), the NGF DG gave their estimated annual revenue growth rate at a total of 34 percent between 2020 and 2021 half-year reports.
Regardless, he said some states recorded significant growth, citing states like Sokoto (6,824 percent), from N7.5m to N519.5m in Direct Assessment); Niger (1,951 percent, N1m to N2.07b in MDA revenue); Jigawa (157 percent, N1.4b to N3.8b); Kogi (728 percent, N444.8m to N3.6b in other taxes); Osun (376 percent, N53.3m to N253.7m in other taxes), and the FCT (604 percent, N2.6b to N19.4b in other taxes).
On the factors that affected the tax potentials of the states, he identified their human and natural resources, pointing out that the quantum of revenue collection depended on the effort of the tax administrators, institutional capacity and the applicable technology.
“Tax performance can also be influenced by policy decisions in adopting tax laws, tax policy/regulations, the level of education of tax collectors, tax morale, the quality of government institutions, including the level of bureaucracy, skill and corruption.
“The social contract between the government and its citizens – represented by the quality of public services and the public’s willingness to pay or evade taxes, ” he said.
Based on NGF’s taxpayer perception survey 2021 indices, Okauru said many informal sector workers criticised the notion that tax authorities have the right to compel people to pay taxes, adding that only 13 percent of taxpayers fully trust tax officials, while 83 percent were likely to evade the payment of taxes.
Besides, he said misunderstood tax law(s) and incomplete revenue codes, multiplicity of taxes, fees, levies and charges, and poor collaboration between the states’ internal revenue services (SIRS) and identity management ministries also accounted for challenges the tax system face in the discharge of their functions.
Other factors include weak transparency and accountability by the government and states internal revenue services departments and agencies, multiplicity of taxpayer identification systems, institutional capacity constraints due to inadequate funding and professional staffing to deliver on mandate, as well as lack of standard operating procedures and processes guiding their operations and their zonal/area offices, proliferation of private contractors/consultants for the same revenue item, weak collaboration between states and local governments on joint collections.
He used the platform to highlight the efforts of the states to boost their internal revenue generation capacities over the years despite the challenges, particularly in the areas of reforms in the tax environment and system.
Some of the reforms, he said, include the Treasury Single Account (TSA) and Cashless Policy, in collaboration with the state, local governments and in-state revenue generating MDAs.
Some of the states, he disclosed, now publish their annual budgets and audited financial statements to promote transparency and accountability in line with SFTAS’ Disbursement Linked Indicators (DLIs), while others are implementing citizens’ budget and citizens’ accountability report, as well as passage of Consolidated State Revenue Codes to address multiplicity of taxes.
To boost the capacity of the states to generate more internal revenue, Okauru stressed the need to strengthen the prevalent social contract to build tax legitimacy, increase the use of technology in tax collection and reduce human involvement to the barest minimum, promote administrative efficiency and harness the new shadow economy (online businesses).