Worsening Insecurity, Poor Economy Preventing States From Boosting IGR—NGF

The worsening insecurity and deplorable economic environment is limiting the ability of the 36 states of the federation to boost internally generated revenue.

The Director General of the Nigerian Governors’ Forum, Asishana Okauru, said this 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 who was represented by the Senior Programme Manager, NGF/SFTAS, Lanre Ajogbasile, spoke on the topic: “Improving Internally Generated Revenue (IGR): Trend and Emerging Reforms.”

He 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.

In recent times, thousands of persons have either been killed or kidnapped on a daily basis. Aside from the Boko Haram/ISWAP insurgency that has plagued the North-east region for over a decade, virtually all parts of country currently battle one form of insecurity.

Most parts of the North-west region are now being overrun by rampaging bandits who kidnap for ransom and kill victims who cannot pay for their freedom.

The North-central, particularly Niger, Kogi, Benue and Nasarawa States, is also plagued by bandits and criminal herders who in some cases attack and kill their victims.

Okauru said although Nigeria was still recovering from 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 N28.15bn, 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.

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.