IGR: How far have states gone?

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By Osby Isibor

It is no longer news that Nigeria’s oil is depleting. The reduction in global oil prices and volume demands have made diversification of the Nigerian economy from over-dependence on oil a mandatory policy issue. Oil revenue depletion has essentially made both the federal and state governments to turn down on other viable sources of funds.

From available statistics, most state governments generate not more than 15% of their revenue and depend on Federal Allocation for further sustenance. Unfortunately, this is no longer sustainable. The latest IGR report is an indication that the fiscal crisis facing many states across Nigeria is not unconnected to dwindling allocations from the federal government as a result of falling oil price.

Some economic analysts have also argued that the reason why some state governors are unable to pay salaries was as a result of misappropriation of public funds.

Figures released by the National Bureau of Statistics (NBS) on the internally generated revenue capacity of the 36 states only confirm that most states cannot survive without the monthly statutory allocations, which is largely funded from crude oil sales and taxes like VAT.

Investigation revealed that 35 states in Nigeria can’t pay salaries without federal funds. The fact that only one of the 36 states can afford to pay workers’ salaries with internally generated revenues, underscores the level of dependence of the federating units on the central government.

From the report, it was also revealed that the remaining 35 states generate only a fraction of funds they require to settle their wage bills annually. This means that without federal funds, these states cannot even afford salaries payment, talk more of executing projects.

Information on states’ wage bills and comparisons with data on their internally generated revenues (IGR), published by the National Bureau of Statistics showed that only Lagos State can pay salaries of its workers by solely relying on revenues generated internally.

It also revealed that none of the 19 Northern states has this much financial muscle to sustain itself. They all depend on federally-allocated subventions, mainly made up of funds generated from sales of crude oil that is extracted down south.

Other components of the federal allocation, shared between the three tiers of government on monthly basis, include taxes collected by the Nigerian Customs Service and the Federal Inland Revenue Service.

The data published by the statistics bureau showed that in 2010 and 2011, only seven states had IGR in two-digit billions. Lagos is the only one with a three-digit figure, while the remaining states had single digits.

In 2012, the situation improved slightly with 12 states recording double-digit figures in billions while Lagos remained the only with three-digit figures.

The implication of the low revenue generation by the states is that most of them can barely sustain themselves without recourse to monthly federal subventions.

Most states have had to take short-term bank loans to settle wages whenever there were delays in the monthly disbursements by the Federation Accounts Allocation Committee (FAAC).

According to a revenue advocate, Mr. Dauda Garuba, in an interview with a newspaper in Abuja, state governments are simply too lazy to generate revenues internally because of the oil money they receive from Abuja every month. Garuba, who is the coordinator of the Revenue Watch Institute, said, “because of the oil revenue they collect monthly, state governors are no longer serious in making money for their states.”

He described the situation whereby states depend heavily on federal subventions as unfortunate because each state has the potential to sustain itself.

“It is unfortunate that the governors, particularly in the North abandoned agriculture. Every state has the potential to be self-sufficient only if the chief executive knows what he is doing,” he said.

Also, an economic policy analyst, Odilim Enwegbara had called for legislation that would stop state governments from using federal government allocations for state upkeep.

He advocated for a law that will mandate state governments to use federal allocation on capital expenditure such as construction of roads, bridges among others, while Internally Generated Revenue (IGR), should be strictly used for state upkeep such as payment of salaries among others.

“There should be a law that bars states from using federal allocation for state up keeps, each state should be able to generate enough funds to cater for its needs. In cases where a state does not have adequate IGR, Federal Government allocation can serve as succour,” he said.

Before last year’s hand over, the former Minister of Finance and Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala accused governors of misplaced priorities, insisting that Nigerians should question why they could not pay salaries.

In their defence, the governors said they had used their allocation on projects that should have been carried out by the Federal Government in their various states, asking the federal government for a refund.

Conversely, the federal government itself had set a bad example by remaining over-reliant on oil revenues to fund its operations, neglecting taxes for many years. While improvement in tax collection mechanism, including an incentive-based scheme for the Nigeria Customs Service (NCS), has boosted government’s non-oil receipts, most states depend heavily on the statutory revenue allocation from the Federation Account for financial survival.

Many of them could only pay workers’ salaries and fund overheads, after which they have little or nothing left to invest in social infrastructure. Even the so called rich states like Rivers, Delta and Akwa Ibom rely mainly on their 13 percent oil derivation revenues from the same Federation Account to lay claim to such rich status.

The apparent show of negligence and lack of enterprise by most state governments in terms of being creative in internal revenue generation to boost earnings profiles as against their perpetual dependence on monthly allocation from the Federation Account, is one of the reasons why governors are still insisting that excess crude revenues should be shared instead of being saved for the rainy day.

Most states, in dire financial stress, have had to embark on illegalities, such as replicating taxes already within the purview of the FG or local governments, to shore up their finances. In some states, government cannot even collect taxes for fear of political backlash, since basic services are lacking and citizens do not see the point in paying such taxes.

Lagos state for instance, under the former governor, Babatunde Fashola, was able to raise IGR by the carrot and stick approach, including educating citizens on the need to pay such statutory tariffs, showing what taxpayers funds are used for and tightening the screws on defaulters, even though the general rate of avoidance and default remained high.

With funds realised from internally generated sources, his administration was able to provide social amenities for Lagosians and embarked on infrastructural development of the state.

Lagos State did not receive its Federal Allocation for a period of about five years or more and it was forced to become self-sufficient as a state. It is hoped that the pressure to diversify and focus less on the centre will force states to explore alternatives to improving their revenue base.

Economic analysts say the Lagos approach can be borrowed by other states, since it is clear that oil revenues are subject to market-driven fluctuations and no state can lay claim to self-sufficiency or deliver the required social good for citizens without an effective tax system. It is IGR that can make a state viable and self-sustaining.

They also believe that states can free up more funds for development and other critical needs if they curtail lavish spending on luxuries, including retinues of needless aides and foreign trips, as well as block all sources of leakages that characterised government’s fiscal operations at all levels.

Interestingly, there are indications that state governments are now intensifying their revenue generating ability, perhaps to reduce over reliance on the federal allocation or an attempt to fall in line with the new thinking of President Muhammadu Buhari, that states must be prudent and evolve ways of self-sustainability in running the affairs of their states.

The good news is that more states are now embracing IGR mechanism in addressing their financial trauma.

For instance, the Kwara State governor, Abdulfatah Ahmed is strengthening taxation to boost IGR in the state. At the onset of Governor Ahmed’s second term in office, he stressed the importance of improving the process of tax collection and administration as a major step towards meeting the challenges of dwindling federal allocations and improving internally generated revenue.

Ahmed also made cogent the need to drastically reduce the cost of governance and block the various financial leakages in the system in order to ensure that the bulk of the state’s revenue is adequately discharged into improving the wellbeing of the citizenry

While strongly believing that the incoming process of tax administration has taken into cognizance the dwindling income per capita of the state’s citizens, the onus is on the people to abide by the intention of government to sign into law and the implementation of the new tax collection and administration system in the state.

In a related development, Governor Abdullahi Ganduje of Kano State had inaugurated a 10-man committee to boost internally generated revenue (IGR) capacity of the state.

The governor said at the inauguration in Kano that the committee should explore available options to generate revenue internally. He said the measure was taken to reduce the state’s dependence on the monthly allocation from the federation account.

“We must generate revenue locally and provide the enabling environment for economic activities to thrive in the state,’’ he said.

Ganduje said the committee would develop new ways of generating revenue in line with constitutional provision. He urged the committee to develop “workable innovations and implementable strategies’’ to raise revenue internally into the state coffer.

And in Enugu state, Governor Ifeanyi Ugwuanyi, is said to partner the Federal Road Safety Corps (FRSC) for improved IGR in the state. The governor who made this known while receiving a delegation of the FRSC, led by its Corps Marshal and the Chief Executive Officer (CEO), Corps Marshal Boboye Oyeyemi, assured the management of FRSC of the readiness of his administration to partner with the commission to boost the Internally Generated Revenue (IGR) of the state.

He noted that the commission’s request for the state government to provide more work stations for its official engagements was a welcome development that will increase the revenue generation of the state.

Niger State governor, Alhaji Abubarkar Sani Bello, has also promised that his administration will aggressively pursue policies that will boost the revenue base of the state.

Bello said the state cannot continue to rely on allocation from the Federation Account Allocation Committee (FAAC) and other sources to meet 80 per cent of its income.

The above examples from these states should serve as a template for states who are yet to key into the IGR mechanism. But how far can the governors go in using IGR to build viability and sustainability of their various states? If the right parameters are set out all states in the federation can generate enough revenue without depending on the statutory allocations from the central government.

The state governors, through the Nigerian Governors Forum (NGF), had last year, approached the federal government for a fiscal bailout as some of the states can no longer pay salaries of their workers. But till date, the so called bailout hasn’t solved the financial crunch the states are facing. Worse still, it generated a lot of controversies in some states where some governors were alleged to have diverted it to other purposes.

It would be recalled that President Muhammadu Buhari while inaugurating the new National Economic Council at the Council Chamber of the Presidential Villa had said that governments of states owing salaries should liquidate all unpaid entitlements by looking inwards, which makes the issue of accelerated internally generated revenue generation sacrosanct.

Buhari also advised the governors to cultivate the culture of prudent management of resources as well as embark on projects that would meet the immediate needs of the people.

But how many state have governments have heeded that counsel and to what extent has that improved on their monthly receipts?

 

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