More and more states across the country are now turning to taxation to shore up their revenue to finance critical infrastructure, but some fall short of the expectations of their indigenes
On assumption of office, Governor Rochas Okorocha of Imo State articulated his plans to transform the state under his administration’s Rescue Mission Agenda whose centrepiece was free quality education. The governor stated during his swearing in ceremony that he was in a hurry to deliver on his rescue mission agenda. But that mission was being hampered by the state’s lean purse. However, the governor who, like others, rode to power on the back of lofty promises made to his people was forced to source alternative sources of funds to deliver his campaign promises. The governor has since embarked on aggressive internally generated revenue, IGR, drive through taxes. Apart from widening the state’s tax nets, he blocked all the leakages in the system to free more funds to provide dividends of democracy and avoid grounding of governance due to dwindling allocations from the Federation Account.
The Imo State government’s cost-cutting measures and strategies aimed at boosting its IGR have grown the IGR from N250 million when the present government came into office in May 2011 to N800 million. Prompted by its precarious financial situation caused by a N3 billion monthly wage bill, the state government is now targeting a monthly IGR of N1 billion by the end of 2012. “Our target is N1 billion monthly on IGR, but we are a little below N800 million. Before we came last year, it was N250 million. Our recurrent expenditure is in excess of N3 billion monthly on wage bill and others. We don’t want to rationalise our workforce,” says John Okafor, commissioner for finance.
Okorocha must have learnt the tricks from Adams Oshiomhole and Babatunde Fashola, governors of Edo and Lagos states respectively. Both governors have been in the lead in utilising taxation as a viable revenue stream to fund developmental projects outside oil. For instance, before Oshiomhole’s emergence, the entire monthly allocation from the Federation Account was used to pay salaries, such that by November 2008 when he assumed office, crude oil price had crashed and the total money received by the state from the Federation Account was a paltry N1.6 billion. Salaries and pensions payable to workers hovered around N2 billion every month. The state’s IGR at the time was a mere N275 million per month. Added to the monthly allocation from Federation Account, the money was still not enough to pay salaries of civil servants, let alone execute capital projects.
But Oshiomhole, known for his unusual style of administration, has been able to grow the state’s IGR from N275 million per month to over N1.6 billion per month as at October 2011, representing over 600 per cent growth. The state government started the tax drive by ensuring that all civil servants in the state are paying the right taxes. “We looked at every sub-head and that is where I discovered that people who have high-profile secondary schools where pupils pay as high as N300,000 per year and all the schools paid to government was N10,000 per year. People have high-profile hospitals and all they paid to government to set up the hospital was just N7,000. I also found that even in the government proper, from the head of service down they were only paying about 20 per cent of their tax obligation under the Pay As You Earn, PAYE, tax. The same thing was true of the other arms and I said no, we who are in government must lead by example,” Oshiomhole told the magazine recently.
While the revenue from tax assumed an upward dimension, correspondingly Oshiomhole reversed the Capital/Recurrent Expenditure Ratio from 60 per cent and 40 per cent, which he inherited, to 40 per cent and 60 per cent. This freed more funds, in addition to tax revenue, to embark on provision of critical infrastructure. The various projects located across the 18 local government areas of the state have generated lots of employment for the indigenes. Some of the projects include road construction, renovation of schools, and construction of hospitals, among others.
The Edo State governor is only trying to replicate the success of the Lagos State government’s tax drive under Fashola, who has been improving infrastructure and other social services in Lagos using proceeds from tax. The state, under Fashola, has become the reference point in tax administration in the country. From N16 billion monthly IGR last year, Lagos State is targeting a total IGR of N289.7 billion to build more infrastructure. With this figure, the government plans to generate N24.1 billion IGR every month. Ministries, parastatals and agencies have since been allocated the various sums to generate according to their capabilities. According to the state government budget breakdown, the government is to get N57.66 billion as statutory allocation from the Federation Account, while Value Added Tax, VAT, will account for N52.496 billion.
The Ogun State government has also caught the tax bug, putting measures in place to boost its IGR profile. Like Oshiomhole, Ibukunle Amosun, Ogun State governor, is not satisfied with the situation where the state spends more on recurrent expenditure than capital expenditure, hence he has reversed the state’s Capital/Recurrent ratio from 37:63 in 2011 to 55:45. For the 2012 fiscal year, the state government, therefore, plans to spend 55 per cent of its total budget of N200 billion on capital projects. With just N90 billion meant for recurrent spending, the N110 billion earmarked for capital projects represents an 18 per cent increase on the allocation for the previous year. The move comes on the heels of government’s plans to pursue an aggressive IGR drive this year expected to rake in over N100 billion, about 104 per cent over the budgeted figure in 2011.
However, unlike some governors, Amosun’s efforts at growing the state’s IGR through tax are not without serious challenges, as he has been contending with the running debate with Lagos State on the issue of non-compliance with the Statutory Residency Rule, which obligates a taxpayer under the Personal Income Tax Act, PITA, to pay tax to the relevant tax authorities, RTA, of the territory where the taxpayer resides. The governor has, therefore, been saddled with the task of getting Ogun residents living on outskirts of Lagos to pay their taxes to Ogun State as against the current practice of them paying to Lagos where many of them work. Affected are residents of Agbara, Ishasi, Akute, Lambe, Agbado, Oke Aro, Sango, Ojodu-Abiodun, Isheri and Ibafo, inhabited by hundreds of thousands of people who work in Lagos and pay taxes there.
The new tax drive, therefore, seeks to ensure that revenue due to Ogun State lawfully, but has been going to Lagos State, be redirected to the state in line with the Residency Rule in the PITA. The move is expected to add about N1.5 billion monthly revenue to Ogun State’s coffers. Kemi Adeosun, commissioner for finance, Ogun State, told the magazine that part of the strategy is an enlightenment campaign to inform and educate people on the need to pay taxes to the government of the state where they are resident. “You need to know that if your taxes are being misdirected, it is that state that would benefit from it. Lagos State would not come to Ogun to start building roads,” she argued, adding that the campaign has been successful as the state’s IGR has now hit the N2 billion mark.
Although the states in the South-west controlled by the Action Congress of Nigeria, ACN, are largely in the forefront of the new tax drive, now considered a new cash cow, governors of states controlled by other political parties are not left out. For instance, Chibuike Amaechi, governor of Rivers State, a state controlled by the Peoples Democratic Party, PDP, has been doing great things with the greater Port Harcourt project using funds generated internally. By 2011, the state recorded an IGR monthly average of N5 billion, translating to N60 billion annually. This has grown to N7 billion as at March 2012. The state targets N8 billion monthly IGR by the end of the year, which is N96 billion per annum. The state has N5.96 billion in total monthly wage bill; about N900 million in overhead; and N600 million to N700 million in pension liabilities, which it pays from its current income.
Chamberlain Peterside, commissioner for finance, Rivers State, told the magazine that right now the state gets about 20 per cent of its total revenue from IGR while the rest is from federal allocation, but the state targets at least 50 per cent of its total revenue from IGR. To achieve the revenue target, he disclosed that the state is looking at revamping the entire public finance structure through the Ministry of Finance and the Board of Internal Revenue. “We will do a total personnel restructuring, rebrand the agency and reposition it for the task ahead,” Peterside promised.
Other states whose governors are said to have made significant progress in the use of tax as alternative revenue stream are Sokoto, Jigawa, and Niger. But for the pioneering efforts of the Federal Inland Revenue Service, FIRS, under Ifueko Omoigui Okauru, its outgoing executive chairman, the tax revolution currently sweeping across some states in the country would probably not have been possible. Omoigui Okauru opened the eyes of the states to the huge potential of tax as a major revenue earner. For instance, before she assumed office in 2004, FIRS could hardly generate N1 trillion, but its revenue profile has since jumped to N21.7 trillion from taxes over a period of 11 years.
Apparently determined to encourage states to harness the opportunities offered by tax, Omoigui Okauru, who is also chairman of the Joint Tax Board, JTB, recently stated that every state of the federation without exception has potential to generate higher tax income from people engaged in their areas of jurisdiction. This, she said, was why the new amendments to the tax law have clearly defined what could be recognised as tax in the various states of the federation.
Some finance experts and private sector operators who spoke with the magazine noted that the current efforts of the states to grow their IGR and plug leakages is a sure and viable way to go in the face of dwindling allocations. For instance, Nicholas Capenter, director, Baker Plant, rates the Fashola-led administration of Lagos State high in IGR generation, noting that the tax reform process it started in 1999 has resulted in major infrastructural development in the state especially in Lagos Island. “I was in Nigeria during the military era and I can remember the level of infrastructural decay in the state then. But the situation has changed now; we can all tell what our money is used for,” he told the magazine.
Kola Akoodu, managing director, AKOD Nigeria Limited, a company specialising in the repair of industrial machines, also noted that some states, especially Lagos, have been proactive in generating huge revenue from taxes in the last five years. The development, he pointed out, is an indication that tax revenue is capable of replacing oil revenue if the three tiers of government are serious. Akoodu was, however, quick to note that certain aspects of the ongoing IGR drive, such as the sincerity of state governors to use the IGR proceeds to provide infrastructure and other social services, have been a subject of debate. According to him, this is why many eligible taxpayers hide under the excuse of non-utilisation of tax proceeds not to pay tax.
Akoodu also bemoaned the effects of multiple taxes on his business, insisting that the trend must stop. He lamented that his company has been paying same tax or different taxes of the same nature to the three tiers of government and each time he complains, the authorities send touts to harass his staff and threaten to lock up his office. He called on the state government to ensure that business owners in the state are not burdened with over taxation or multiple taxation that could lead to the closure of businesses. He also urged government to strengthen the JTB with a view to strictly enforcing existing agreements on permitted taxes among the three tiers of government.
The industrialist also accused officials of Inland Revenue Service, IRS, of improper management of tax proceeds. “I don’t know how much Lagos State, for instance, generates from tax annually but nothing has been done about the state of roads in the state in the last two years. At the federal level, there is no improvement in power supply and the state of the federal roads, among others. The Lagos-Ibadan Expressway has been awarded to a contractor about a year ago and nothing has been done on it. The local governments are even worse because channel roads within the communities are in sorry states that most times we find it difficult to bring heavy machines to our workshops to repair,” he complained.
The use of tax consultants by the states has also not gone down well with some Nigerians who argue that most of the consultants are cronies of sitting governors who are merely feeding fat on the states’ finances as reward for their support during elections. But Tunde Ajala, principal partner/chief consultant, Babatunde Ajala & Co., a firm of chartered accountants and tax practitioners, does not see it that way. The various state governments, he said, employed the services of tax consultants to complement the efforts of their IRS in the enforcement and collection of PAYE and Withholding Taxes.
“Whether or not such monies are used for infrastructural development, only the state government concerned can tell, but remember that administrative and personnel overheads are part of states’ expenditure too,” he pointed out, adding that the current IGR drive by states is a good way of looking beyond oil to complement the allocations they receive from the Federation Account. He told the magazine that apart from tax, state governments could generate fund internally by embarking on commercial activities capable of generating income and creating employment.
Recently, Fashola clarified that the role of tax consultants in the internal revenue drive of the state was to track and monitor revenues and payments. His words: “They don’t collect. The bills are still done by public servants now under the IRS. But at that time, our government did not know how many accounts it had and it did not know what was paid in. So, the money was there, depending on the benevolence of a bank that decided to be honest. But today, at the close of every business day, Lagos State government can tell you how much it has collected and in which bank it is. That is the energy the consultants have brought.” He noted that organisations that provided services deserved to be paid. “They have provided service, they have invested in ICT. It is only fair that they be paid. The only issue that can arise is whether or not we are getting a fair deal for the service that they render. But the idea that somebody who rendered service in a free economy should not be paid is alien to me,” the governor said.
The concerns of taxpayers notwithstanding, the general feeling of Nigerians, especially experts in tax administration, is that if the present level of commitment of some state governors in boosting their IGR is sustained and replicated in all the three tiers of government, it would not be long before the country’s over-dependence on oil revenue with its associated problems is over.
Additional report by Tony Manuaka, Muyiwa Lucas, Stella Sawyerr and Abiola Odutola
