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IGR Still in Need of a Boost

State and Local Govts	1814 VIEWS
State and Local Govts
1814 VIEWS

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Friday, July 03, 2020 /10:59 AM / By FBNQuest Research / Header Image Credit: FBNQuest

The NBS has published its report on internally generated revenue (IGR) at state level for Q4 2019. According to the report, in 2019 aggregate IGR for the 36 states and the FCT was N1.3trn, compared with N1.7trn the previous year. In Q4 alone it stood at N346bn vs N294bn the previous quarter. The data show that 29 states and the FCT recorded q/q growth in IGR during the period under review. Lagos emerged again as the leading state, accounting for 30% of total IGR in Q4. Our default source of this data is the CBN. However, the CBN series is dated.

The breakdown of IGR shows that aggregate Pay As You Earn (PAYE) income tax accounted for 59% of total IGR in Q4. The weakest links with regards to revenue generated from the PAYE system were Taraba, Oyo, Kebbi, Katsina and Gombe states. These states achieved less than 1% of total aggregate PAYE revenue.

For these states, jobs are predominantly within the informal sector. Hence most indigenes fall outside the tax net and as such, the states record very low contributions from PAYE income tax. Tax collection by agencies needs to be strengthened; better data collection would assist with achieving this goal.

Road tax accounted for just 2% of total IGR in Q4. The highest contributor was Lagos, accounting for 36% of the total.

There is an unhealthy dependence on the monthly payout by the Federation Account Allocation Committee (FAAC). The NBS data show that in 2019 the total FAAC payout across most states outweighed IGR. However, internal revenue generated from Lagos State was more than double its total FAAC payout received. In addition, Ogun State and the FCT were able to rake in a considerable amount of internal revenue when compared with the payouts received.

Projected funding sources in 2020 budget (% shares)

Sources: Federal Ministry of Finance, Budget and National Planning; FBNQuest Capital Research

The anthem on boosting capacity and internal revenue has been overplayed and yielded minimal results to date. Apart from private sector collaborations, state governments need to review tax collection efforts and coordinate with their respective local governments, drawing heavily on technology.