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Thursday, August
27, 2020 / 12:45 PM /by CSL Research / Header Image
Credit: Channels TV
According to local print media sources, the Chairman of the Revenue
Mobilisation Allocation and Fiscal Commission (RMAFC) has called on
sub-nationals (State & Local governments) to improve Internally Generated
Revenue (IGR) as the Federation account is stretched. This comes as the slow
down in economic activities as well as downturn in oil prices amidst lower
crude output has significantly reduced the nation's non-oil and oil revenue
collections. As a result, it has become imperative for governments at all
levels to devise creative ways of managing the current fiscal challenges.
Over the years, state governments have been heavily reliant on FAAC
distribution to meet recurrent expenditure. This has often resulted in the
inability of sub-national governments to pay civil workers' salaries during
periods of macroeconomic downturn occasioned by downturn in oil prices
which reduces FAAC allocations. According to the 2019 Internally Generated
Revenue at State Level report published by the National Bureau of Statistics
(NBS), FAAC allocations made up 65.0% of state governments' total revenue while
IGR represented just 35.0%. Of the 36 states and FCT, only 3 states (FCT, Ogun,
and Lagos) had above 50% of their Revenue from internally generated
sources.
In our view, several
measures could be employed by states to improve internal revenue generation.
First, the state governments' tax authorities need to expand their tax nets to
capture more qualified taxpayers. This, rather than introducing new taxes can
help drive tax revenue collection without hurting growth of businesses within
the state. In addition, we believe the Federal Government needs to relax its
control on some state owned resources in order to enable the states better
exploit such resources to boost IGR. Lastly, we note that states that generate
decent levels of IGR (Lagos, Kano, Rivers and FCT) have relatively higher
levels of economic activities. Thus, policies by state governments to foster
favourable business environments should be implemented to attract businesses
and industries.
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