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.