2020 IGR Report: Urgent Need to Bolster States' IGR

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Tuesday, April 20, 2021 / 10:40AM / by FBNQuest Research Header Image Credit: NBS


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The NBS has published its report on internally generated revenue (IGR) at state level for Q4 '20. According to the report, in 2020 aggregate IGR for the 36 states and the FCT was NGN1.31trn, compared with N1.33trn the previous year. In Q4 alone it stood at N335.3bn vs N338.6bn the previous quarter. The data show that 14 states and the FCT recorded q/q growth in IGR during the period under review. Lagos emerged again as the leading state, accounting for 31.8% of total IGR in Q4 '20. Our default source of this data is the CBN. However, the CBN series is dated.

 

For FY 2020, the highest contributors to aggregate IGR for the 36 states were Lagos state (32.1%), Rivers state (9.0%) and the FCT (7.1%). Meanwhile, Yobe, Taraba and Adamawa each accounted for less than 1% of total IGR in 2020.

 

The breakdown of IGR shows that aggregate Pay As You Earn (PAYE) income tax accounted for 62% of total IGR in Q4 '20. For FY 2020, PAYE accounted for 65% of total IGR. Gombe, Jigawa, Ekiti and Kebbi states underperformed with regards to revenue generated from the PAYE system. These states each achieved less than 1% of total aggregate PAYE revenue.

 

The informal sector is dominant across states in Nigeria. The size of the informal sector in Nigeria is estimated at about 65% of total GDP and consists of activities that range from agriculture to mining and quarrying, small-scale building and construction and light manufacturing. The underperformance seen in the PAYE segments, particularly for the states listed above can be hinged on most working indigenes falling outside the tax net. Formalising the informal sector and by extension, widening the tax net will assist with boosting PAYE revenue.

 

The trend across expenditure profiles of most states is overdependence on their respective payouts from the Federation Account Allocation Committee (FAAC). The NBS data show that in 2020, total FAAC payouts to the 36 states accounted for 64% of aggregate total revenue.

 

Lagos state raked in more internal revenue (N419bn) compared with FAAC payouts (N116bn) received. This is not surprising, given its relatively strong tax collection system. Ogun state was also able to generate more revenue internally as opposed to relying heavily on FAAC payouts. In 2020, FAAC payouts accounted for 43% of total revenue in Ogun state.

 

By boosting their IGR, state governments could pursue more ambitious capital programmes. The FGN's primary objective should be to create a conducive business environment as IGR sustainability is a by-product of an enabling environment.

 

Internally generated revenue of states, Q4 '20 (% shares)                                     Total: N335.2bn

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Sources: National Bureau of Statistics (NBS); FBNQuest Capital Research


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