Fiscal Makeover Required For Most States

Monday, August 20, 2018  /`08:54 AM  / FBNQuest Research                                                          

CBN provisional data for 2017 show that internally generated revenue (IGR) provided 25.6% of the total revenue of the 36 states and the Federal Capital Territory, compared with 30.2% the previous year. Aggregate IGR, however, increased to N765bn from N746bn in 2016.

Lagos State emerged as the leading state, achieving an IGR/total revenue ratio of 68%. Rivers was next in line with 43% while Kwara, Ogun and Edo managed ratios of 34%, 32% and 31% respectively. We stick with the CBN series for ease of comparison although it is dated and several individual states show different (generally higher) percentages.                                                                                     

Value-added tax (VAT) receipts stood at N474bn, representing 15.8% of total revenue in 2017. This compared with N397bn posted the previous year. The country’s commercial hub (Lagos) accounted for 17% of total VAT in 2017.

If state governments are able to successfully boost their IGR, this would afford them the opportunity to pursue their capital programmes without overdependence on distributions from the Federation Account Allocation Committee (FAAC).  

Given its relatively high IGR/total revenue ratio, it is no surprise that Lagos state’s capital expenditure accounted for 33% of total expenses at N122bn. Both Rivers and Akwa Ibom also had relatively high capital expenses at N176bn and N125bn which accounted for 75% and 55% of their respective total expenditures.

The minimum wage of N18, 000 approved in 2011 is currently being reviewed. We gather that it could be increased to as high as N58, 000 per month. We struggle to see how state governments will cope with the proposed hike given the rising arrears in salary and pension payments by the states.

The onus is on the states to boost their revenues; only three states were able to double their IGR in 2017. They could look further to the non-oil economy (such as agriculture and mining) and widen the tax net to cover more of the informal sector.

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