Urgent Need to Bolster States' IGR

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Friday, January 10, 2020 / 09:12 AM / FBNQuest Research / Header Image Credit: New Telegraph

                                                                                

The National Bureau of Statistics (NBS) has published its internally generated revenue at state level report for H1 2019. According to the report, in the first of half 2019 aggregate IGR for the 36 states and FCT was N694bn compared with N597bn in the corresponding period of the previous year. The data show that 31 states and the FCT recorded growth in IGR while the remaining five states recorded declines during the period under review. Our default source of this data is the CBN. However, the CBN series is dated.

                                                                                                                  

According to the NBS, Lagos emerged as the leading state, accounting for 30% of total IGR in H1 2019. Rivers was next in line, representing 11% while Delta, Ogun and Kaduna accounted for 5%, 4% and 3% respectively.

 

The breakdown of the IGR shows that aggregate PAY As You Earn (PAYE) income tax accounted for 62% of total internally generated revenue. The weakest links with regarded to revenue generated from the PAYE system were Gombe and Yobe states. Both accounted for less than 1% of total aggregate PAYE revenue.

 

The poor attitude towards tax payment in these states (as well as several other states) could be linked to a lack of structure as most businesses are not captured in the formal economy.

 

Additionally, the lack of knowledge of tax payment mechanisms is a factor as the literacy level is lower in many other states when compared to Lagos.

 

The FGN's primary objective should be to create a conducive business environment as IGR sustainability is a by-product of an enabling environment.

 

We note the recent move by the Presidential Enabling Business Environment Council (PEBEC) to kick off a sub-national tour geared towards engaging business owners. We expect the series of engagements on the back of this tour to positively impact ease of doing business metrics.

 

Most state governments have come to rely heavily on the monthly payout from the Federation Allocation Account Committee (FAAC) as their major source of revenue. The NBS data show that aggregate net FAAC allocation totalled N1.2trn in H1 2019, almost double the aggregate IGR.

 

Only three states were able to generate more revenue internally than their inflow from FAAC during the period. These states are Lagos, Ogun and Rivers.

 

To conclude with a statistical point, we have to note that the CBN and the NBS data on state governments' finances are not always consistent.


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