Look beyond oil, improve on IGR, experts advise S’South states

Experts have asked the South-South states to change their internally generated revenue profiles amid dwindling federal allocations, writes FISAYO FALODI

The sharp drop in the federal allocations to the 36 states of the federation coupled with the non-payment of workers’ salaries for many months has necessitated the need by the governors to think deeper on how to generate enough funds to meet the challenges of their offices.

Except Lagos State which took the bitter pill of generating revenue internally during the administration of former President Olusegun Obasanjo that held on to the state allocations for many months, many states in the country are still struggling in terms of IGR.

The latest report by the National Bureau of Statistics on the amount of IGR realised by the 36 states of the federation for the 2015 fiscal economic year indicated that most of the states of the federation are lagging behind in their revenue generation drives.

According to experts, the performance of the South-South states in the statistics released is not encouraging, going by the large number of both local and foreign investments in the region. Curiously, the South-South is home to many oil and allied companies, many of which are supposed to be paying taxes to the states of their operations.

The oil rich states seem to treat the issue casually. For instance, available statistics show that some states in the region generate as low as N10bn yearly as IGR. The worst IGR in the region is from Bayelsa State which generated N8bn for 2013 and N10bn for 2015. This followed by Akwa Ibom State (N13bn and N15bn) within the same period.

None of the states in the South-South region generates N100bn per annum. Rivers and Delta states, which top the chart in terms of IGR, generate between N80bn and N40bn per annum.

Unfortunately, there are claims that as bad as this IGR profile is, some of the states deliberately gave their citizens tax holiday.

For instance, in Akwa Ibom State, it was learnt that until 2015, workers were exempted from paying the Pay As You Earn Tax, which is a criminal offence. In fact, the current state governor, Emmanuel Udom, was seriously attacked and condemned for introducing PAYE system in the state.

Based on the report from the NBS, the 36 states generated a total of 682.7bn in 2015 compared to 707.9bn in 2014. This shows a 3.69 per cent decrease in total revenue. The implication of this, according to experts, is that some state governors may fail to discharge the responsibilities of their offices to the people unless they strengthen their IGR bases through crucial legal frameworks.

This becomes necessary because there is no indication yet that the federal allocations to the states may increase anytime soon. As of April, only a few states including Lagos and Delta got above N5bn as their federal allocations. Oyo, Ondo, Sokoto, Yobe, Kebbi and Kaduna states, among others, got a little above N2bn each. Edo, Kwara, Benue, Taraba, Nasarawa, Ebonyi, Gombe and Ekiti, among others got over N1bn each, while Ogun got over N999m and Osun was given a little over N130m.

With this dwindling federal allocation, it may be difficult for state governors to provide the needed infrastructure and social services to enhance the living standard of the people. Unfortunately, it appears many governors are not being creative as per how to increase IGR.

However, experts have offered various suggestions which they said, if appropriately applied, could bail the states out of their financial quagmire.

Prof. Abayomi Adebayo of the Department of Economics, Obafemi Awolowo University, Ile-Ife, Osun State, said the states should stop being over-reliant on federal allocations and begin to support people’s initiatives, especially those who wished to establish legitimate businesses.

Though Adebayo appreciated the fact that some state governors, like Ayodele Fayose in Ekiti State, had responded to challenges posed by the decline in the federal allocations by coming up with education tax, he said such an idea should be standardised in such a way that the people would not be negatively affected.

He said, “The issue of IGR should be taken seriously by governors. They only need to standardise the process to ensure that the people don’t die while struggling to live. To me, it is right to think of how to generate money from those who are not paying tax in the informal sector. It has to be effectively managed so that it does not become an instrument to paralyse the initiative of the people who are out to fashion out legitimate work to do on their own.”

The Professor of Economics added that there would be more money for states if taxable adults were made to pay correct taxes.

Adebayo said, “Even in the formal sector where people are being paid salaries, some people are not paying correct taxes. The issue of paying correct taxes should be pursued properly so that people can pay the right taxes.”

He, however, opposed a situation whereby workers would be paid half salaries and still be made to pay the right taxes.

“There will be problem if such a thing is done,” Adebayo said, adding that exploration and processing of raw materials should be encouraged for their multiplier effects.

Adebayo equally asked the governors to go after the wealthy people, some of who have the penchant for evading tax, to ensure that they were captured in the tax net.

He said, “The issue is that Nigeria is a lawless country. You only see law enforcement agents working when they have something to gain personally.

“The governors are the chief security officers of their states and they know this category of influential people that are not paying tax. So, it is the responsibility of the governors to take up the matter at the very high-powered level because they belong to the same class.

“The governors need a very high-powered tax collecting agency that can withstand the personalities of the affluent people and make sure that they actually pay their taxes, but I say it is going to be very complex because some of the people don’t declare their properties. They have so many bank accounts which their children don’t know. So, this is a complex situation.”

On why the IGR of the South-South states are not encouraging in spite of the presence of many local and foreign investments in the region, Adebayo likened the situation to a child whose parents are very rich. According to him, the child will not bring out his potential because there is no financial challenge for him to face.

He said, “The South-South states lag behind in IGR matter because they have special derivation formula which puts them at an advantage in the sharing of the revenue of the country. What that means is that the South-South states will have a lot of money to play around with. So, when money is available, you don’t think about responsibility. It is like you have a child in a house where the father is very rich; the child will not bring out his potential because there is no challenge.”

The Professor of Economics also pointed the attention of the South-South states to the killing of the people’s potential in the region. He said such potential could be harnessed for economic development, if the South-South states do the right thing.

He said, “The government should register and tax all the local refineries in the South-South, instead of sending soldiers to go and bomb them. The best way to make it formal is to register and make them to pay tax. By that, operators of the refineries would have been able to develop their potential and be contributing to the development of their respective states through job creation and payment of taxes.”

Another economist, Prof. Sheriffdeen Tella of Olabisi Onabanjo University, Ago-Iwoye, Ogun State, asked the South-South states to wake up to the reality of the decline in federal allocation.

He said given a good number of oil and gas related businesses in the South-South states, the governors have no excuse not to have enough money to run their states if they put in place effective tax management system.

Sheriffdeen said it was unfortunate that the South-South states were suffering from “resource curse” which had made them to “become so lazy to the extent that they don’t want to look inward and see what they can generate.”

He said, “It is like you have resources and as result, they don’t want to work. They depend on rent. So, the South-South states have been benefiting seriously from the money coming from the Federal Government and they don’t want to do anything.

“Now that the economy is bad for everybody,  that should be able to spur them to think deeper on how to generate money, particularly in the payment of tax. All the foreign companies that should pay taxes to the states, in addition to the one they pay to the Federal Government, are not doing so because the region depends solely on the money from federal allocation.

“They should generate money from personal income and company taxes.”

A commentator, Mr. Victor Iyoho, described the situation as pathetic.

Though Iyoho said it might be a tall order to ask the South-South states to start looking inward to raise their revenue bases because of the current economic situation of the country, it was the best thing to do.

He asked that apart from Rivers, nearly all the other states in the South-South are rural in nature without major profitable ventures.

Iyoho, however, asked the South-South governors to kill corruption in their respective states as well as shun ostentatious lifestyle.

While asking them to learn from the Lagos State example, he said, “The people of the South-South should be involved in the development of their states.

“The South-South states can expand their tax net to capture the petty business owners, but this approach should be handled with utmost care to avoid pitting the people against the government.

“There should be a lot of sensitisation and the government should also encourage the people to grow their businesses.”