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How IGR Can Save Nigerian States from Present Hardship
By Oseloka H. Obaze
The cliché "there are only two certainties in life: death and taxes" just assumed greater validity in Nigeria. Death is ever present. But taxes or internally generated revenue (IGR), which nearly vanished with the flush of oil money, is regaining currency as a pedestal for governance and development.Until now, the value of IGR in Nigeria remained in the realm of things we know but pretend not to know.
Long neglected, IGR has suddenly regained currency as a forced choice and hard-edged necessity. Faced with prospect of empty treasuries, unpaid salaries, and bankruptcy, most Nigerian States are scurrying to find alternative sources of revenue rather than wait for the fast dwindling Federation Account disbursements. Those states still able to pay salaries on time arebragging, others are borrowing yet IGR remains a pressing policy challenge.
The problem is that after such long neglect, IGR will not yield instant remedy by way of resources for the federal government or those state governments badly in need of such resources. Surely, not those States bailed out by the federal government recently though state governors now speak of IGR with religious fervor. IGR is no longer symbolic but a concrete policy issue on which the survival of the states rests. Exigent IGR summits, seminars, workshops and dialogue are being convened at the federal and state levels, with a view to revving up revenue inflow and stemming leakages.However, if raising IGR were that easy, governors of the northern states won't engagein the adventurism of seeking soft loans from Saudi-based Islamic Development Bank.
Previously most state governments neglected the collection of taxes as a critical source of internally generated revenue. Many outsourced IGR collection to their political cronies as patronage. Such indifference, reinforced by oil revenue from the Federal Account Allocation Committee (FAAC), translated to weak tax laws, weak taxation institutions lack of due diligence and impunity. Except for three states, the FAAC-IGR ratio in the remaining thirty-three states remained inversely proportional. In 2014, while Lagos State's annual IGR potentials were close to N250bn, Rivers N98bn; that of Enugu was N19bn; Anambra N10bn; and Zamfara N3bn. Now that the States have been compelled to look inwards instead of depending on federal windfalls, they must confront their challenges and institutional weaknesses.
IGR challenges can be categorized as deriving from five distinct sources. 1) The military era, when military leaders ruled by decree, eschewing ground norm legislation, especially laws on taxation. 2) The surfeit of revenue from oil, which made tax collection seemingly laborious and even unnecessary, since the problem was not dearth of revenue, but how to manage it. 3) The inability of the average citizen to link or appreciate the nexus betweenthe taxes he pays and social services and benefits accruing to him. 4) The broad disinclination of Nigeria's rich, poor, educated, illiterate and sundry to voluntarily fulfill their tax obligations as a civic responsibility and; 5) weak enforcement regimes and absence of punitive measures and agonizing reprisals, such as seizure and forfeitures of assets of tax defaulters and tax evaders.
Ironically, it is the Federal and State governments that unwittingly sanctioned and sustained non-compliance with taxation obligations through indifference. Only civil servants paid taxes in the real sense. Even banks and big industries in the organized private sector joined the fray of tax avoidance; many collect revenue from withholdings, interests and stamp duties but never remit the funds to the government. Also not remitted are VAT and withholdings from personnel wages. Tertiary institutions are also guilty of such practices. Until now, banks exploited the absence of the Treasury Single Account (TSA), which allows for consolidated and optimal use and monitoring of government revenue inflow and resources. Absence of the TSA translated willy-nilly to the misappropriation and mismanagement of public funds.
Lagos and Ekiti --both non-oil producing states -- must get credit for linking their fiscal resource needs to IGR from the onset,and going ahead to exploit the huge potentialities of their respective states. In contrast, numerous states relied solely on the largesse from Abuja, despite their endless lip service to IGR. Hence, eighty-five percent of Nigeria's thirty-six states hardly exceed twenty-five percent of their IGR capacity annually. Undoubtedly, the severe global drop in oil prices is catalytic to reviving the IGR drive nationally, provoking the attention IGR deserves as a fiscal wellbeing, capacity-building and a good governance tool.
The recent IGR reawakening notwithstanding, the overall infrastructure for generating IGR remains weak nationally and is still fraught with corrupt practices, particularly among revenue collectors.Ironically, wishes and media sound bites will not overcome the prevailing malaise. Neither will the demand for already scarce revenue abate instantly.
The weaknesses and factors that impede collection of IGR are identifiable and well known. The firstweakness relates to the belief that IGR is best realized by outsourcing collection to vendors and consultants. This is a fallacy since often, such vendors and consultants are dubious fronts for those in charge of revenue collection and politicians.
The second weakness is the multiplicity of IGR vendors, which translates to multiplicity of tax windows that result in vexatious overtaxing or double taxation. In many instances, the delineation of tax collection responsibilities between the federal, state and local governments are extremely blurred. The resultant loopholes are therefore easily exploited.
The third weakness and perhaps the greatest challenge to IGR collection, is the lack of political will to grant full autonomy to tax agents, especially the Board of Internal Revenue (BIR) or State Internal Revenue (SIR). More often than not, when these agencies seize on tax defaulters, chiefly the affluent ones, all it takes is a phone call to state governor or high-ranking political leaders, who in turn tell the heads of their tax collection agencies to go easy or to back off completely.
The fourth and fifth weaknesses are systemic. Fiscal responsibility and accountability call for frugality and doing more with less. But most states have been profligate, never believing that federal funding would ever drop as sharply as it has. A corollary has been poorly designed and implemented budgets, most with deficit overhang from the onset.
Also, the co-mingling of revenue jurisdiction and responsibilities, translates to lack of clarity and indeed overlooking of distinct collection niches --the formal tax; taxes from the informal sector and alternative new-era of e-payment platforms that are less prone to perfidy and pilfering. Each niche area requires distinct competencies and related platforms to be well-developed and supported.
The sixth weakness relates to lack of raw data and strictadherence to global best practices. Data includes demographics on those eligible to pay taxes. Number of eligible taxpayers, taxable properties and businesses, when properly linked with sustainable real-time platforms for capturing, retaining and tracking them, remain the backbone of IGR. Absent data on those within designated tax baskets, IGR remains a theoretical concept, which explains whyfederal and States' IGR capacities remain dismal.
The seventh weakness is the absence of trained tax personnel who are professional in their outlook and conduct. Proper tax assessments boost IGR. Those States that do not invest in recruiting the best qualified tax officers and training and building their capacities, cannot expect to maximize their IGR output.
The eight weakness relates to lack of inter-state reciprocity and collaboration. Part of revenue leakages relate to disjointed policies which force business operators to go forum shopping for states with lower IGR thresholds and tax codes, to obtain tax clearance certificates based on underassessment; even when they and their businesses are not domicile in those states. Such practices proliferate in vehicle registration, issuance of hackney permits and emblems, more so if emblems are not consolidated.
The ninth weakness is the resort to using touts and coercion to collect IGR. Civility demands otherwise and would yield higher revenue if public awareness programs are well deployed. States with functional revenue courts are in a better stead to realize higher IGR targets.Finally, glaring weaknesses exist in tax codes, and in coherence, coordination and compliance with tax policies. While tax laws may be complex, simplified collection formats and platforms enhance voluntary compliance. A uniformed one-page easy-to-fill tax filing form, possibly online, thus becomes imperative, as does a definitive and uniformed deadline for filing annual tax returns.
Potentialities of IGR remain high, if the right solutions are applied. While ramping up IGR is best wished for; realizing set targets is hard work. Every business has a bank account. If tax laws make it mandatory for bank withholding reports to be linked with Bank Verification Numbers, and for a copy of withholding report to be sent to Internal Revenue offices and bank customer simultaneously, it would enhance IGR accruals. If those whose taxes are deducted at source, including bank and investment withholdings know that they may be owed refunds, by the government, they will be inclined to file their taxes.
What is salutary is the recognition that most efficientdemocracies are sustained by taxes and other forms of IGR. We must remember that Nigeria did not shift away from oil. Rather market forces shifted oil away from the dominant orbit of Nigeria's revenue. Thus, Nigeria can make IGR its major revenue source, well beyond oil. It must, however, adapt to global best practices aimed at enhanced tax collection and not treat IGR as a chore or reward for cronies. It's all a matter of choice. But choice alone will be dubious, if the political will is absent
-Obaze, MD/CEO of Selonnes Consult, is a strategic public policy adviser, consultant and immediate past Secretary to the Anambra State Government.