The South West region formerly the pacesetter in revenue generation has in recent times found itself among laggards in this area. How did this happen? How did the region lose its pride of place. What can it do to reverse the trend? SULAIMON OLANREWAJU interrogated these issues.
At its peak, the Yoruba nation was the envy of others. It was the centre of commerce, the heartbeat of manufacturing, the reference point for construction and the model for farming. The people were not only energetic, they were exceedingly industrious and the government harnessed the people’s industry to build a pool of wealth which made the Yoruba nation tower above its peers. With its full engagement in wealth creating activities, the nation was able to champion many developmental efforts in the country. The first housing estate in the country was the creation of the Yoruba nation. So were the first skyscraper, the first modern stadium, the first television station, and the first industrial estate, among others. So great was the stride of the nation that it was the first to pay living wages to workers in the country. Even when oil was discovered and the states had to file to Abuja to get allocation, the Yoruba nation was still able to combine the revenue from the centre with that generated locally to make the life of every citizen of the region the dream of those from other regions.
But the glorious days seem to be in the past for the Yoruba nation because these days, as a consequence of the falling price of crude oil which resulted in the reduction of money that accrues to the Federation Account, many of the states in the South West region of the country find it difficult to meet their avowed obligations. Only two of the region’s six states are up to date in salary payment. One of the two paying states is even said to be behind in remitting deductions made from workers’ salaries.
According to a report by Economic Confidential, only Lagos and Ogun states appear viable among the six states in the South West region going by the internally generated revenue (IGR) of each of the states. The report says in 2015, Lagos States generated N268,224,782,435.23 internally, which is 150.2 per cent of the N178,549,361,363.13 it earned from the Federation Account. The import of this is that without the monthly handout from the federal purse, Lagos State can run its affairs. Ogun State’s IGR was N34,596,446,519.2 in 2015 and this was 57.6 per cent of its allocation from the Federation Account, which stood at N60,070,767,635.93. so, the state can also manage to survive without the allocation from the government at the centre.
But not so the remaining four states in the region. Oyo earned N15,663,514,824.73 in 2015 as IGR but this was merely 18.6 per cent of the N84, 044,983,198.03 it got from the Federation Account in the same year. Ondo, an oil producing state, made N10,098,000,000 from IGR in the year under review. This was just 14.1 per cent of its federal allocation of N71,491,617,166.92. Osun, in 2015, generated N8,072,966,446 internally, a mere 12.2 per cent of the N66,005,570,597.93 it got from the Federation Account. Ekiti’s IGR in 2015 stood at N3,297,707,703.96, which was just 6.5 per cent of its earning of N50,460,337,004.42 from the Federation Account.
From the foregoing, it is clear that the states with their heads above the waters financially are those that have been able to generate IGR in excess of their wage bill. Those with poor IGR are the ones struggling to pay workers’ wages and are unable to embark on meaningful developmental projects. In Oyo State, workers are said to be owed about six months’ salaries. In Osun State, the government owes about six months salaries although efforts are being made to pay half salaries to the workers subject to availability of resources. Ekiti is also said to owe five months salaries while Ondo’s debt to its workers is in the region of seven months.
Journey to insolvency
Many of the states are today struggling because of the wrong decisions of the past. In the immediate past, the states were swimming in unearned money, a situation that forced many of the helmsmen to embark on a spending spree. Just in September 2013, all the three tiers of government shared N1.19trillion. That was humongous money for each of the states but they failed to do much with it. As the unearned revenue from the Federation Account grew, the states increased their expenditure to the extent that there was usually not much left for wealth-creating activities after the distribution of the money from the centre.
Speaking on this matter, Dr. Austin Nweze, a lecturer at the Lagos Business School, said the governors failed to understand that the money from the centre was not meant to be consumed; but meant to be invested in activities that would lead to revenue generation.
His words, “States are not supposed to expend the money they get from Federation Account on consumption; the money is supposed to be invested in commercial activities and infrastructure that would increase their ability to generate resources. The governors have always operated like most commercial drivers who, because they earn money on a daily basis, hardly save. Their slogan is ‘I will get more money tomorrow.’ Unfortunately that is the attitude of most of our governors. That is why they spend money as if it is going out of fashion. They squander the resources meant for the development of their states. Unfortunately, now that the free money seems to be scarce, they have thrown their people into untold hardship.”
Nweze explained that what happens in many of the developed countries is for revenue from natural resources to be deployed for the development of other sectors. But many of the states have failed to do that.
Speaking in a similar vein, Professor Adeola Adenikinju, Director, Centre for Petroleum Economics and Energy Law, University of Ibadan, said he and some other people had been talking about the inevitability of the crash of crude oil price for years without anybody paying attention.
“For the discerning,” he said, “the crash of the price of crude oil was just a matter of time. It is something that is bound to happen. The reason is simple; the world has been on the lookout for cleaner energy for a while. A lot of resources have been expended on researching on cleaner energy. So, we have known all along that it would come to this and we have been advising governments to invest money from crude oil sales in other sectors so that we can have a buoyant economy. But the ease of making money from oil and the convenience of going to Abuja every month to collect money from FAAC gave the governors the impression that the oil money would last forever. But now we all know better.”
The Professor of Energy Economics said the governors have to change their views about revenue from the centre and develop ways of generating funds internally to avoid running their states aground.
South West states and IGR
In the past, the strength of the South West was its ability to raise IGR. Money came from every angle because there was a preponderance of companies in the region. From manufacturing to food processing, vehicle assembling plants etc. Oyo State had Leyland Motors, Exide Battery, Nigeria Wire and Cable, NIPOL Limited, Standard Breweries, Worldwide Insurance Company, Cooperative Bank, Trans International Bank, Oyo State Paper Mill, Sketch Newspapers, Monitor Newspapers, Trans Nigeria Assurance Company, Askar Paints Limited, Niger Match, Yanatty Flour Mills and United Beverages Ltd, bottlers of Dr. Pepper, among others. But all of these companies are now extinct and in their place there are shopping malls and stalls. The narrative is the same in many of the states in the region. Not only did these companies pay taxes and levies while they were in existence, they also had in their employ, workers who paid taxes to the state government, all of which contributed to the generation of robust IGR by the states.
So, one of the factors that have contributed to the dwindling IGR in the state is the decline in commercial activities by corporate bodies in the region.
South West governors determined to increase IGR
Faced with dwindling revenue from the centre, state governors have been taking the issue of IGR very seriously.
While presenting the 2016 budget estimates to the state House of Assembly, Governor Abiola Ajimobi, who noted that the state was merely able to achieve 36.26 per cent of its IGR target of N37,755,415,500 as it only managed to generate N13,691281,229, said, “I am glad to announce that we have embarked on a major restructuring of these agencies. In this regard, we have effected major reforms of the State’s Board of Internal Revenue Services. With this development, it is expected that our IGR will substantially increase by about 400%, that is, from N1.2b to about N5 billion per month in the coming year. This is a daunting task, but we believe it is achievable.”
Similarly, Osun State hopes to increase its IGR to N5billion monthly.
According to the Chairman, Osun Internal Revenue Service (OIRS), Mr Dayo Oyebanji, “In the last few months, we have seen steady growth in number of tax payers, which ultimately will translate to significant increase in value.
“Within the next two months, we should comfortably be on N2billion. The target of the government is N5 billion per month and that is the only time the government can say, we don’t need Abuja to survive.
“When Governor Aregbesola came into office, the state was generating about N300 million monthly, inclusive of the state PAYE, that means, effective inflow from other sources at that time was barely around N100million.
“With the system that we have put in place, like the Revenue Administration Law, the blockage of leakages, the automation of revenue collection that now makes all revenue go to the coffers of the government, the revenue first moved to N600 million and at a time when there was oil boom, it moved to N1.5 billion.
“Therefore, because of the economic situation in terms of average, we are operating between N800million and N1 billion now. Our focus is to hit not less than N5 billion in the next few months.”
In Ondo State, efforts are also on to increase IGR. According to the chairman of Ondo State Board of Internally Generated Revenue, Mr Akin Akinsehinwa, the board has become proactive and dynamic and is looking at how it can generate more revenue.
Part of efforts to raise revenue is the vehicle registration exercise which the state started last year.
Akinsehinwa said, “We have just started enforcing the Land Use Act enacted by the Ondo State House of Assembly. We have informed the various landlords’ associations and stakeholders’ meeting had been held in that regard.
The chairman added that the state government had decided to set up a special court to try tax offenders.
“The era of tax evasion is gone and the era of aggressive tax drive is here; whoever that does not want a collision with government should exercise his/her civic duties,” he warned.
Last year, Ekiti State government made known its intention to put a new tax order in place in the state.
In a statement by the state governor’s Chief Press Secretary, Idowu Adelusi, the governor said, “A new tax order in Ekiti State is in the offing. This job is about you and I and we have no other place to call our own. We depend on taxes to survive and we depend on you. Let people go and pay to the bank and any indicted state worker will be appropriately sanctioned.
“We hope to double our IGR in six months. We must devise strategy on revenue generation and do it with sense. The state will employ spread cost strategy so that the impact of any levy will not be hard on the payer and the public at large”.
But while speaking on the resolve of state governments to raise their IGR, Dr Segun Aluko, a Lagos-based business analyst, said IGR is not just a matter of increasing taxes or levying citizens but a function of many factors, chief of which is the availability of viable and vibrant business entities in the state.
According to him, the IGR level of the states will not increase tremendously until there is an improvement in the quality of infrastructure in those states, adding that most of those who run the affairs of the states fail to realize that investment goes where infrastructure is provided.
He said, “Many of the governors, especially in the South West, will give an arm and a leg to drive investments to their states so that they can boost their IGR. But that will not happen unless they ensure the provision of infrastructure.
“Look at the state of the roads in the South West, which of the states can boast of good roads? Only Lagos and Ogun. Is it any wonder then that they are the highest IGR earners in the region? There is no magic about it. Investors put their money in areas where they will get high returns on their investment. This will happen if the cost of doing business is low. One of the factors that reduce cost of doing business is the provision of infrastructure.”
Nweze, apart from agreeing with Aluko on the provision of infrastructure as being critical to attracting investors to states, added that the governors also have to remove encumbrances to accessing land.
“There is not much an investor can do without land. But you find out that in most of the states, the difficulty that attend acquiring land for any purpose is similar to that of a camel passing through the eye of a needle. A piece of land that should not take more than two weeks to access takes forever in most cases. Then there is the danger of falling victim to ‘Omo Onile’. All these drive investors away from states. And the fact is that states will remain poor if all they depend on is what comes from the Federation Account.”
Nweze added that it is good that many state governments are thinking about diversification of their economies but they are going about it in the wrong way.
He explained, “With the dwindling revenue from the Federation Account, states are talking about embracing agriculture. That is good, no doubt. But embracing agriculture to what end? Is it to ensure food sufficiency or to ensure increased revenue? If it is to ensure food security, the approach they are deploying is okay. But if it is to increase revenue, they are going about it the wrong way. There cannot be increased revenue if we rely on primary produce. What will bring real money to the states is to process agricultural products into finished goods and that is industrialization. This brings us to the initial issues. Without adequate infrastructure, investors will not be attracted to a state. Similarly, without liberalizing the process of land acquisition with the aim of making it easy for those who need land for business purposes to acquire it, the investment drive of the states will meet with failure and that means they will not be able to generate enough resources to meet their needs.”
But a chartered accountant, who is also a Fellow of the Institute of Chartered Accountants of Nigeria (ICAN), Mr Taiye Adeyanju said state governments were not making the most of the tax opportunities available to them.
He said, “States in Nigeria are not generating enough revenue because they don’t understand the provisions of the tax laws for them to generate revenue. There are some tax laws they are not practising. I do not know of any state that applies the capital gain tax. They are not using professionals for revenue generation. The problem they have is that they keep on doing the usual thing; withholding tax, Pay As You Earn etc. There are other taxes they are not taking advantage of like capital gain tax and capital transfer tax. These are sources of revenue they are not tapping in Nigeria. For failing to activate taxes like capital gain tax in cities like Ibadan, Ogbomosho and Oyo, the state government is losing a lot of revenue.
“What it means is that when you are selling any property, anything that has long life span, a plot or a building, whatever gain you make on it, if you are an individual, your state government takes 10 per cent. If you are a limited liability company selling the property, the Federal Government takes 10 per cent.
“I just found out that in Oyo State, for example, I do pay my tax when they come for it; none of them has ever talked of capital gain tax. None of them has talked of capital transfer tax. But because they do not seek the views of experts, they will always be talking of withholding tax and PAYE. And these are just two out of so many they can use. And when they calculate the withholding tax, they don’t understand the computation. I have met some of them on the field. And because our duty is to make sure our clients are not over-charged, we have to tell them to go by the provisions of the law. Look at the way people sell land and property here, and the government of Oyo State is taking nothing.”
The chartered accountant also counseled states not to overburden those who currently pay taxes but should endeavour to widen the tax net to bring in as many people as possible.
The Lagos example
There is no doubt that Lagos State is a model of a self-sustaining state. The state has been able to generate enough resources internally to meet its obligations. The testimony to the success of the state in this respect is the decision of President Muhammadu Buhari to appoint Mr Babatunde Fowler, immediate past Chairman of the Lagos State Inland revenue Service, as the Chairman of the Federal Inland Revenue Service (FIRS) with the hope that he would reenact at the federal level the feat of turning Lagos into a state that can survive independent of federal allocation.
Lagos has been able to raise its IGR from a paltry N600million in 1999 to over N25billion by doing a number of things.
First, it increased the number of collection stations. By taking the collection stations closer to the people, the state was able to discourage tax evasion. The state also went a step further by plugging leakages in the system through the encouragement of direct payment to banks.
Then, the state improved the infrastructure in areas where the most revenue was generated. Lagos state was quite strategic about this. It created business districts and improved infrastructure in those districts.
To give tax payment a force of law and criminalise non-payment, the state in 2005, sent a bill to the state legislature seeking to reform the Lagos State Board Internal Revenue and its administrative arm, the Lagos Internal Revenue Service. The final step was to put in charge of the service a man who was bold enough to step on powerful toes. The result was an exponential growth in the state’s tax revenue.
If it worked for Lagos, it will work for other states.