States and the renewed drive for IGR

IT is obvious that the state governments are feeling the brunt of the current economic slowdown in the country as many of them are not able to pay salaries and are barely existing as ongoing government entities. This is essentially because, except for the clear exception of Lagos State, all the states are mainly dependent on allocation from the centre to survive, as they are not able to generate any appreciable internal income. Indeed, many have contended that the problem with the federal structure in Nigeria is the lack of autonomous existence by the states in the form of sustainable internally generated revenue (IGR). It is therefore understandable that many states, in the light of the current economic squeeze, have started to concentrate on how to shore up their IGR, with many of them introducing new forms of taxes and levies in order to do this.

We appreciate the renewed interest of the state governments in driving their own existence by relying on IGR, as every government should necessarily survive and be dependent on the outcome of the productive activities of its own people which usually manifests through taxation. This is one realisation that should guide the activities of state governments in Nigeria rather than the perennial reliance on the monthly handout from the federal purse. Yet, it is important for the state governments to appreciate the fact that this renewed interest in IGR has to be pursued as a platform for the expansion of the productive activities in order to generate more income rather than be seen as an attempt to increase revenue no matter their productive capacities.

It is, of course, the case that the tax nets in Nigeria and in every state are spectacularly deficient in capturing all eligible tax payers as governments in the country do not have all the needed information to ensure that this is done. Nigeria is particularly bereft of data on virtually anything as the country does not know the number of its citizens and is not able to determine the number of them involved in productive activities. The implication is that at every point, there are gaps in the coverage of any aspect of life in the country, such that no government is sure of how many people should realistically be paying taxes to it. This is the situation at the heart of the corruption that defines and nurtures the tax system in Nigeria as it allows the tax operators to play games with the government.

Without adequate data, it is not difficult for tax operators to manipulate what individuals should pay, and indeed which individuals should even be paying which taxes at any point. The state governments would, therefore, be on point by working to remove the distortions in the tax system, to ensure that all those who are to pay taxes are captured within the tax net and are made to pay the expected and appropriate amount. The renewed interest in IGR should indeed be about making sure that individuals do not corner what should go to the government coffers and that those who should pay taxes do not dodge such payments. This is the obligation of government and it should be seen to be doing this in order to ensure that citizens fulfil their own obligation of sustaining governments by paying their taxes.

Unfortunately, it would seem that rather than do this, state governments have been concerned more with seeking to bridge their income gaps by imposing all kinds of taxes and levies on hapless citizens. In many states, tax operators are competing among themselves in determining who could come up with more new tax initiatives, such that citizens end up paying multiple taxes for the same processes or on the same items. Indeed, in some instances, taxes are imposed without regard to the actual production in any enterprise, with the government already imposing targets of revenue to be met. In the end, these indiscriminate taxes have the potential of killing the enterprises as businesses would normally fold up if they are overburdened with tax. What began as a drive for more government revenue could then end up depressing the overall income, as government would not be able to tax these enterprises going forward after using taxes to kill them.

Governments that are sensitive use tax as an instrument to ginger up production within their economy with the aim to expand the tax regime only by expanding economic and business activities. This is what should underpin the current drive for more IGR by the state governments and not an unconscionable desire to impose all kinds of taxes on the citizens. State governments would not see any appreciable increase in IGR in the long run if businesses start to fold up because of the avalanche of taxes. We would therefore advise that the drive for IGR be tempered by an appreciation that taxes and revenue to government would rise only when economic activities rise, such that states governments are not seeking to increase IGR when economic activities are going down. Imposing unnecessary tax burden would only further depress the economy and lead to lower IGR in the end.