As the new minimum wage kicks off in no distant future, governors have devised means to improve the internally generated revenue of their states.
Desperate times they say call for desperate measures. Due to the dwindling oil prices in the international market, resources shared to states have reduced consideraby. Also last week the federal government recieved the report of the tripartite committee on the new minimum wage which proposed N30,000 as the new minimum wage. With this on the cards, the financial burden on states will increase as most of them are even struggling the pay the 18 thousand.
It is instructive to note that government need to a least triple revenues to play a stronger role like in other emerging countries .The country’s low revenue base has been one of its major impediments to achieving an effective fiscal policy framework. Unlike the national government, state spending declined as the resource pool contracted. Total expenditure for the 36 states and the FCT fell from N4 trillion in 2014 to N 3.4 trillion in 2016 before picking in 2017 to N3.7 trillion.
Suffice to say, falling out prices have slowed economic growth and cut government revenues.Although the country recorded mild recovery in 2017, budget deficit have continued to rise and there is a consensus on the need for fiscal consolidation. States have initiated measures of fiscal consolidated but these refos are unlikely to be adequate to ensure medium -term fiscal sustainability and intergeneration equity.
To solve this quagmire, the Nigerian governors forum last week at its 2018 National peer learning event titled mobilising domestic finance for development in Abuja brainstormed on the way forward.
In his goodwill message at the event, Director general of the NGF, Asishana Okauru stated that in the last three years, Nigeria has experienced a combination of adverse fiscal and macroeconomic conditions that have exerted strong pressures on the fiscal sustainability of governments.He contended that the 2017 recovery was mostly as a result of the rebound of oil prices it was also due to the positive IGR growth in 33 out of the 36 states, as total IGr grew from N821 billion in 2016 to N936.5 billion in 2017.
He added that the peer event will focus on the link between raising domestic revenues and development- in the light of three theme-estimating the tax potentials of states, incentivising health financing bright tax for services and how to address multiple taxation by establishing a consolidated tax code. He said the emphasis is to identify the extent to which domestic financing leads to improved service delivery and better social outcomes.
In his speech at the event, Kwara State governor, Abdulfatah Ahmed said as the nation prepares for a new minimum wage law which is expected to put even greater strain on states finances, it is incumbent on all the stakeholders in the governance of states, to strike the necessary balance between the economic and social coats of generating increased internal revenue through taxes, fees, levies and fines.
According to him” As we are all aware, there exists an intrinsic lino between taxation, public welfare and good governance. A government’s capacity to enhance general well being and provide other indices of good governance is directly related to its ability to muster adequate resources to meet it’s obligations.
“No state or nation can hope to prosper without a robust taxation system to provide enough revenue to fund recurrent expenditure, people oriented programme and critical public infrastructure.
“While several states including Kwara have recorded significant improvements in their internal revenue,a review of national and states performances real there is considerable room for improvement. For instance, Nigeria’s tax to gross Domestic Product (GDP) ratio which measures the difference between GDP and tax revenue, stands at six percent and ranks among the lowest on the continent. Among states, a report by by the Economic Confidential suggests that states were considered insolvent based on IGR receipts.
“In its 2017 annual states viability index (ASVI) Economic Confidential rates states on the basis of IGR to federation account allocations (FAAC) ratio. It is found that more than half of the states in the country are insolvent because their internal revenue is below 10 percent of federated revenue. It concluded that without federal allocated revenue many states cannot meet their necessary obligations.
“Taken together, these two facts alongside fluctuations in federated revenue on account of dwindling oil revenue underline the urgent need for states to mobilise alternative revenue for development,he stated.
Speaking to reporters at the sidelines of the event, Edo State Governor,Godwin Obaseki noted that states cannot improve their internal generated revenue (IGR) if there is no economic growth saying one of the key drivers of economic growth is infrastructure.
He stated “When you build roads, schools, hospitals, things that aid and enable businesses, you begin to see economic growth and as people do well, income goes up and businesses grow, then you have a basis to levy taxes which you will now has to improve the state.
When asked how he generates revenue through agriculture,he replied “ agriculture is still a nascent industry, I mean it’s just growing and at the early stages government is putting in subsidies, so we have to wait a while for agriculture to begin to grow and do well to a viable business area before we begin to tap.
During the event, Kaduna State governor, Nasir El-Rufai has said minimum wage should be done by each state according to its level of income.
Contending that personal income tax should be collected by the states, he stressed the need to make adjustments to the constitution so that some items can be removed from the legislative list.
Responding to a question on why Personal income tax should be given to states, he said “I agree with you completely that in a federation there should be taxes that are national while others are sub-national.
“But if you look at our history you will see that we come from civilian-military regimes and many of these personal income taxes Act were done by the military.
“Just like for instance I do not agree that national minimum wage should be under the federation, I think minimum wage should be done by each state according to the level of income.
“If you look at the 1963 constitution, minimum wage was not in the inclusive list, it was added during the military rule.
“There are number of laws that were enacted during the military rule and there is a need to look at them and do something about them.
According to a background presentation at the event ,key issues in improving revenue include “ raise tax efforts of states, currently at less than 3 percent tax to State GDP, improve revenue forcasting and IGR budget performance of states from an average of 60%, diversify IGR sources from a high dependence on PAYE, averaging near 60% and even higher for some states and improve IGR reporting, particularly MDA revenues.
Consequently “There is a high potential to increase state revenues ,recent results for some states show that tax potentials are achievable, MDAs should have a structured approach for estimating and reporting their IGR in line with a harmonised law, templates suggested are indicative of different structured approaches availablefor use and it is important to have an established review system for the formal budgeting process.