IGR Is Not a Sprint Race; Nigerian States Need Visionaries -By Oluseun Onigbinde

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Oluseun Onigbinde

Oluseun Onigbinde

 

I’ve written this whilst gazing at the Cocoa House; it is a stark testimony to the sense of vision from those who imagined a 25-storey building when no such structure existed on the continent. There was a continuous approach towards sustainable revenue generation in governance, as from the days of Awolowo to Akintola who finally commissioned the building, 50 years ago. They saw beyond themselves in milking the gains for the future and they had all the incentive to do so, with the vibrant business competition prevalent between the regions in-country and continent-wide. Having exited this space, their legacy stands tall and it is a testament of what is possible if we think beyond the contribution from a space less than a tenth of our landmass.

Recently, I was at the DAWN Commission Headquarters for the second time to discuss possible partnership opportunities with BudgIT. For those not in the know, the DAWN Commission was set up by a cohort of the six South-West states as an initiative to frame, implement and manage the Development Agenda for Western Nigeria, hence the acronym DAWN. Quite notably, its offices are situated in the historically significant Cocoa House in Ibadan, Oyo State, which was once the tallest building in tropical Africa in the 1960s. This is my second time in the 25-storey building and on the two occasions, I took time out to take long looks at the city of Ibadan from its 10th floor. I asked myself both times that, if cocoa money could do this, what then is the big deal about oil?

When Nigeria, in the quest for cohesion, started the unitary system of government in 1966, we did not anticipate the sudden rush of oil revenue. Now, our country is in a position where as soon as the monthly oil revenue dips or ceases, most states and even the entire federation are in fiscal crises.

I would like to explain three steps that are crucial on the journey to expanding Internally Generated Revenue across the country. A caveat for any perpetual seeker of quick-returns reading this: kindly note that raising the IGR is not a sprint race, so if a state governor thinks all fruits will ripen in four years, that would most likely be an erroneous assumption.

Ex-President Jonathan’s oft-maligned scenario of the goat and its appetite for yams, in close proximity though incomplete, tells an instructive story. One cannot base revenue collection systems around people and expect monies not to be stolen. Once revenue collection is not effectively automated with funds coming through a technological portal, waste will be the norm, rather than the exception. Therefore a State government should be able to achieve an accurate audit of all the taxes due to it and find an efficient means of ensuring remittance.

Revenue efficiency mechanisms

The first discussion is the efficiency of Nigeria’s current revenue generation, disbursement and accounting mechanisms. Ex-President Jonathan’s oft-maligned scenario of the goat and its appetite for yams, in close proximity though incomplete, tells an instructive story. One cannot base revenue collection systems around people and expect monies not to be stolen. Once revenue collection is not effectively automated with funds coming through a technological portal, waste will be the norm, rather than the exception. Therefore a State government should be able to achieve an accurate audit of all the taxes due to it and find an efficient means of ensuring remittance. A typical bus driver in Lagos State pays tax on a daily basis, but to agberos – an informal system, yes, but in this instance, taxation of the people happens right before our eyes every day, yet none of the benefits are felt by the people. The market women and men, roving sellers who have to pay a token, are collectively being taxed a wholesome chunk of revenue that should accrue to the state, and ultimately the people.

..an automation of our revenue mechanisms is possible. All that matters is the political will to kickstart and sustain these measures in the long term.

What if these taxpayers are able to swipe their ATM cards against a machine, with their records stored intact in an online database system? What if they could start a day by walking to and paying at a mobile bank of sorts, where tellers are ready to compute their taxes into the state’s coffers, as done for the rest of us in formal jobs? A lot is possible, including the potential for schemes like this to be resisted by our civil service, which enjoys entrenched conventional systems, even when they are not working and are susceptible to manipulation, but an automation of our revenue mechanisms is possible. All that matters is the political will to kickstart and sustain these measures in the long term.

Formalise SMEs

Without formalising SMEs, hoping to capture them into the tax net is an exercise in futility.

The second approach is the formalisation of businesses, to ensure that there is an adequate approach to calculating the right dues of the state. Most of Nigeria’s businesses still lack a formal structure for the remittance of taxes, with the vast majority of these small scale businesses falling under the informal status. How many one-man businesses in local shops remit Pay As You Earn (PAYE) taxes? This will remain the status quo without the comprehensive labour legislation that sets not just standards, but also clear-cut parameters for formalisation processes, as well as the enablement of enforcement agencies to impose sanctions and criminal terms, if need be. Without state governments embarking on an aggressive business formalisation drive to adequately raise Value Added Tax (VAT) and other taxes, the potential to raise IGR will remain stunted. A quick run through of the Nigerian Bureau of Statistics shows that out of the 469,070 jobs created in the first quarter (Q1) of 2015, 71 percent of these jobs are in the informal sector, majorly small businesses. What taxes do Nigeria’s states take from them? This is why states must liaise tangibly with the Corporate Affairs Commission (CAC) if they aim to adequately rework their books to derive revenue. Without formalising SMEs, hoping to capture them into the tax net is an exercise in futility.

Create wealth, to tax it

It is important that wealth must exist, in order to tax it. That’s why a state governor must think through how to expand the income structure of the State; more often than not, this is inextricably linked to the citizens’ capacity to earn and spend. Accordingly, the industrialisation of a state is the quickest way to create jobs, which can bring income for all. Therefore, finding new businesses to achieve this is necessary, while creating a business-friendly environment for existing firms so they can raise more income and therefore pay more tax is compulsory.

It is impossible to inculcate the idea of taxing the citizens so rigorously, without a willingness to be accountable. There has to be stronger communication to citizens on issues of transparency concerning state revenues. Citizens won’t willingly pay taxes unless government understands that it owes citizens explanation of how receipts are spent.

A state must critically assess its endowments, ascertain its human and natural resources to expand revenue and speedily go on to find ways to build an industry around it. For example, why can’t a South-West governor take a Private-Public-Partnership (PPP) approach towards the setting up of a chocolate or cocoa processing plant? This will also include expanding opportunities for smallholder farmers to connect to the value chain. Every state can explore its unique potential in tourism, technology or in building the infrastructure that brings manufacturers running. Business are the engines of jobs and that has to be the priority which must be adapted for any government needing to find additional revenues.

However, raising IGR comes at an another cost that feels like an anathema to most state executives, from what we have seen. It is impossible to inculcate the idea of taxing the citizens so rigorously, without a willingness to be accountable. There has to be stronger communication to citizens on issues of transparency concerning state revenues. Citizens won’t willingly pay taxes unless government understands that it owes citizens explanation of how receipts are spent. Morally and criminally reprehensible practices like hiding budgets, contracts and audited statements have to stop, and through mass media, citizens must have an idea of their own, as well as government’s role in achieving a better life for all.

We need leaders who see beyond a four-year election cycle. We need visionaries truly interested in the people, ready to invest in the long-term financial health of the states they swear to lead.

I’ve written this whilst gazing at the Cocoa House; it is a stark testimony to the sense of vision from those who imagined a 25-storey building when no such structure existed on the continent. There was a continuous approach towards sustainable revenue generation in governance, as from the days of Awolowo to Akintola who finally commissioned the building, 50 years ago. They saw beyond themselves in milking the gains for the future and they had all the incentive to do so, with the vibrant business competition prevalent between the regions in-country and continent-wide. Having exited this space, their legacy stands tall and it is a testament of what is possible if we think beyond the contribution from a space less than a tenth of our landmass.

Though it will be ill-advised to abruptly stop the routine handouts of revenue to States in Abuja, but that is what will incentivise states to think deeper, and move towards more financial independence from oil; it is time we began taking that path. We need leaders who see beyond a four-year election cycle. We need visionaries truly interested in the people, ready to invest in the long-term financial health of the states they swear to lead.

Oluseun Onigbinde is the Lead Partner of BudgIT, a civic organisation pushing transparency and accountability in Nigeria.

 

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