EDITORIAL: Decline in States’ Internally Generated Revenue

revenue states

The fiscal condition of states in the federation has been highly deplorable for a very long time.

It appears to have worsened in the past two decades.

This has been caused by the increasing size of the bureaucracy and several other associated issues of the fledgling democratic dispensation that have pushed the expenditure of these subnational governments beyond the carrying capacity of their revenue bases.

In a report released recently by the National Bureau of Statistics (NBS), the Internally Generated Revenue of the 36 states and the Federal Capital Territory shrank by 11.7 per cent in the first half of 2020.

The figure stood at 612.87 billion Naira as against 693.91 recorded at the same time in 2019. A disaggregation of the revenue data shows that Lagos State accounted for 204.5 billion Naira of the total revenue which translates to 33.37 per cent.

This was followed by Rivers with 64.52 billion Naira or 10.54 per cent. The Federal Capital Territory (FCT) and Delta which generated N35.2 billion (5.74 per cent) and N30.8 billion (5.03 per cent) respectively occupied distant third and fourth places.

At the bottom are Gombe N3.78 billion (0.62 per cent), Adamawa N3.75 billion (0.61 per cent), Ekiti N3.20 billion (0.52 per cent) and Jigawa with N3.00 billion (0.49 per cent).

A closer look at these figures shows that the top four states accounted for 54.68 per cent of the total revenue generated by all the states.

The corresponding figures for the bottom four states is 2.24 per cent.

These statistics depict a lack of resourcefulness in the revenue base of the states. It also reveals the acute disparity in fiscal capacity of these second tier of administration.

This becomes particularly sad when the debt profile of the states is brought into the picture along with the dwindling federal allocation.

Most of the states cannot finance more than 5 per cent of their budgets from their Internally Generated Revenue.

This implies that the balance of 95 per cent or above are financed through Federation Account allocation and loans. Consequently, the states’ share in the total debt stock of the country has been rising steeply.

It currently stands at about 25 per cent. Suffice it to say that just like the federal government, the state budgets are characterised by high recurrent spending with little or nothing committed to capital formation.

This explains lack of capacity for economic and income growth which continues to put the states down on increased tax ability.

The information released by the National Bureau of Statistics also conveyed an expected message; that is, that the decline in revenue of the states in the second quarter (second half of the first six months under review) was higher than the first quarter (first half of the first six months under review).

This decline is certainly a fall out of the devastating pandemic which occasioned the shutdown of the national economy in line with the global trend.

The impact of this has already reflected on the economy that is currently undergoing an economic shock as expressed in growth contraction according to recent statistics.

Nevertheless, a look at the Part I of Schedule II of the 1999 Constitution of the Federal Republic of Nigeria reveals a fundamental flaw in ‘Tax Assignment’ in Nigeria.

It could be seen that all the resourceful revenue bases in the federation are within the exclusive jurisdiction of the federal government.

This includes import duties, excise duties, mining rents and royalties, petroleum profit tax, corporate income tax, value added tax and capital gain tax.

The states must be contented with income tax, gift tax, football pools and other betting tax, entertainment tax, land registration and survey fees, motor vehicle tax & drivers licence fees among others.

These taxes are characterised by low yield because of inherent inelasticity of those taxes occasioned by general underdevelopment of the states and the existence of a weak middle class in the entire country.

Expecting the states to generate enough revenue from these revenue heads will be asking for the impossible.

This declining revenue trend should serve as a warning to the states that it is not business as usual because their respective budgets will underperform due to inadequate finance.

READ ALSO: Revenue from FG not enough to develop states — Wike

There is the need for them to minimise prolificacy in Recurrent Account. They should cut down on general wasteful spending.

This is also the time for them to ensure that allocation to capital spending is released not only on time but also committed fully to the projects as appropriated.

The reduction in revenue should not be used as an excuse to overtax the people either through unnecessary surcharges or additional tax impositions.

This will further deepen the already precarious condition of the people.

The states should be more resourceful in generating local funding without unduly burdening the people.

About the author

Ihesiulo Grace

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