Fiscal Efficiency Towards Internally Generated Revenue

The ongoing global financial crisis which has extended to every part of the world has worsened the regional, national and global economic environments. This has a significant negative consequence on the economic activities of the state governments as the economy witnesses not only drastic fall in standard of livings, but also amplifying the poverty level since governments are financially incapacitated to discharge their mandates to the states.

This prompted agitations by state governments for the review of Revenue Allocation Formula in their favour and their local governments purposely to meet their financial obligations. The call for the review has triggered a new phase of reply from the Chairman of the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), Engr. Elias Mbam that the states should supplement their various shares from the Federation Account through diversification of their Internally Generated Revenue (IGR).
Following this, states have explored various strategies including imposing multiple taxes on the masses and private entities to augment the Internally Generated Revenue. This in turn has generated a lot of heated debates, controversies and unexpected protests from both individuals and local industries.

It is worrisome that the state governments, except Lagos could hardly depend on their Internally Generated Revenue as they heavily rely on the monthly allocation from the federation account for survival. Just as we always emulate the developed economies in almost every sphere of our daily activities, it would have been logical enough for the state governments not to deprive themselves of studying and exploiting revenue generation affairs of such economies and develop their various states aggressively in such manner as to increase the standard of livings of the people.

Meanwhile, in the developed world, especially Britain and United States, states are mostly found receiving little percentage from the federation account and depend majorly on IGR in financing both annual capital and recurrent expenditures. Consequently, the citizens and companies have taken regular payment of tax as an obligation. While failure to observe tax dutifully results to sanction, punishment or imprisonment in spite of the position or personality of the person or entity concerned.

It is very vital to note that effective and sustainable fiscal administration can only be realized through improved billing and collection procedure, exemption policies with particular attention to the removal of subsidy that currently benefit more affluent households, progressively higher charges for relative expenses, effective revenue rising policies, equal resource allocation to the peoples in the states and local governments; restoration of fiscal discipline, honesty and accountability in collection of tax and other duties; workable technical capacity in revenue generation; sufficient legal framework for tax regime and most especially creating an enabling environment for investment by private sectors.

In Nigeria states, the user charges are mostly exceeding the cost of providing the service; the situation which has so far resulted not only to deficit in the states’ annual financial estimations, but backpedalling their growth and development. The user charges must equate or fall below the marginal cost of providing public services such as healthcare, education, housing, water supply, road, rural electrification, transportation.

Subsidy must be eliminated from most social sector projects in the states if durable fiscal efficiency is to be achieved since subsidy would mark another era for shortage and unnecessary diversification of funds needed to transform the states positively. It would be a welcome development, if the state governments avoid free charges on some states’ services. Imposing free or low levy on some of the states’ services such as education, healthcare, would not help to provide for the masses needs, but will lead to inadequate and poor delivery in provision for the states’ facilities.

It would be a welcome development for each to identify its potentials and take profitable advantage over them. For instance, the state governments in riverine areas can diversify in fish farming using modern fishing techniques such as vessels, fishing gear, sonar, sounding equipment, satellites, remote sensing. These have been successfully used in Australia to increase the efficiency of fishing. To achieve this individual must be adequately educated on the use of the new technology through workshops and seminar.

Many governments have blamed the low IGR in their states on the fact that most of the headquarters of the industries sited in their states are located in commercial centres like Lagos, Kano and Port-Harcourt. However, should that be the case, it would be economical enough for each state to put in place enabling environment to attract individuals and boost commercial activities like that of Lagos state.

Besides, in farming communities, local government areas could establish cassava, yam, cocoa yam, potato, banana farms including plantain plantations. The commercial cultivation of these food crops would not only enhance food production but also turn out to be a genuine source of revenue generation.

Governments should emphasize on other internal means of revenue generation such as markets taxes, public conveniences, shops and kiosks rates, death and birth registration, naming of streets, levies, wheelbarrow and cart fees, canoe fees, sewage and refuse disposal fees, customary and burial ground permit fees, signboard and advertisement permit fees, among others vital means of revenue generation. Some councils have made provisions for speedboats and vehicles as internal means of transportation which are good development.

The principal idea behind Internally Generated Revenue (IGR) is to collect the proper amount of tax revenues at least cost in a manner that guarantee the highest degree of public confidence in state governments’ integrity, efficiency and fairness. To achieve this, they will encourage and achieve the highest possible degree of voluntary compliance with the provision of tax laws and regulations. They must learn to explore and comply with statutory provisions for tax and revenue generation Personal Income Tax Act (PITA), of 1993 among others.

There is an urgent need to put in place effective and credible tax administration such as State Board of Internal Revenue Service (SBIRS) for timely and regular revenue collection; and the board must solicit for the individual and corporate entities support toward tax collection. This can also be achieve by exploring realistic reinforcement scheme such as the remittance of 10% for compliance and timely payment should be made available for both individual and corporate organisations.

Giving adequate incentive scheme for compliance and timely payment will not only help the State Internal Revenue Board to reduce the expenses which it would have incurred in revenue collection, but also will energise  both individuals and corporate entities  towards prompt and voluntarily payment.


Jimoh Abubakar
NYSC Member writes from
Revenue Mobilisation Allocation and Fiscal Commission (RMAFC)

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