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NGF: Worsening Insecurity, Currency Depreciation Affecting Business Environment, Taxable Income


The Nigeria Governors’ Forum (NGF) at the weekend declared that the worsening insecurity in the country and currency depreciation were taking a toll on the business environment with the attendant negative impact on productivity and taxable income.

The NGF also alluded to the perceived weak social contract between citizens and the government, saying it continues to threaten the legitimacy of taxation.

The Director General, NGF, Mr. Asishana Okauru stated these in Abuja, at a workshop organised by the States’ Fiscal Transparency Accountability and Sustainability (SFTAS) Programme Coordination Unit of the Ministry of Finance, Budget and National Planning.

In a presentation titled, “Improving Internally Generated Revenue (IGR): Trend and Emerging Reforms”, Okauru observed that Nigeria was still recovering from a combination of adverse fiscal and macroeconomic conditions which had exerted strong pressure on the fiscal sustainability of governments at national and sub-national levels.

Okauru, who was represented by the Senior Programme Manager, NGF/SFTAS, Mr. Lanre Ajogbasile, stated that the adverse fiscal pressure had been primarily due to over dependence on Federation Accounts Allocation Committee (FAAC) transfers which are constantly threatened by the increasing volatility in oil prices and mounting subsidy payments.

According to him, “the impact of this has been exacerbated by long years of increases in government permanent expenditures arising from increased cost of governance, new minimum wage and rising debt service.”

The COVID-19 pandemic, he pointed out, also impacted government spending, economic activities and invariably government’s internally generated revenue, adding that states and FCT IGR shrunk by 2.1 per cent (N28.15 billion) between 2019 and 2020.

The NGF Director General stated that the Organisation for Economic Co-operation and Development (OECD) had in 2019 estimated Tax-to-GDP ratio in Nigeria at six per cent. When compared with the average for 30 African countries according to the OECD Revenue Statistics in Africa 2021 report, Okauru stated that the number stood at 16.6 per cent.

He stressed that examples of Tax-to-GDP ratio in other African countries analysed included Ghana (13.5 per cent), Niger (10.1 per cent), Egypt (14.2 per cent), DR Congo (8 per cent), Kenya (17.3 per cent), Uganda (12.1 per cent) and South Africa (26.2 per cent).

Okauru, further stated that average tax effort (tax-to-GDP) of Nigerian states stood at 2 per cent, citing the NGF 2018 data.

“Worsening insecurity and currency depreciation is affecting the business environment and consequently, productivity and income to be taxed.

“Tax revenues are essential for state governments to maintain fiscal sustainability given the boom and bust cycles the Nigerian economy experiences “The structure of the Nigeria economy reflects a predominance of the services sector which accounts for nearly 55 per cent of the GDP for Q4 2021. Unfortunately, economic activities under this sector still suffer low productivity and wages,” he said.

Based on the 2017 GDP record for 22 states, he explained that the Service sector accounted for 54 per cent while Agriculture and Industry accounted for 23 per cent each, respectively.

Okauru stated that the poor employment record, 33 per cent unemployment rate for full year 2020, and estimated 35 per cent for full year 2021, reflected low productivity and the absence of a strong manufacturing base.

“According to the 2017 data, only three and four states out of the twenty-two states that reported data on gross domestic product had an agriculture and industrial base that accounted for up to 20 per cent of economic activities in their states,” he said.

Total number of registered taxpayers (States and FCT) was estimated to reach 35 million persons 2019/2020, which was about 50 per cent of total labour force of 70 million persons, he said.

The NGF DG put the states’ ministries, departments and agencies (MDAs) annual revenue growth rate at a total of 34 per cent between half-year 2020 and 2021 half-year.

He further explained: “Other Taxes and Direct Assessment recording the highest growth year-on-year at 82 per cent, 74 per cent and 71 per cent respectively.

“Some states that showed remarkable growth included Sokoto State (6,824%, NGN7.5m to NGN519.5m in Direct Assessment); Niger State (1,951%, NGN1m to NGN2.07bn in MDA revenue); Jigawa State (157%, NGN1.4bn to NGN3.8bn); Kogi State (728%, NGN444.8m to NGN3.6bn in Other taxes); Osun State (376%, NGN53.3m to NGN253.7m in other taxes), and the FCT (604%, NGN2.6bn to NGN19.4bn in Other Taxes).”

He listed some factors that influence the tax potential and effort as the structure and size of the economy, including human and natural resources, adding that the amount of revenue collection would depend on the tax effort of tax administrators, institutional capacity and technology adoption.

“Tax performance can also be influenced by policy decisions in adopting tax laws, tax policy/regulations, the level of education of tax collectors, tax morale, the quality of government institutions (including the level of bureaucracy, skill and corruption).

“The social contract between the government and its citizens – represented by the quality of public services and the public’s willingness to pay or evade taxes.

“Based on NGF’s taxpayer perception survey 2021, many informal sector workers question the notion that tax authorities have the right to make people pay taxes,” he stated.

According to him, only 13 per cent of taxpayers fully trust tax officials, while 83 per cent are likely to evade tax payments

Misunderstood tax law(s) and incomplete revenue codes, multiplicity of taxes, fees, levies and charges, and poor collaboration between the states internal revenue services (SIRS) and identity management ministries were listed as issues and challenges affecting the tax system.

Also listed were weak transparency and accountability by government and SIRSs. departments and agencies, multiplicity of taxpayer identification systems, institutional capacity constraints due to inadequate funding and professional staffing to deliver on mandate, as well as lack of standard operating procedures and processes guiding operations of SIRSs and their zonal/area offices.

Others were proliferation of private contractors/consultants for same revenue items, weak collaboration between states and local governments on joint collections.

Despite these challenges, Okauru pointed out that over the years, states have made steady progress in reforming the tax environment and system to improve IGR.

Some of the efforts, he listed, include the adoption of Treasury Single Account (TSA) and Cashless Policy, collaboration between the state, local governments and in-state revenue generating MDAs.

States, he stated, now publish annual budgets and audited financial statements to promote transparency and accountability in line with SFTAS’ Disbursement Linked Indicators (DLIs).

He also listed the implementation of citizens’ budget and citizens’ accountability report, passage of Consolidated State Revenue Codes across 26 states to address multiplicity of taxes.

SIRSs, he added, were being granted financial and administrative autonomy to enable increased capacity in delivering their mandate, even as there was an increase in technology adoption for revenue monitoring and collections – enabling online payment of taxes, fees, levies and charges.

Other measures are improved collaboration between SIRSs, trade unions and associations, engagement of mobile money agents for informal sector revenue collection, where the SIRSs lack reach.

However, he noted that this was done under a performance contract and driven by a technology-enabled process to ensure transparency

He cited the establishment of tax appeal tribunals to improve turnaround for closing out tax disputes and the passage of consolidated state revenue codes by states to address multiplicity of taxes, implementation of a structured tax relief in response to COVID-19, and the prohibition of tax consultants for the assessment and collection of Personal Income Tax – where the SIRS has competence and reach.

To boost the IGR drive in states, he said there was the need to strengthen the perverse social contract to build tax legitimacy, increase technology adoption, promote administrative efficiency and harness the new shadow economy (online businesses).

He also prescribed the need to resolve the conundrum around Stamp Duty and Value Added Tax (VAT) and to also ensure certainty around tax laws.

He equally proffered other measures such as the consolidation of identity management systems for tax purposes, strengthening taxpayer enumeration, land reforms and Geographic Information System (GIS), as well as the strengthening of property taxation.

Culled from THISDAY

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