Nigerian states to depend on state tax for budgets

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The Nigerian government is to introduce an Internally Generated Revenue (IGR) scheme, beginning from the 2010 financial year. The main focus is to make IGR replace the Federation Account as the states’ main revenue source. The scheme would see Nigerians taxed on a state level, in order to fund state budgets.

At the recently held Nigeria Governors’ Forum in the capital city of Abuja, the governors spoke on the need to rely less on money received from the Federation Account and to instead institute taxes on a variety of things. The 3-day National Round Table Strategy Session on IGR was headed by the Deputy of the Nigeria Governors’ Forum Chief Joel Afolabi Ogundeji.

“Dependency on a mono source of revenue hardly develops the environment in a manner that taps the collective will of the people we govern. Apart from the need for sustainable sources of funding, we have to be ready to build a culture of hard work and enterprise such that people develop a sense of self worth and wealth creation that can be exported beyond the shores of Nigeria,” Dr. Bukola Saraki, a Nigerian state governor was quoted.

“This is the right time for states to source for alternative revenue to fund their projects. Though the international oil prices are on the rise, attention must be paid to alternative sources of revenue because oil prices could go down again,’ Saraki added.

Comrade Adams Oshiomhole, a Nigerian state governor, in a paper titled “Rebuilding Tax Payers’ Confidence: the Confluence between Good Leadership and IGR” said state governments must have the courage to impose taxes and judiciously use the proceeds.

According to reports, Nigerian commercial capital, Lagos has in the past ten years grown its IGR from N600 million monthly to N14 billion monthly. Analyst say the revenue is more than twice what the state receives from the Federation Accounts monthly.

“If the peoples’ votes count, they will willingly pay their taxes because they trust their leaders. But if the leaders are not the true representatives of the people, they will resist whatever tax imposition. They will tell you that we didn’t put you there,” Oshiomhole said.

According to Mr. Muhammad Yusuf of the Department of History Research and Archives in his research on tax policy in Nigeria, One of the major challenges of tax in Nigeria is the administration of tax. Even the current draft national tax policy suggested the use of tax consultants to collect revenues from government ministries and agencies.

This is a major flaw as the Pay As You Earn (PAYE) system does not give a true picture of performance. This is revenue that is collected at source with minimal effort and could easily be collected by government tax or revenue officials. Thus, the practice of including certain taxes (PAYE and other revenue deducted at source) within the government machinery as components of a revenue benchmark for tax consultants will not be a solution.

Compliance has always been a problem in Nigeria’s tax system. Even the current draft national tax document did not spell out clearly the compliance strategy. During the military era, the Tax Force Unit was used to enforce tax compliance. However, with democratic rule, this is not allowed and the use of the traditional court system is not only too cumbersome but also time consuming. To this effect, a bill for a tax court has been prepared by the state to replace the Tax Force.

The bill has been discussed at the cabinet level, and is currently being amended by the Ministry of Justice after which it will be presented to the National Assembly. When this bill becomes operational, it is hoped that compliance will be improved.

It is also imperative for government to consider taxpayers’ and other key stakeholders’ interests in fiscal policy formulation and implementation in order to achieve improved tax compliance rate in the country. In other words, since taxes are statute-derived, government should encourage far-reaching consultation across the broad spectrum of the economy in tax law formulation.

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