BusinessDay
Nigeria's leading finance and market intelligence news report.

In four charts, why Nigerian states need more fiscal autonomy

The journey to true fiscal federalism in Nigeria took a bold leap last month after a Federal High Court in Port Harcourt ruled that the Federal Inland Revenue Service (FIRS) should not be responsible for collecting VAT in Rivers State.

The Port Harcourt ruling came at a time when states had been clamouring for more resource control in a bid to have more economic control over their affairs as Abuja faces dwindling revenue and higher debt service ratios.

Data compiled by BusinessDay show why states must wake up, challenge the status quo and the government on true fiscal federalism.

Poor IGR may cripple 8 states if FG allocation stops

An Annual States Viability Index (ASVI) sourced from the National Bureau of Statistics (NBS) comparing the IGR of each state with its Federation Account Allocations (FAA) shows that eight states have a poor IGR of less than 10 percent.

States generate IGR through Pay-As-You-Earn Tax (PAYE), Direct Assessment, Road Taxes and revenues from Ministries, Departments and Agencies (MDAs).

Read Also: Here are the top five states with the highest foreign investment in 2017

For instance, Bayelsa State received a combined total of N152 billion from the Federation Account Allocation (FAA) in 2020, however the state was only able to generate an IGR of N12 billion, which means the state generated 8 percent of total amount received from the federation account.

What this simply means is that Bayelsa with its oil-production advantage cannot survive without the federal allocation.

Other states that cannot survive without federal allocations include Jigawa, Katsina, Adamawa, Yobe, Niger and Taraba, whose IGR are all less than 10 percent of the federal allocations they receive.

Lagos, five other states generate more IGR than 30 states combined

Data compiled by BusinessDay also show IGR of Lagos State of N418 billion is higher than that of 22 other states put together whose IGR are extremely low and poor compared with their allocations from the Federation Account.

Lagos remained steadfast in its number one position in IGR among the states with a total revenue generation of N418 billion compared with Federal Allocation of N115.93 billion, which translated to 139 percent in the 12 months of 2020.

It is followed by Rivers State that generated IGR of N117 billion compared with its allocation of N198 billion, representing 58 percent; Ogun with N50 billion compared with allocation of N88 billion, representing 57 percent; Kaduna with N50 billion compared with allocation of N124 billion, representing 40 percent; Oyo with IGR of N38 billion compared with allocation of N127 billion, representing 29.7 percent, and Anambra generated N28 billion compared with allocation of N94 billion, representing 29.6percent.

The total IGR of the six most viable states in 2020 at N695 billion was more than the entire IGR collected by the remaining 30 states put together, which was less than N508.5 billion.

Uneven economic distribution in regions

Data from NBS also show an uneven economic distribution among Nigeria’s geographical region led by the South West.

Followed closely by the oil-rich South-South region of N263.2 billion while North Central, North West, South East, and North East regions recorded IGR of N181.6 billion, N146.7 billion, N96.7 billion and N56.8 billion, respectively.

Most analysts say the reason for the skewed and uneven economic distribution is because of the low level of commercial activities in the Northern part of the region unlike other regions.

Late last year, Boko Haram terrorists invaded farmlands in a village in Borno State and massacred over 67 farmers. In many other parts of the North, activities of bandits and terrorists have scared farmers out of their farms.

Unequal VAT distribution

Efforts by BusinessDay to track the latest data of how much VAT was distributed and generated by states proved abortive due to lack of public data. However, Rivers State governor, Nyesom Wike, shared some insights on how VAT was distributed for the month of June, a situation that reflect the current discordant tunes over resource allocation.

According to Wike, Rivers generated N15 billion VAT revenue in June this year, but got N4.7 billion in return, while Kano generated N2.8 billion in the same month and got the same N2.8 billion back.

The governor also said N46.4 billion was collected from Lagos State in the same month but the Federal Government gave Lagos N9.3 billion.

 

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