Earlier in the day, one of our national dailies published a striking headline:
“State Salaries Rise by 90% to #3.8tn; 27 States Depend on Federal Allocation to Pay Salaries; Plan 6.259tn IGR.”
A closer examination of this concerning report reveals that seventy-five percent (27 out of 36) of Nigerian states rely entirely on federal allocations to pay their workers’ salaries. This means only nine states (25%) can meet salary obligations without total dependence on federal funds—an alarming statistic.
A pressing question arises: How do these twenty-seven states finance capital projects and infrastructure development? Unfortunately, many roads remain in a deplorable state, healthcare facilities are inadequate, and potable drinking water is scarce. Given the rising population, the demand for essential infrastructure is greater than ever, yet financial resources for these projects are lacking. The heavy reliance on federal allocation for salaries raises doubts about the ability of these states to independently fund critical infrastructure for their citizens.
Read also: Edo Internal Revenue Service assures Okpebholo of generating N120bn IGR annually
Another area requiring urgent attention is the expansion of alternative power sources and rural electrification. Additionally, modernizing the agricultural sector from subsistence farming to a more mechanized and sophisticated model is crucial for economic sustainability.
At this stage, it is imperative for the government to think innovatively and explore alternative revenue sources. The outdated practice of over-reliance on federal allocations should be abandoned, as demonstrated by economically robust states like Lagos, Rivers, and the Federal Capital Territory (FCT).
The need for diversification in Internally Generated Revenue (IGR)
The urgency of diversifying IGR cannot be overstated, especially given the nation’s economic challenges. A sharp decline in crude oil revenue, fluctuating exchange rates, high interest rates, and soaring inflation have exacerbated Nigeria’s financial difficulties. To break free from this financial strain, states must proactively develop internal revenue streams rather than waiting for federal allocations before meeting salary obligations.
Understanding Internally Generated Revenue (IGR)
Internally Generated Revenue (IGR) refers to all income sources available to the government from within the country, as opposed to external sources like loans, grants, and donations.
“To break free from this financial strain, states must proactively develop internal revenue streams rather than waiting for federal allocations before meeting salary obligations.”
Key Components of IGR:
Dividends: Income generated from government investments in companies.
Rents and Royalties: Periodic payments for the use of government-owned properties or resources.
Interest Income: Returns on funds lent to individuals or corporations.
Fines: Monetary penalties for regulatory violations.
Fees: Payments for services rendered by the government.
Taxes: Mandatory contributions by individuals and businesses to fund public services.
Sales of Goods and Services: Revenue from government-owned enterprises.
Levies: Compulsory charges imposed by governing bodies.
Other Revenues: Funds raised from auctions, grants, and donations.
Read also: Ogun de-emphasises IGR, to fund N1trn budget with other revenue sources
Challenges in generating IGR
Despite the potential benefits of IGR, several challenges hinder its effectiveness. Corruption among revenue collectors, coupled with self-aggrandizement by officials, undermines transparency and accountability. Additionally, an overreliance on a narrow range of revenue sources has led to suboptimal IGR performance. Inaccurate population data and an inefficient tax collection system further hinder revenue tracking and management at all levels of government.
Strategies for enhancing IGR
To address these challenges, governments must adopt innovative strategies to strengthen IGR collection. A diversified revenue strategy is essential to reduce overreliance on taxation. Alternative revenue streams—such as optimizing natural resources, fostering industrial growth, and leveraging technology—must be explored.
A more inclusive tax system should be implemented, expanding both the tax base and tax net to ensure broader participation. Currently, a small fraction of the population bears the tax burden, while many businesses and individuals operate outside the formal tax system. Policies should encourage tax compliance through simplified payment processes, business incentives, and strict but fair enforcement measures. Strengthening transparency and accountability in tax administration will further build public trust.
Governments must also aggressively invest in revenue-generating assets. Revitalizing public enterprises, developing strategic infrastructure such as toll roads and ports, and fostering public-private partnerships (PPPs) will create sustainable financial inflows. Additionally, innovative financing models—such as municipal bonds and sovereign wealth funds—should be explored to stabilize revenue streams.
An efficient IGR system requires bold economic reforms, improved governance, and digital transformation in revenue collection. By curbing financial leakages and fostering a business-friendly environment, states can build resilient economies less susceptible to external financial shocks.
Strengthening revenue collection processes
To further enhance IGR performance, a fully automated revenue collection system should be implemented to eliminate leakages. Accurate record-keeping will facilitate better auditing and financial scrutiny. Moreover, manpower training and capacity development for revenue collectors should be prioritized. Strict enforcement of sanctions against erring revenue officials will deter corruption and improve compliance.
Read also: Abia seeks improved IGR from hospitality sector
The Benefits of a Strong IGR System
A well-structured IGR framework ensures:
Increased financial resources for essential infrastructure projects.
Reduced dependency on federal allocations, thereby improving financial stability.
Enhanced government accountability and transparency in resource allocation.
Greater economic growth and national development.
By embracing these strategies, Nigerian states can transform their revenue generation capacity, ensuring long-term sustainability and improved public services for their citizens. The time to act is now.
Kingsley Ndubueze Ayozie KJW, FCTI, FCA–a Public Affairs Analyst and Advocate of Good Governance writes from Lagos.
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