Kunle Oladokun is a Chartered Accountant and Tax Consultant with vast experiences in IGR for government. He was part of the team that revolutionized the IGR system in Lagos State. His antecedents attracted the Cross River State Government to invite the firm he works in, DOC AA, to manage the state’s IGR. Recently, he bared his mind to BEN EGUZOZIE on critical issues affecting the nation’s economy. Excerpts:
Q: There is a general financial squeeze in the country leading to most states not being able to pay salaries to workers as and when due. What do you attribute this problem to?
A: Most of our States across the country depend solely on Federal Allocation Account to fund their recurrent expenditure including staff salaries. Predictably, the oil revenue has begun its decline at the international market, as technology innovations that seek to eliminate consumption of oil products is advancing. The total revenue accruable to the nation from sale of oil is determined by the price and quantity we are able to sell at the international crude oil market. That determines what is available to be shared among all the tiers of government, which has been on a continuous decline. Now the product life cycle of oil has reached its climax and, may not recover from its decline. It may eventually go into extinction just like coal. If you recall, coal was a major source of income for the nation. Unfortunately, it wasn’t sustainably managed, so it ceased to be a major income earner for the government. The reality at hand now for the three tiers of government is to wake up to generate revenue internally within their tax legislative jurisdiction. This will help to meet at least, recurrent expenditure such as salaries in the short run.
Regrettably, many States are yet to show the political will and financial support to their revenue collection machineries. Also, some states ran into the current financial crunch due to their lack of fiscal discipline. Some other states used their resources to fund the elections at the expense of other more competing priorities.
Q: Why are states broke?
A: This is closely related to the above question. A State can be said to be illiquid when current financial obligations such as salaries, short term creditors and trade creditors are falling due without being met as and when due. Reasons for this financial status are not far-fetched, namely: over-trading, fiscal and budgetary indiscipline, dwindling revenue allocation from the Central and poor internally generated revenue (IGR).
The call for a vibrant revenue collection system cannot be overemphasized, while the extravagant cost of governance must be avoided by our leaders. Taxation is the singular renewable source of funding. Expenditure needs to be targeted on development of manpower capacity and infrastructure that can enhance gross domestic product (GDP). That way, citizens’ earning and taxable capacity can be enhanced. In most developed nations of the world, government capital and recurrent expenditure are financed by revenue from taxpayers.
Our challenge here remains in the fact that taxpayers money is not deployed in a manner that brings value to the people. Taxes become more of exploitation than redistribution of wealth to the people. So, the circle continues. In Nigeria, the cost of doing business is huge. Again, many individual taxpayers cannot afford to send their children to our public schools because of the deplorable state of our schools. All of these erode taxpayers’ ability and willingness to fulfil their statutory obligations.
Q: Do you think there is a problem of financial mismanagement or funds misappropriation by some of our political leaders charged with the responsibility of managing the economy?
A: Prudent management of limited financial resources of the state will go a long way in meeting the needs of the people. The question is not about the amount spent, but to what extent such expenditure meet the expectations of the people, particularly with regards to providing social services. So, people need to know the budget size and structure, participate meaningfully in budget management. The question then would be whether government and the people get value for monies spent on the items in the fiscal document. Is there due process in the award of contracts? What impact does the project have on the people? For instance, what will be the use of a magnificent hospital structure commissioned in a rural community without skilled personnel to deliver health services? A change from the past is desirable by Nigerians now more than ever.
Q; A lot of states are in such financial dire straits so much that if they were private businesses, some of them would probably declare for bankruptcy. What needs to be done to forestall this from ever happening?
A: Governance is about stewardship, accountability and transparency. The nation’s wealth belongs to the people, and they will be more than willing to entrust more to the leaders when value is given to them. Public office managers must eliminate wastages, avoidable costs and corruption.
Q: Is it that the severe financial paucity in the country, particularly among states, is it due to the laziness of leaders to think creatively in terms of revenue generation, or is it leakages in the financial system, or that states are depending too much on the Federal Government for funds to run their states?
A: I don’t think it is about laziness. Our leaders are quite hard working. You need to see the work load of our governors. Issues about our States IGR borders on the political will, resilience and commitment to grow revenue. Many State governments look forward to FAAC to deliver services to the people. When such is not forthcoming in proportion to funding requirement, they fail.
Our leaders should not promise the electorate tax-free administration. It is not realistic. It is anachronistic. People must pay for public services through the tax they pay. People should take ownership of public infrastructure, and protect it because it is their money, and should hold leaders accountable. A case in point is Lagos IGR efforts. The political will demonstrated by Asiwaju Bola Ahmed Tinubu’s administration was the bedrock for the Lagos revenue revolution, as far back as the year 2000. That was the foundation of the massive development in Lagos. Even when the Federal Government held back its allocation, the state’s finances remained constant. Credit rate became so credible in the capital market just because internal cash flow was stable and growing. I think other States should take a cue from this sustainable Private Public Partnership IGR structure.
Q: Why is the IGR of states not enough to run their states?
A: The cost of running states is enormous, especially in payment of salaries and other recurrent expenditure. This is in addition to meeting the cost of developing infrastructure such as roads, power, health and schools among others.
Q: From the benefit of hindsight, what are the issues with IGR in the states?
A. Figures of IGR collection published by National Bureau of Statistics show the performance by States. A quick glance at the figures reflects that IGR capacity is closely related to level of economic activities, legal framework and political will power of each State. Lagos and Rivers States topped the ladder largely because of economic activities in those states. Further review shows a State like Cross River with higher figures to Akwa Ibom State is an indicator of commitment of the government, revenue strategy and its legal provisions. Again, we have issues with corruption within the entire revenue generating MDAs which poses huge challenges to the realization of optimum income.
Q: How can these challenges be addressed? What do states need to do, to reverse the current trend of going to Abuja with cap in hand begging the Federal Government for a bail out?
A: Given our level of development in the country, private public participation in revenue cycle management is inevitable. This will not only curb corruption, but also close capacity gap of professionals and experts. Furthermore, each State government must show good governance by the way of service delivery that improves welfare of taxpayers. Public enlightenment on statutory obligations goes beyond the ‘PAY YOUR TAX’ jingle, but must be by the display of government specific and impactful interventions in education, health, security, power and enabling business environment. This will not only justify need to pay, but also enhance ability to pay by the citizens.
Q: From your experience in being in the team that turned around taxation system in Lagos and Cross River States, how can states increase their IGR?
A: States can increase their IGR by considering the following options such as: ensuring checks and balances, promoting public private partnership, curb revenue leakages, show strong political will in dealing with issues of state revenue, additional job creation and attracting meaningful investments, as well as adequate controls and fiscal transparency and the employment of relevant information technology tools in revenue collection.
Q: Finally, what is the future of IGR in Nigeria?
A: Taxes and levies are the only sure way to go in funding public services. As the pointer oil resources dwindle, I see States getting innovative and efficient in revenue management structures. I see increases in state revenues, to the point of them funding both their recurrent and part of capital expenditures from taxes generated within the economy. I see states compiling integrated database of citizens’ income and expenditure that makes tax evasion difficult, and even impossible. I see states getting improved legal framework on taxes and levies that eliminate tax multiplicities. Our huge population as a nation offer great hope for investors, employment, which invariably, will boost potential for IGR realization.
