The controversy over who has right to collect Value Added Tax (VAT) between federal and state governments has again exposed the vulnerability of some states economically. While some states have shown capacity to be self-sustaining from internally generated revenue (IGR), others are largely dependent on allocation from the federation account to carry out basic duties such as monthly payment of salaries of public workers.
In exclusive discussions with our correspondent, economic experts suggested ways for state governments to enhance IGR and depend less on the dwindling allocations from the federation account.
Though the Federal Inland Revenue Service (FIRS) has appealed the Federal High Court judgment on VAT and personal income tax (PIT) collection, the expectation is that revenue flows from the federation account will shrink if the judgment that cedes VAT and PIT collection to sub-national governments is eventually implemented. Some of the experts said either way, state governments must look inward to raise more funds and depend less on federation accounts.
Lead Consultant/CEO of 2612 Consulting & Professional Services, Peter Adebayo said state governments need to prioritize the diversification of their economies while highlighting the huge potential in tax revenue, another major source of financing state projects that had suffered neglect for decades.
Adebayo said the way out for the state governments to build a sustainable economy is to embrace the reality of running a productive, diversified and less dependent economy. “This can be achieved by going back to the drawing board and working out modalities for harnessing the various natural resources available in each of the states to stimulate and enhance real sector development, which will ultimately lead to creation of jobs and resultantly reduce rural urban drift.”
In that same regard, former commissioner for finance in Imo State, Prof. Uche Uwaleke said as a measure to enhance higher revenue generation, states must embark on massive taxpayer education before tax drive; and get the state assemblies to approve a comprehensive list of all taxes and levies by the state via a revenue law, which is made available to the public.
“Upgrade the State Internal Revenue Service, including granting reasonable autonomy (State Exco); train and re-train staff of IRS and implement a special remuneration package for revenue officials. Develop an electronic database of taxable persons in the State (IRS).
“Strengthen the state bureaus of statistics to be able to provide relevant data such as number of hotels, educational institutions, hospitals, commercial vehicles, categories of workers in the state, etc.
“Centralize revenue collection to avoid multiple taxation. Implement a central billing system (MOF, IRS),” Uwaleke said.
An economic and financial analyst, Stephen Kanabe stressed the need for governments to deal with the issue of insecurity, invest in agriculture by leveraging on technology and imported expertise and invest more on capacity building for their citizenry. His belief is that state governments can attract the needed local and foreign direct investments if the enabling environment is created, thereby creating the platform for more tax collection to the government.
In line with the recommendations of Prof. Uwaleke, Kanabe who is also a chartered accountant opined that the solution is for sub-national governments to operate Treasury Single Accounts to view daily revenue inflows; clean up their payroll system through biometric capture of civil servants and pensioners; implement a contributory pension scheme and periodically rotate directors of finance & accounts in all government establishments.
“The key thing is to deal with insecurity, have a business friendly tax system, make the state attractive to investors, put more funds on capacity building (especially information technology) and ensure public confidence by ensuring that available resources are channeled to impactful projects. Then, you can be very sure to have the support of the public in payment of taxes,” he stated.