By Gbenga Faturoti
Revenue refers to all receipts the government gets, including taxes, customs duties, revenue from state-owned enterprises, capital revenues and foreign aid. The 1999 Constitution grants taxation powers to the various tiers of government through which needed revenue can be raised to meet the assigned responsibilities.
The executive at various tiers of government in Nigeria is expected to put in place an appropriate legal and institutional framework to collect revenue in line with the provision of the 1999 Constitution. That is why at the federal level we have the Federal Inland Revenue Service, Nigeria Customs Service, Nigeria Immigration Service, Nigerian Ports Authority etc. The states have boards of internal revenue agencies and various ministries, departments and agencies assigned with the responsibility of collecting revenue due to the state. Likewise, the local governments collect rates and levies through suitable administrative structure.
Faced with fluctuating revenue from statutory allocations, the governments across the three tiers are developing and implementing strategies to increase IGR in order to meet recurrent and capital expenditure and rely less on borrowings. Most of the efforts are rightly targeted at the institutions responsible for collecting revenue. Concentrating too much on revenue that could be raked in within the shortest period possible, instead of a holistic evaluation of the revenue authority’s external environment and administrative structure, is one principal reason for the failure of most initiatives.
The amount of domestic revenue that could be mobilised in an economy varies according to changes in GDP, interest rates, exchange rates, consumer confidence and business cycles. A high degree of openness of the economy raises knotty issues of international taxation, such as transfer pricing, tax arbitrage and origin or completion of taxable transactions in foreign jurisdictions. High levels of inflation increase the propensity of taxpayers to delay payment of taxes. Lack of formality in economic transactions, unreliability of business records, and low levels of literacy make the enforcement of tax laws difficult.
The degree of informal players in an economy will determine the amount of domestic revenue that can be mobilised efficiently and effectively within the economy. A case in point is VAT. One may ask to what extent will the Federal Inland Revenue Service be able to raise appropriate revenue from VAT on electronics products, due to the high level of informality within the electronics market in Nigeria. How does the FIRS trace the transactions of operators in Alaba International Market and Computer Village in Lagos for imposition of appropriate taxes? Considering the degree of informality, can chairmen of internal revenue services in Lagos and Oyo states collect appropriate Personal Income Tax from market women in Apongbon and New Gbagi markets respectively? Despite having higher GDP than South Africa, our tax-to-GDP ratio is lower than that of South Africa. One way to enthrone sustainable IGR is to formalise the informal sector, which certainly is outside the purview of revenue authorities.
Fiscal policy defines the agenda for the revenue authorities. The level of budgeted government spending, debt financing and fiscal deficit determine the amount of taxes the revenue authority is expected to raise. Expansionary fiscal policies, high levels of national debt and debt servicing requirements, or fiscal crises, create strong pressures on revenue authorities to collect more taxes. They also create opportunities for mobilising political support for efforts to modernise revenue authorities.
Properly articulated revenue forecast, which mirrors the key external factors, provides the needed platform for reform and evaluation of the institution responsible for revenue collection. In Nigeria, revenue forecasting is perhaps the weakest link in the chain between tax structure and revenue collected. In some states, the forecasting exercise is done by a few individuals in the Ministry of Finance or Budget and Economic planning, who simply increase last year’s forecast or actual tax collections by next year’s assumed growth rate. In other instances, next year’s budget expenditures are estimated through call circulars to all the ministries, departments, and agencies. Expected borrowing and deficit financing are subtracted from total estimated budgetary expenditures, and the remaining amount is assigned to the revenue agency as next year’s revenue targets.
A revenue target without any basis or link to the state of the economy destroys the integrity of the tax system. Revenue forecasts based on sound verifiable factors and data is a useful benchmark for monitoring collection, stimulating effort, and measuring the performance of revenue authorities.
Gbenga Faturoti writes via firstname.lastname@example.org
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