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Concerns over Lagos’ increased IGR target to fund budget

By Gbenga Salau
16 January 2022   |   3:04 am
Despite being a sub-national entity, the Lagos State government made a bold statement with its N1.758t fiscal budget for 2022, which is the biggest ever appropriation by the state.

Governor Sanwo-olu. Photo/FACEBOOK/ jidesanwooluofficial

State Must Go Hyper-digital To Fix Loopholes, Gaps In Tax Administration–Adeduntan
• Tax Burden, Levies, Fees, On Businesses Becoming Unbearable – Yusuf

Despite being a sub-national entity, the Lagos State government made a bold statement with its N1.758t fiscal budget for 2022, which is the biggest ever appropriation by the state.

 
And just as the budget is the biggest ever by the state and any other sub-national entity in the country at that, the state is also bracing itself for the task of generating massive Internally Generated Revenue (IGR) to fund the budget. 
  
The Commissioner for Economic Planning and Budget, Mr Sam Egube, while providing summaries of the fiscal expenditure christened “Budget of Consolidation,” described it as a landmark budget in the history of the state both in size and texture.
 
“The approved Y2022 Budget of ₦1.758trn made up of ₦1.167t Capital Expenditure and ₦591.281bn Recurrent Expenditure, resulting in a Capital to Recurrent ratio of 66:34, which is strongly in favour of Capital Expenditure,” Egube stated.
 
He added that the total revenue is estimated at ₦1.237t, while the deficit-funding requirement is ₦521.275b, which at 21 per cent of debt service to total revenue, is within the fiscal sustainability benchmarks of 40 per cent. 
  
The commissioner further said that of the total revenue of the N1.23t, the IGR is expected to contribute N980.654b.
 
An analysis of the expected IGR to fund the budget showed that the state needs to generate N81b monthly on average. 
  
Meanwhile, sometime last year, Egube, while providing a breakdown of the 2021 budget disclosed that the state targeted N723.8b IGR to finance the 2021 budget. This implied that the state needed an average of N60bn monthly to meet the year-long target.
 
But the Quarter and half year statistics by the National Bureau of Statistics (NBS) revealed that the state generated N127b and N267.23b in Quarter One and a half year respectively in 2021. 
  
Also, a breakdown of NBS statistics revealed that the state generated N44.5b monthly. If the state had met its monthly IGR target, at the end of Quarter One, it should have generated N180b as IGR, as against N127b. 
  
It should have also generated about N360b as IGR in the middle of the year, as against the N267b, which it did.
 
Also, speaking at the 149th Joint Tax Board (JTB) meeting in Lagos, the Commissioner for Finance, Rabiu Olowo said: “I am pleased to let you know that Lagos State has grown its IGR from N600m monthly, in 1999, to over N45b monthly as of today.” 
  
If the N45b monthly IGR figure is multiplied by 12 months, the state generated N540b in 2021, as against the N723.8b, which is projected. This implies that the target was not met by about N183b.
 
With the state unable to meet its monthly N60b IGR target in 2021, many are worried about the implications of raising the bar to about N81b in a bid to fund the 2022 budget. 
  
In 2021, the state realised N535bn as IGR. It hopes to generate N980.6b in 2022. 
 
For Dr. Terfa Abraham, an economist and public policy analyst, raising N81b monthly from IGR towards effectively funding the 2022 budget is a realistic goal.
 
“This, however, will be premised on the assumption that macroeconomic conditions that favour business and entrepreneurial operations remain favourable,” he said.
 
On the likely impact that the raised IGR target would have on taxpayers, Abraham noted that it would have a neutral effect on them provided the focus is to expand the tax base by bringing in new taxpayers into the tax net, block leakages, and avoid multiple taxations. 
 
 
“The result of this would be more revenue to fund projects, which in the medium term would translate to positive outcomes for residents by way of access to better amenities, and quality service delivery from the government.
   
“Even though there was a 25 per cent shortfall in the 2021 IGR target, the climate for higher IGR barely recovered from the adverse effect of COVID-19 on the state’s economy. Amidst hopes of higher economic growth and global economic recovery, attaining the projected N81b IGR in 2022 is therefore feasible,” he explained.
  
Abraham added: “Avoiding multiple taxations would also be important, as well as ensuring that there is a great reduction in the number of days it takes to start a business in Lagos. Citizens’ engagement on the budget and Lagos State Development Plan would also be important. The continuous enlightenment of citizens to understand the nexus between the state’s budget and its development plan serves as a gateway to achieving Sustainable Development Goals (SDGs), and for delivering a better quality of life to the people of Lagos.”
  
Also speaking on the implication of the increased IGR target for 2022, the Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Mr. Muda Yusuf, said it would heighten the probability of increased pressure on investors in the state for revenue. 
   
Yusuf, who is former Director-General of the Lagos Chamber of Commerce and Industry, also stated that already the burden of taxes, levies, fees, and charges on businesses was becoming unbearable. “And these demands are coming from all levels of government – federal, states and local governments. Different regulatory agencies also make numerous revenue demands on businesses.” 
  
Yusuf, nonetheless, suggested that all the taxes and levies should be streamlined and harmonised in the interest of the Ease of Doing Business policy of the government.
   
Also commenting on attempts to jerk up the monthly IGR target to N81b, the Social Mobilisation Manager, ActionAid Nigeria, Mr. Adewale Adeduntan, said: “The economic implication is that it will decrease the level of investment if the commensurate infrastructure is not provided. Consequently too, a tax increase will result in a decrease in the level of investment and job losses. Taxation is negatively related to investment and the output of goods and services (Gross Domestic Product) and is positively related to the government’s income. 
 
 
“Also, taxation is a significant factor that influences investment, GDP, and the government’s expenditure. Based on this, the Lagos State government should use taxation to provide gender-responsive public services and infrastructure that will reduce operational costs to enhance economic growth and development.”
  
He, however, added that it was not a crime to have a forecast of targets that are attainable in resource mobilisation drive, even though the state must be mindful of the mood of the nation before imposing more tax liabilities on individuals and companies.
  
The government, he stressed, must play its part well, by way of budget performance and provision of economy-stimulating infrastructure.
   
To improve its IGR compared to last year’s target, he said: “Lagos State must go hyper-digital to fix all loopholes and gaps in tax administration. The informal sector must also be brought into the tax bracket by way of getting them enticed to willingly pay their taxes. This is only possible if they see what taxes collected are spent on among others.”
  
“No one should be exploited. To increase tax revenue, Lagos State and other jurisdictions should also not rely on increasing consumption taxes because this has often resulted in more regressive tax systems, and created more inequality. The progressivity of tax systems determines whether small farmers, slum-dwellers, people with disabilities, women, and other marginalised groups over-contribute to national tax revenues in comparison to large companies and wealthy individuals,” he said.
  
Giving his perspective on the issue, the state Commissioner for Information and Strategy, Mr. Gbenga Omotoso, said that the state hopes to greatly improve on its IGR by expanding the tax net, exploring opportunities in the informal sector, transport, as well as the real estate sectors. 
  
“And do not forget that there is also a case at the Supreme Court on Value Added Tax (VAT), and if the case succeeds, it would be a major input,” he maintained. 
 
Asked to comment on the disparity in the expected 2022 total revenue and IGR figures as well as measures to prevent undue aggression by MDAs’ field officers, who may be hell-bent on meeting IGR target, Omotoso promised to get back to The Guardian after consulting with the Commissioner for Economic Planning and Budget. He is yet to get back as at press time.