Governors and tax collection concessioning

The resolution by governors to stop the practice of contracting tax collection to private firms is a positive development amid the current economic crisis occasioned by the COVID-19 pandemic. If sincerely implemented, the resolution can help to boost the states’ revenue and make governance more transparent, given the suspicions and alleged underhand dealings associated with the contractual arrangement. In particular, the states will face the challenge of upping the quantum of revenue accruable, while ensuring that the gains are not lost to compromised internal mechanism.

The developments potentially portend well in relation to the structure of tax collection in the various states across the country. At a recent Internally Generated Revenue (IGR) National Peer Learning Event in Abuja, the Federal Capital Territory, the Chairman of the Nigerian Governors’ Forum, Dr. Kayode Fayemi, the governor of Ekiti State, indicated that state governors have resolved to stop contracting collection of taxes to consultants due to the huge and largely unsustainable commissions usually paid out to them. According to Fayemi, the governors consider this new posture very compelling given the poor state of finances of many of the states. It is noteworthy that there has been a sharp decline in state government revenues, particularly during the COVID-19 pandemic era with the situation seemingly worsening with the onset of a second wave and another economic recession. These developments appear to have compelled the governors to take this tough stance in the economic governance of their states.

The release of the 2020 half-year, year-on-year IGR performance report for the 36 states in the federation as well as the Federal Capital Territory has shown that there was an overall negative growth of about 11.7 per cent in IGR except for a few states such as Ebonyi, Gombe and Yobe which recorded positive growth. This clearly indicates that for the great majority of the states, their level of IGR has been dwindling. This is taking place at a time when the available money for sharing at the monthly Federation Accounts Allocation Committee (FAAC) meetings has been dwindling due to challenges in the global oil market. Despite the release of the 2019 and 2020 Finance Act after their signing into law by President Muhammadu Buhari, revenue has been a challenge to all the tiers of government in the past few years and even way back.

The collection of taxes in Nigeria is known to have some challenges commonly found particularly in a developing society such as Nigeria. First, many of the taxable adults and corporate entities, particularly in the informal sector do not pay tax. Often times, even when the taxpayer is willing and able to pay, the cost of compliance becomes a serious obstacle to the tax collection. For those that pay taxes, the incidence of multiple taxations exist. Challenging issues inappropriate tax administration that require serious attention in the enhancement of tax revenues are not peculiar to Nigeria. They abound in most of the developing world, particularly in sub-Saharan Africa. Hence, in trying to address these challenges, instead of pursuing appropriate reforms in the tax administration process, many governments especially at the sub-national levels abdicate their responsibilities and resort to the use of tax consultants to help in the collection efforts, thus leaving many of the staff in the internal revenue departments of their states virtually redundant. That is not the global best practice. By this arrangement, outside consultants now take over official tax collection functions while the government officials snooze away.

The use of tax consultants often leads to the unnecessary bleeding of state resources. It also creates room for official corruption as many of them are mere agents of past governors or are directly owned by them. These circumstances create a lot of hue and cry among many stakeholders in these states given the general perception that these consultants actually are as rich as the state government themselves and thus are instruments used to finance cronies to political office and eventual control of the society through distortions in the ballot box. It can be observed that many states have contracted their revenue-collection duties to consultants despite having a well-staffed internal revenue collection agency. Allegations flying around are that the tax collection agents or consultants use their position to siphon money from the state coffers through unethical charges or commission that negates the original purpose of tax collection for the enhancement of the public good.

The state governments need to look inwards in addressing their revenue challenges. First they need to institute appropriate peer review mechanism through experience sharing on IGR enhancement so that their states can be better funded. They would need to jettison the use of the shylock tax collection consultants and fully engage their internal revenue agency staff to minimise costs to the states. The effect of using these consultants can be seriously damaging to the polity. These consultants have been used as conduits to extort money from the states through the humongous incomes they supposedly earn. The Governors’ Forum should “walk the talk” and ensure that their decision in the use of these consultants are implemented in the overall interests of the states in which they govern.