Juxtaposition of States’ fiscal position, Taxes and its implications

It is noteworthy that for the most part of the last two decades, most Nigerian States have become overly dependent on the statutory allocations from the Federal Government. As far as financial sustainability is concerned, many of these States have become seemingly complacent, with a good number of them barely generating even 20% of the figures of their allocations from the FAAC in internally generated revenue (IGR) figures. This trend has become more saddening in recent times especially because the narrative has been changing in a few quarters as more State governments have now started looking inwards.

For Lagos, their strength lies in the actively commercial boisterousness and a continuously evolving tax system while States like Ogun, Benue and Kano rely on commercial activities that stems from Agriculture, Commerce and Industry and other states like Delta and Rivers rely on the bounty from natural resources available to them. This article intends to examine the budget of some selected States, comparing their recent performance in terms of capital and recurrent expenditure while espousing on how feasible the implementations of this budget is, given the availability of potential resources.

As expected, Lagos State has the largest budget size at NGN852.13 billion followed by Akwa Ibom, Rivers, Ogun and Delta. The numbers are depicted in the graph below:

top five states budget
Top five states budget in millions

Lagos State has been quite tenacious about taxation while other States rely on natural resources, agriculture, income from port authorities and other non-fiscal sources outside the federal allocation. All the States being examined here except for Delta have a larger percentage of their budgets tilted towards capital expenditure. This shows traits of development as we know capital expenditure induces employment and builds local capacity depending on the mode of execution of the projects and how integrated the masses are to the project. We however would agree that there is always a huge disparity between the predicted budget and the actual performance of Nigerian States.

In spite of the promise shown in terms of its budget last year, Lagos State failed to realize more than 70 percent of its budget and even dropped to the 4th position while Rivers leapfrogged to the first position thanks to its continuous crude oil deposits and sizeable share of natural resources which gives it a huge federal allocation. Delta and Akwa-Ibom also share a similar position while Ogun State lies somewhere midtable with its major source of revenue from Agriculture and a fair share of foreign direct investment.

It might also interest you to know that the States in consideration here have also been top performers in the last year in terms of economic performance and Internal Generated Revenue (IGR) capacity. Lagos State tops the chart with Rivers State following from a considerable distance, closely followed by Delta and Ogun state and Akwa-Ibom finding a slot at the 8th position.

Lagos State has made a remarkable statement in terms of taxation, and despite having little or no natural resources, it continues to outperform other States in times of revenue generating abilities thanks to its pertinacious renaissance in taxation. It continuously reinvents different kinds of taxes, although its major contribution has been the Value Added Tax (VAT) thanks to the teeming population residing in the state. Interestingly, as a country, Nigeria has improved relatively in terms of VAT remittances and the graph below shows the remittances recorded in 2018.

Natural resources fluctuate, and foreign direct investment is unpredictable. Taxation remains one of the most sustainable ways to finance budget and if States are going to get out of debts anytime soon, then the fiscal system might need an all-around renaissance.