The concept of paying taxes, be it federal or state, is relatively foreign to many Nigerians. Unlike some parts of the world where almost everyone, regardless of their position or income pays some form of income/revenue/property taxes on a regular basis, taxes are only collected from some Nigerians and some businesses. Many argue that this reality contributes to a lack of political accountability on the part of officials and consequently, diminishes the impact of democracy on average Nigerians. But, just as important, the lack of a formal tax structure means that many state governments, like Kano State, over rely on the federal government for income and as such, the amount needed to cater to citizen's needs is limited. This is undoubtedly a serious problem during the current economic slowdown. However, the Nigeria Governors Forum has announced that come fiscal year 2010, state governments will begin to collect taxes from many more residents.
TAXES GENERATE MUCH NEEDED REVENUE
State governors are now committed to increasing their Internally Generated Revenue (IGR) as a way to create a relatively reliable stream of income that will help states finance its needs and withstand some of the fluctuation in the global economy and oil markets. Some states already have varied ways of generating income. For instance, in 2007 Lagos State achieved a GDP of N3.68 trillion ($29.028 billion) and according to Governor Fashola, the state's IGR grew from N600 million monthly to N14 billion monthly since 1999. That is more than double what the state typically receives from the Federation Accounts and was gained solely from te formal sector. The governor of Cross River State, Liyel Imoke, said his state's IGR increased from under N500 million per month in 1999 to about N6.5 billion currently.
TAXES & POLITICAL ACCOUNTABILITY
During the Nigeria Governor's Forum recently held in Abuja, Adams Oshiomole, the Governor of Edo State appealed to fellow governors to be responsible with revenues colllected via taxes. Specifically, he stated,
"If the peoples' votes count, they will willingly pay their taxes because they trust their leaders. But if the leaders are not the true representatives of the people, they will resist whatever tax imposition. They will tell you that we didn't put you there..."Oshiomole adequately addresses the issue of ownership that develops when individuals pay taxes and can voice their opinion on how their money is spent. The development of a state tax culture will likely embolden and empower citizens thus increasing the benefits of democracy and improving the political system. Oshiomole also went on to advocate that the wealthy should be taxed "heavily".
BUT, QUESTIONS REMAIN
While it is good to learn that state governors are commited to increasing IGR and that they plan to do so beginning Fiscal Year 2010, one cannot help but wonder what the exact plan is. How are various states going to achieve their objective? How will they manage to tap into the obvious goldmine that is the informal sector in their states? What model will they be using? Furthermore, Oshiomole's statement that the wealthy should be taxed heavily only furthers the questions about how certain states will organize their tax scheme, particularly as a one size fits all approach is bound to fail, if applied. What percentage of income will governors and other public office holders pay to their home states in taxes? Also, how will large multinational businesses be taxed by the state? These and many other questions could have been answered if the Nigeria Governors Forum website (http://www.nggovernorsforum.org/) was working, but alas, as of the date of publication for this article, the website was not functioning. Essentially, it is crucial for those states newly creating a state tax system to do so properly and most importantly, efficiently. There might not be many hances to make mistakes in this process because doing so could squander the goodwill of citizens and further convince many that such a scheme is not worth their time. That would not be beneficial to any state seeking to overcome their reliance on federal funds.
Nigeria's state governors have historically overrelied on their portion of federal income to finance local needs. This push by the Nigeria Governors Forum to increase Internally Generated Revenue is a step in the right direction towards financial autonomy for states, and possibly, true federalism. Only time will tell, however, if many states will take the adequate steps to create a transparent and efficient tax stystem that will be deemed legiimate by residents and thereby supported. One thing is for certain, a tax system that works at the state level will empower citizens and increase state revenue, potentially a bonus for everyone.
What do you think about these plans to increase revenue through taxing state residents (businesses and individuals)?
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