Emmanuel Ado: Kaduna Internal Revenue Drive And Benefits Of Reforms

In the next few weeks, the annual ritual of budget presentations by the federal government and sub-national governments would commence and Kaduna State from every indication will be the first to present its budget. Kaduna State has undoubtedly given a good account of itself. The federal government, which has had three disastrous budgets, would hopefully present its 2018 budget by December 2017. The earliest it has ever presented its budget was 14th December 2016, for the 2017 budget, while it struggled to present the 2016 budget on 22nd December 2015  to the National Assembly.

In the coming days, Nigerians would also be inundated with all manners of slogans representing the intentions of the federal government and the various state governors – from Budget of Plenty (Consolidation) to Budget of Life. The 2017 Federal Government Budget was tagged “Budget of Recovery and Growth”, the growth is definitely in the imagination of Udoma Udo Udoma and officials of the Budget office. There is absolutely nothing that will stop most of these governors from mouthing these empty slogans, even when their budgets are built on nothing.

The federal government would as usual base its revenue projections on 2.2 million barrels per day, the traditional figure, instead of a more realistic 1.4 million barrels per day. The obvious implication is that the expectations of the people would be raised and dashed because Nigeria will never generate the revenue, the critical oxygen that will fund the budget. Any state that allows itself to be misled by the routine federal government projections, will pay a heavy price. Only last week, Kemi Adeosun, the Minister of Finance confirmed the failure of the 2017 Budget, when she indicated that 60% of the capital expenditure will be rolled over because she has woefully failed to source the funds.

What are the options for the states? The obvious way out for the states is reforms – from the rationalization of public expenditure to sustainable debt management. In 2016, the states and the federal government actually signed off on the 22-point fiscal sustainability plan, with the strategic objective of enhancing fiscal prudence and transparency in public expenditure. State governments were expected to abide by the strategic objectives of the FSP’s, built around accountability and transparency, increase in public revenue, rationalization of public expenditure, public financial management reforms, and sustainable debt management. The ultimate objective is to assist the states travel the narrow path that will lead to fiscal sustainability.

States must “device measures to run on their own steam” as eloquently argued by Dele Sobowale. Many countries are presently not buying crude from Nigeria, due to the global economic downturn and the politics of being “correct” in the eyes of Donald Trump, the American President, with his ‘America First’ policy. But the killer punch that will worsen an already terrible situation for Nigeria, are the technological innovations that will lead to more cars running on electric power, than crude. And the campaign against emissions which has continued to gather steam.

Figures on internally generated revenue indicate that only Lagos State can afford to shun the monthly Federation Account Allocation meeting, but the truth is that Lagos State has several advantages – it is the commercial capital of Nigeria and it also “appropriates” what rightly belongs to other states and of course, it collects these taxes efficiently. Though Kaduna State is not in the Lagos State league, it shares similar ambitions and the indications are looking good. Kaduna State is an example of what a determined state can achieve when it embarks on reforms. The argument that the increased “tempo” in the collection of taxes, is an inevitable consequence of the decline in oil revenues, holds some water, even though states have not really introduced new taxes. The real gain is that citizens buy-in as part of the entrenchment of a culture of accountability and transparency. When you pay tax, you are bound to ask questions; how your money is spent.

Before the surgical reforms performed by Ifueko Omoigui, one-time chairman of the Federal Inland Revenue Service, on the then Kaduna State Revenue Board, the board traditionally generated a paltry 600 million naira monthly. But the figure has been climbing steadily to about N1.7 billion a month.” It went up to 1.6 billion in June and July and went as high as N2.1 billion in December 2016, but on the average, the monthly collection stood at 1.4 billion. And this was achieved by not imposing any new tax. In short, the new tax law reduced some tax rates. What we did was to simply improve efficiency in tax collection” said Muktar Ahmed the Executive Chairman of the Service

Going by the current trend, Kaduna State which in 2016 generated about 17 billion naira, should generate more than 25 billion naira in 2017 going by the 17 billion naira figure as at August. There is an appreciable and substantial increase between January to August 2017, over the same period in 2016– glaring and concrete evidence that the various initiatives put in place by Governor Nasir el- Rufai are working. Considering the economic crisis, Kaduna State might receive less than 70 billion naira from the Federation Account, in 2017. The implication is that, had el – Rufai not embarked on the reforms, when he did, Kaduna State would have been thoroughly messed up, if collections are still at 600 million naira a month. Kaduna State would have found it difficult to fund its recurrent expenditure, pension, and gratuity, which gulps more than 45 billion naira in a year.

The times are dire and the recession is real, in spite of Kemi Adeosun’s semantics and sophistry. Kaduna State receives about N2.4 billion from the Federation Account and pays N2.2 billion as wage and a paltry N200 million is left for service delivery. The outlook for 2018, doesn’t look bright unless Donald Trump does us a favour by precipitating a war. The benefits of the reforms are not really obvious to many critics of el- Rufai. While many states are defaulting in salary, Kaduna hasn’t and it’s in fact employing. Based on the 2016 audited Statement of Account, Kaduna State received about 64 billion naira from the Federation Account and generated about 17 billion naira internally. For the third most populous state in Nigeria, with a population of about ten million people, and 43,460 square kilometers, it’s total receipts is a far cry of what is needed to develop the state. Rivers State within the same period generated about N84 billion, from IGR.

Key to the success recorded in increasing IGR is the reform and continued deepening of the reform. The  Kaduna State Tax Law attacked leakages, by making cash collection a crime.

The Kaduna State Internal Revenue Service is the sole collecting and accounting authority, though all taxes and fees are still assessed by the relevant ministries and agencies. The harmonization of demand notice –a situation where a person liable to two or more taxes, is served with just a single demand notice, that indicates amount due on each, the introduction of the presumptive tax, that targets the informal sector has further widened the net of taxpayers and improved collection.

The centralization of collection and ease of payment, through the deployment of PoS and other electronic payment systems, has also helped in voluntary compliance. The issue of multiple levies has also been tackled. The ugly experience of roadblocks by all manner of agencies has been prohibited by the law. No more thugs masquerading as revenue officers.

The Kaduna State Revenue Service has dragged the famous Ahmadu Bello University (ABU), Kaduna Polytechnic, Kaduna Electric Company to court for the backlog of taxes. ABU owed over 12 billion naira. Charging the staff of the Service to court for violating the law on prohibition of cash collection is a routine matter. “You collect cash, you are swiftly prosecuted,” said Mukhtar Ahmed.

The el-Rufai initiative is highly commendable because it is a total package which has critically blocked leakages in the revenue agencies and worked out a package of incentives to motivate revenue staff. It has also brought charges and rates which have been stagnant over a very long period of time, to new economic realities. The inauguration of a governing board for the revenue board, engagement of consultants in the area of motor vehicle licensing and ICT payment platform is the sure way to go. The government must, however, embark on an aggressive public enlightenment to further increase collection. The government moving forward, must inform the people of specific projects that have been funded by taxes, it must not take this for granted.

Though the target for the Service in 2018, has been reduced from 50 billion naira to what the governor described as a “very realistic” 40 billion naira, Murktar Ahmed, insists that the target of the Service remains an average of N4.1 billion monthly.” If we surpass the target, that will be a bonus”. Mukhtar Ahmed must be a fan of Emeril Lagasse, that “in order to be big, you have to think big. If you think small, you are going to be small”. The Service is not in any way going to slow down affirmed Ahmed Mukhtar. “Key is a more friendly business environment, by ensuring that staff and clients are comfortable. The other is addressing the challenges of the automated revenue collection, particularly in places where there are no banks. We have contracted money agents, certified by the Central Bank of Nigeria” Ahmed Mukhtar.

Worldwide, the payment of taxes provokes deep-seated anger and resentment, due to either the complexity of payment, the filing of returns, inconvenience, accountability and transparency issues. It is thus not surprising that in every American presidential election the campaigns are usually built around tax cuts. The acronym T.E.A which stands for Taxed Enough Already is the slogan of most candidates running on the issue. In Nigeria however, though there is resistance to payment of taxes and the issue of tax cuts is not yet a campaign issue, the problem has been more of collection of even “straightforward” taxes like P.A.Y.E –which institutions like the Ahmadu Bello University, Zaria over the years collected and bluntly refused to remit.

The duty of the government remains ensuring that revenue collected, is judiciously spent on the well being of the people. And the duty of the people, the reason for the existence of government, is that they play their part in the social contract – by paying their taxes. If only professionals like lawyers who have the habit of charging scandalous fees for election matters, but end up paying miserable 3,000 naira a year as income tax, pay what is reasonable. If only the elite who talk the most, but will never pay their ground and water rates pay up, then the resources available to the government would drastically increase. We can go on and on, about the role of everyone. The bottom line is that Kaduna State must be free from the slavery of federation account. And this is the beauty of the efforts by the Kaduna State government as it intensifies and deepens the various reforms – a development that will invariably help institute a culture of accountability and fiscal discipline and further propel the development of Kaduna State.

With fiscal discipline, improved revenue generation, Kaduna State will surely be on the path of sustainable growth. More than three big firms – Olam, Vicampro, and Dangote have opened shop in Kaduna. The State will benefit from the multiplier effect in terms of taxes, employment etc. It is also one State that can access funds from the capital market due to its good rating.

El-Rufai has been preoccupied since assumption of office to drive investments in the State. And the benefits are beginning to show with the removal of bureaucratic and regulatory constraints to doing business in the State.

Emmanuel Ado is a Kaduna-based public affairs analyst. This article was originally published in Leadership newspaper of 17/10/2017.