Monday April 19, 2021 / 11:25 AM / by CSL Research /Header Image Credit: Ecographics

Based on the Q4 and full-year 2020 IGR data publishedby the National Bureau of Statistics (NBS), the Internally Generated Revenue(IGR) of the 36 states of the federation, including the Federal CapitalTerritory (FCT), declined by 2% y/y to N1.31trn in 2020 from N1.33trn in 2019.This performance reflects the effect of the Covid-19 pandemic, which causedsignificant macroeconomic headwinds especially in the first half (H1) of theyear. To put it in context, the total IGR as of H1 2020 declined by 9% to N632.26bnfrom N693.91bn in H1 2019. The poor H1 performance outweighed the positivegrowth of 6% y/y to N673.82bn recorded in H2 2020 from N637.82bn in H2 2019,thus resulting in negative growth of 2% y/y for FY 2020.

Further analysis of the data revealed that save forPay As You Earn (PAYE) Taxes which showed moderate growth (+5% y/y), othercomponents of the IGR declined in 2020; Direct Assessment (-22.2% y/y), RoadTaxes (-6% y/y), Other Taxes (-24% y/y) and MDAs Revenue (-1% y/y). We thinkthe decline in Direct Assessment reflects the low-income level of self-employedindividuals and informal businesses arising from reduced work activities andtough business conditions. Similarly, restricted vehicular movements bothwithin and out of states, closure of markets, malls, recreational centres andlimited running of revenue-generating MDAs especially during the second quarter(Q2) contributed to the fall recorded across the remaining key constituents ofthe total IGR of all states including the FCT.

Despite the complete shutdown of Lagos, Ogun, andAbuja in Q2 2020, Lagos State remained the leader in revenue generation with anIGR of N418.99bn (equivalent to 32.1% of total IGR), followed by Rivers withN117.19bn (9.0%), FCT with N92.06bn (7.1%) and Delta with N59.73bn (4.6%). Onthe other hand, Taraba with N8.14bn (1.9%), Adamawa with N8.33bn (0.6%) andYobe State with N7.78bn (0.6%) recorded the least IGR. Worth noting is thatwhile most states have continued to rely heavily on FAAC allocation to meetbudgetary commitments, Lagos (78%) and Ogun (57%) states including the FCT(57%) had the most healthy composition of IGR revenue to its respective totalrevenue in 2020. The vast economic activities in Lagos and Ogun states, anoffshoot of their positioning as a good spot for import and export of materialsand finished products, enable a good flow of commercial activities.

Many states continue to rely solely on FAACallocations from the Federal Government which are totally dependent ondwindling oil revenues. State governments need to come up with innovative ideasto generate IGR and also create an enabling business environment to attractForeign Direct Investments (FDI) to avoid the current situation where manystates cannot as much pay salaries when oil receipts begin to fall.

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