State government across the federation nursing the ambition of possible Value Added Tax collection may want to have a rethink especially with the recent data from a study carried out by BudgIT. The reason for the rethink is not far-fetched as by the study,  only 3 states in the country are viable enough to meet their operating expenses and obligations with a combination of their internally generated revenue (IGR) and VAT collection.

This report is coming as a shocker especially for the fact that a major factor that has fueled the agitation for state governments to collect VAT is based on the permutation that having VAT collection within the state’s authority will mean more resources for these states to meet up with their financial obligations but this report has shown differently that even with VAT, some states will still struggle.

Furthermore on the report

BudgIT, a civic organization named Lagos, Rivers, and Anambra as the only states capable of meeting their operating expenses and obligations with a combination of their internally generated revenue (IGR) and VAT collection.

This report is coming on the heels of the recently released 2021 state of state, SoS report that showed a general increment of the debt profiles of state governments to a whopping tune of ₦5.86 trillion by 8.78 percent in 2020 from 2019’s ₦472.63 billion.

The reason for this alarming increase is hugely dependant on the jump of the Naira to ₦380 as of December 31st, 2020 away from ₦305.9 to the dollar in the same period during 2019. This also doubles as a clear pointer to the inherent exchange rate volatility.

The report summarized that the Covid-19 pandemic in no small measure affected the revenue capacities of most states across the federation

Determining Factors

Explaining the yardstick of ascertaining the financial viability of states across the federation, BudgIT’s chief executive, Gabriel Okonkwo highlights that the ability of states to meet their operating expenses with IGR and VAT, states’ ability to cover their operating expenses and loan repayment with their total revenue, how much fiscal room states have to borrow more, and the degree to which each state prioritizes capital expenditure concerning their operating expenses formed the four major metrics of the study.

The report also showed that Rivers state, once again, topped the overall 2021 Fiscal Performance Ranking, indicating that the fiscal fundamentals of this state, compared to others in the country, are more prudently managed. In the overall ranking, two states – Ebonyi and Kebbi – made it as new entrants to the top 5 categories.

Narrowing down to the new entrants, Ebonyi state grew its IGR by 82.3 percent from ₦7.5 billion in 2019 to ₦13.6 billion in 2020, while Kebbi state grew its revenue by 87.02 percent from ₦7.4 billion in 2019 to ₦13.8 billion in 2020.

“States with the highest foreign debt were significantly hit due to negative exposure to exchange rate volatility. These states include Lagos, Kaduna, Edo, Cross River, and Bauchi. Furthermore, five states accounted for more than half, which is 63.63 percent or N300.7 billion of the net year-on-year subnational debt increase of N472.63 billion for all the states between 2019 and 2020: the states are Lagos, Kaduna, Anambra, Benue, and Zamfara,”

BudgIT’s Research & Policy Advisory Lead, Abel Akeni
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