Transcript 2 - Nigeria Governors` Forum

Mustapha Abiodun Akinkunmi, PhD.
Hon. Commissioner of Finance
Lagos State
INTERNAL REVENUE GENERATION
NOVEMBER 2015
Contents
1.
Lagos State Performance Review
2.
Overview of Enabling Factors
3.
Snapshot of Specific Reforms
4.
Key Challenges & Takeaways
2
Declining oil prices have had an adverse impact on Nigeria’s
economy
Oil prices have declined 47% over the last 12 months; 58% over the last 24 months
Federal Transfers vs. Oil Price Movement (2-12 – 2015 YTD)
10,000
140
Feb 2015 – CBN
devalues Naira:
N198/dollar
9,000
8,000
120
100
7,000
80
5,000
60
4,000
3,000
May 2014 – oil prices begin to
slump
2,000
1,000
0
Statutory Allocation
Value Added Tax
US$
N’m
6,000
40
May
2015
presidential
inauguration
–
20
0
OPEC Basket Price
Notes
 Oil price high of $125 in 2012; average price of $105 between May 2012 and May 2014
 Current price of $42.4/barrel*
Source: OPEC; LASG Accounts
* AS at 27 October 2015
3
Overview of LASG revenue streams
LASG Revenue Streams
Federal Transfers
Internally
Generated
Revenue
Dedicated
Revenue
SBEs
Capital Markets
Capital Receipts
Statutory
Allocation
LIRS
MDAs
Ibile Holdings
(Asset & Stock
transfers)
Lekki
Concession
Company
Debt Capital
Markets
VAT
Land Use Charge
LBIC Mortgage
Bank
Lekki Tolling
Company
Grants &
Concessions
Local
Government Tax
& Revenue
Lagos State
Microfinance
Institution
Internal
Borrowing
LAGBUS Asset
Management
External
Borrowing
RECURRING RECEIPTS
 Much of the State’s capital expenditure is funded through borrowing
 However, the State’s capacity to borrow is calculated based on its recurring
receipts
4
Despite progress made as regards taxation, Lagos is still not
fulfilling its potential
 Lagos is Africa’s 4th largest economy
 In 2014, Lagos recorded a GDP of c.N21.6 trillion ($131 billion), dominated by the manufacturing; transport and
services,;and construction sectors
 Low revenue to GDP ratios reflect that the State is not capturing the value of an expanding economy
3yr Revenue to GDP Ratios (2012-2014)
Tax to Nominal GDP Ratio (2013)
25
3yr CAGR of 42%
45.0%
32.9%
31.2%
29.3%
20.2%
19.7%
14.6%
14.2%
7.8%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0%
3.0%
20
N'trn
France
UK
Argentina
Turkey
Chile
Mexico
Nigeria (pre-rebasing)
Venezuela
Nigeria (post-rebasing)
2.0%
15
10
1.0%
5
-
0.0%
2012
2013
IGR (% of GDP)
2014
Notes
 Although increasing in absolute terms, total revenue as a percentage of GDP is declining
 In 2013 tax revenue contributions were less than 3% of the State’s GDP as compared to c.8% achieved
by the country as a whole
5
Internal revenues are an increasingly important source of
State funding
Notes
Federal Transfers
 Federal receipts have continued
to decline based on the
Federation’s reduced oil earnings
100%
80%
60%
40%
20%
0%
12mths
12mths
12mths
9mths
2012
2013
2014
2015
Statutory Allocation
Value Added Tax
Extra Ordinary Revenue
 The oil price decline commenced
in June 2014, yet the proportion
of statutory allocation receipts as
a percentage of federal transfers
has been falling since 2012
 In 2015, 69% of the State’s
revenues have been generated
internally
Total Revenues
100%
80%
60%
 Lagos Internal Revenue Service
(LIRS) in turn accounts for 86% of
these revenues
40%
20%
0%
2012
2013
Federal Transfers
LIRS
IGR (Other)
2014
2015
 PAYE contributed on average, 74%
to LIRS revenues in 2014
Source: LASG Accounts
6
Success in IGR stimulation lies in the combination of enabling
laws and institutional arrangements
Legal framework for IGR in Lagos State
Institutional arrangements for IGR collection
Enabling Laws
Institutional Arrangements
 Federal laws
— Taxes and Levies - Approved list for
collection Act 1998
— Stamp duties Act 2004
— Personal Income Tax Act (2004
and 2011 amendments)
 Lagos Internal Revenue Service (LIRS)
 State laws
— Land Use Charge Law 2001
— Lagos State Tax Administration
Law 2006
— Hotel Occupancy and Restaurant
Consumption Act 2009
EFFECTIVE
TAXATION
 Ministries, Departments and Agencies
(MDAs)
— Ministry of Finance
— Ministries of Education
— Ministries of Health
— Ministries of Physical Planning and
Urban Development
— Lands Bureau
— Lagos State High and Magistrate
Courts
 Parastatals (Water, Sanitation, etc.),
Lagos State Traffic Management
Authority (LASTMA), the State High
and Magistrate Courts, etc.
7
Necessity was the driving factor behind LASG’s concerted
drive to build its internal revenue base
 Federal withholding of statutory allocation to Lagos State council’s 20042008
1
2
• Public investment in Power, Agriculture, Transport and Housing
(PATH) to meet increasing demand from rapid population growth
The LASG has embarked upon the reform of tax policy and
administration since 2000 – whilst recording successes year after year,
Lagos’ current state was facilitated by actions taken 15 years ago
8
Prior to 2010 the foundation was laid for much of the progress
being realized even today
Reform
Semi-autonomy of LIRS in 2007
Effect
— Freedom to hire skilled technicians and invest in technology
— Lagos State Electronic Banking System of Revenue Cycle Management
Simplification of tax collection
and payments :
— Issuance of Tax Identification Number (TIN)
— Payments of tax and revenue via banks, issuance of electronic receipts
and Electronic Tax Clearance certificates (e-TCC)
Self-assessment and tax payment
— Administered through 1,200 bank branches – TSA reconciles amounts
daily – and 36 LIRS Tax Stations that issue automated receipts
Constant Taxpayers’ Education
and Enlighten campaign
— Tax Stakeholders’ Conferences
Enforce tax compliance
— LIRS power to issue notices, distrain tax defaulters; prosecute tax
defaulters by the Lagos State Attorney General
Comprehensive training for tax
officers
— LIRS Training School and Professionalization of tax officers through
Chartered Institute of Taxation of Nigeria
— Opened 40 Mini tax offices in major markets;
Taxing the informal sector
— Established 40 Tax Education and Enlighten Team (TEET) that pay regular
visits to taxpayers to educate, assess, and check taxpayers;
— Established Informal Sector (Professional) Unit to meet the peculiar tax
assessments of professionals in private practice
9
This foundation has been built upon in the last four years in
the following ways
Tax administration
reform
— Self assessment filing system for individuals
— Increased payment of tax audit liabilities through accelerated
conclusion of tax audits of previous years (over 6,000 in 2011 );
— Strengthened tax enforcement via distraint of defaulters,
prosecutions, etc.
Tax policy reform
— Introduction of Hotel Occupancy and Restaurant Consumption
(HORC) Tax Law 2009
10
Specific Results
IGR and Taxpayer growth 2008-2014
2014
2013
2012
IGR growth
2011
Taxpayer growth
2010
2009
2008
-10%
0%
10%
20%
30%
40%
50%
60%
Notes
 IGR Impact – IGR collected by LIRS has grown at a compound annual growth rate of 10% between
2008-2014
 Number of Taxpayers has grown at a compound annual growth rate of 20% between 2008-2014
 Reduced dependency on federal transfers as the share of IGR in total revenue increased from 50% in
2005 to 66% in 2014
 Capital spending doubled from 24% of total expenditure in 2003 to 44% of total expenditure in 2014
11
The State is maintaining momentum through initiating further
initiatives
INITATIVE
DETAIL
1
AUTOMATION
 Further automation of processes to block leakages
 Capture the informal sector
 Expansion of online channels to increase ease of
payment
 Enterprise data solutions to facilitate predictive
analysis and communication between agencies
2
HARMONIZATION OF TAXES
 Multiplicity of taxes is a major factor in the public’s
reluctance to comply with tax regulation
CAPACITY BUILDING
 Training of tax administration officers and
increased presence, particularly within the less
formal sectors
3
12
Challenges and issues
 Efforts to increase IGR is seen by the private sector as excessive taxation
and thus adversely impacts the business climate in Lagos state
— “Lagos state is simply enforcing Federal tax laws”
 The role of federal government in tax policy formulation undermines IGR
collection
— Personal Income Tax Act 2011
 There is a dire need for a comprehensive tax administration reform
strategy
13
Key success factors
1
Strong and sustained government commitment at the
highest level
2
Coordination with other MDAs across the state is critical
to provide additional information to LIRS for audit
3
4
Regular and constant taxpayers’ education campaign on
tax procedures and exhibition of how taxes are spent by
the government
Staff training and capacity building to reduce reliance
on external consultants
14
THANK YOU
NOVEMBER 2015