Revenue refers to all receipts the government gets, including taxes, custom duties, revenue from state-owned enterprises, capital revenues and foreign aid. Nigeria operates a Federal Political structure and has three tiers of Government; Federal Government, State Governments and Local Governments.

The Nigerian Federation comprises of Federal Government, 36 State Governments and 774 Local Governments. Each tier of Government has functions specified in the 1999 Constitution of the Federal Republic of Nigeria. The Constitution also grants taxing powers to the various tier of Government through which needed revenue can be raised to meet the assigned responsibilities.

Executives at various tier of Government are expected to put in place appropriate Legal and Institutional framework to collect revenue in line with provision of 1999 Constitution as a result, at the Federal Level we have Federal Inland Revenue Service, Nigeria Custom Service, Nigeria Immigration Service, Nigeria Port Authority etc., the States have Boards of Internal Revenue and various Ministries, Departments and Agencies assigned with the responsibility of collecting revenue due to the State.

Likewise, Local Governments collect rates and levies through suitable administrative structure. In this paper Revenue Authority (RA) refers to Agency of Government at any of the tier of Government responsibility for Assessing, Collecting and Accounting for revenue accruing to that tier of Government. However, greater emphasis will be on Federal Inland Revenue Service (FIRS) and States Board of Internal Revenue. (SBIR).

Recent trend in revenue administration in Nigeria
Faced with fluctuating revenue from Statutory Allocations, governments across the three tier are developing and implementing strategies to increase IGR in order to meet recurrent and capital expenditure, rely less on borrowings at prohibit cost. Most of the reform efforts are rightly targeted at the institutions responsible for collecting revenue. The principal reason for failure of most reform initiatives is usually over concentration on the quantum of revenue that could be raked in within the shortest period possible, instead of holistic evaluation of the RA’s external environment and Administrative structure.

The performance, complexity, resource requirements and strategy of the RA depends, to a considerable extent, on the economic environment in which it operates. In other words, most of the reform efforts take care of the cart (institutional framework) and ignore the Horse pulling the cart (the external environment). Domestic Revenue that could be mobilised depends on the Economy i.e. IGR is derivate.

Therefore, in order to understand the reasons for poor performance of the RA, we might first look ‘outside the box, beyond the organizational boundaries of the RA, and analyse the impact of important environmental influences on its performance.

The economic environment
The amount of Domestic Revenue that could be mobilised in an Economy, varies according to changes in GDP, interest rates, exchange rates, consumer confidence and business cycles. A high degree of openness of the economy raises knotty issues of international taxation, such as transfer pricing, tax arbitrage and origin or completion of taxable transactions in foreign jurisdictions. High levels of inflation increase the propensity of taxpayers to delay payment of taxes. Lack of formality in economic transactions, unreliability of business records and low levels of literacy make enforcement of tax laws difficult.

Assuming all other factors are constant, an Economy with a GDP of $500 million will generate higher revenue than same economy with GDP of $400 million. Also, in situation of drop in GDP, the amount of revenue that could be mobilised will also drop. Furthermore, the degree of informality in an Economy will determine the amount of Domestic Revenue that can be mobilise efficiently and effectively within the economy. A case in point is VAT.

One may ask to what extent will FIRS be able to raise appropriate revenue from VAT on Electronics Products giving the high level of informality within the Electronics market in Nigeria. How does FIRS trace the transactions of operators in Alaba International Market and Computer Village in Lagos for imposition of appropriate Taxes?

Considering the degree of informality, can the Chairmen of Lagos State and Oyo State Internal Revenue Service collect appropriate Personal Income Tax from market women in Apongbon and New Gbagi Markets respectively? Despite having higher GDP than South Africa, our Tax to GDP ratio is lower than that of South Africa; one of the principal reasons is the size of informal sector in our Economy. One way to enthrone sustainable IGR is to Formalise the Informal Sector, which certainly is outside the purview of revenue authorities

Fiscal policy and revenue forcast 
Fiscal policy defines the agenda for the RA. The level of budgeted government spending, debt financing and fiscal deficit determine the amount of taxes the RA is expected to raise. Expansionary fiscal policies, high levels of national debt and debt servicing requirements, or fiscal crises create strong pressures on the RA to collect more taxes. They also create opportunities for mobilizing political support for efforts to modernize the RA.

A properly articulated revenue forecast which mirrors the key external factors provides needed platform for reform and evaluation of the Institution Responsible for revenue collection.

In Nigeria, Revenue forecasting is perhaps the weakest link in the chain between tax structure and revenue collected in some states, the forecasting exercise is done by a few individuals in the Ministry of Finance or Budget and Economic planning, who simply increase last year’s forecast or actual tax collections by next year’s assume growth rate. In other instances, next year’s budget expenditures are estimated through call circulars to all the Ministries, Departments, and Agencies. Expected borrowing and deficit financing are subtracted from total estimated budgetary expenditures, and the remaining amount is assigned to the Revenue Agency as next year’s revenue targets
To be continued tomorrow
Alli is former chairman, Oyo and Osun states Board of Inland Revenue.