Ogun: Leveraging on intensive tax-based revenue, World Bank credit to expand budget portfolio in 2018

Considering the aggressively intensive approach which Ogun state government adopts in driving tax collection, especially the personal income tax and taxes from high networth individuals, coupled with the proposed $350 million concessionary loan from the World Bank, It is getting clearer that Ogun state may expand its 2018 budget portfolio by over 50% as the new year revenue prospect brightens.

For instance, in the second half of 2017, Ogun state was able to increase its tax coverage, through Internal Revenue Service (IRS), on high networth individuals from merely two to 45, generating between N500 – N800 million from such individuals, as well as the recently proposed concessionary loan of $350 million from the World Bank meant for further investment in critical infrastructure at 1.5 – 2.5% interest rate with five-year moratorium and repayment plan that is spread between 25 – 30 years.

Barring any unforeseen alterations, Governor Ibikunle Amosun of Ogun state will be presenting 2018 fiscal estimates before the State House of Assembly in a couple of weeks with all economic indicators showing that the State government will adopt zero-based budgeting system which is expected to increase the budget size by at least 50% when compared to six previous budgets.

Available statistics show that the last six budgets prepared by Ibikunle Amosun-led government (2012-2017) were clear shift from the past budgets prepared by the past administration that gave much larger chunk of allocations to recurrent or operating expenditure (OPEX) at the detriment of capital expenditure (CAPEX) for which socio-economic growth and development hinge on.

Prior to 2011, the budget preparations in Ogun state had been allocating 60-65% for recurrent expenditure and 30-35% for capital expenditure which left much to be desired in terms of projects execution and this accounted for slow pace of economic growth and development, but since the advent of Amosun’s government, priority has been giving to capital expenditure and reproductive loan system.

Since 2012, Ogun state has prepared six budgets worth N1.25 trillion. N200 billion in 2012; N211.8 billion in 2013; N210.2 billion in 2014; 210.3 billion in 2015; N200.3 billion in 2016 and N221 billion in 2017 with N681.3 billion, representing 54.4% spent on capital expenditure and N571.4 billion, representing 45.6% voted for recurrent expenditure which accounts for massive infrastructural development ongoing in the three senatorial districts.

The 2018 fiscal estimates, being the last budget that Governor Amosun and his team will fully implement before they exit seat of power in the state, are expected to consolidate and complete all ongoing capital projects, such as road, rail, energy and other vital infrastructure that would improve ease of doing business, having blocked financial leakages and plugged means by which revenue could be geometrically increased.

Current economic plans in the state now, do not rely on Federation Account, but only appeal to the Federal Government to give Ogun state what is due for it, in terms of proceeds obtainable from solid minerals, value added tax, company tax and other derivations for which Ogun state always contributes immensely since the State government has drafted a 13-year plan that fixes economic crisis and bridges economic prosperity for over a decade.

Speaking at a recently-concluded Town Hall Meeting on 2018 Budget Proposal held in Abeokuta, Governor Amosun said “At the start of this year, we reviewed our achievements thus far, as well as areas where we believe more could still be done. We therefore drafted a State Development Plan (SDP) that spans years 2017 to 2030.

“The critical element of the SDP is the Agricultural Production and Industrialization Programme, which have engendered strong support from our Development Partners, who are now increasing their financial and technical support.

“The key pillars of the Agricultural Production and Industrialization Programme are as follows: Agricultural Production; Increasing the wealth and welfare of our farmers; Increased Industrialisation; Diversifying our economy to reduce our dependence on oil revenues, and create much needed jobs for our people; Skills Development; Empowering our youth through modern technical and vocational capacity-building; and, Governance and Administration; Strengthening Government’s ability to accurately plan and deliver services to our people.”

Adenrele Adeshina, Commissioner for Budget and Planning, declared that solid minerals and all economic potentials from the extractive industry sector of the state’s economy would be maximally exploited in addition to agricultural production and industrialization scheme which account for largest chunk of revenue generation for which BudgIT employed in its 2017 Fiscal Sustainability Index to rate Ogun state as one of the three best states in the country, in terms of economic vibrancy.

Bimbo Ashiru, Commissioner for Commerce and Industry, disclosed that 60% of revenue that goes to the Federal Ministry of Mines and Steel Development comes from Ogun State being the state that has largest deposits of natural and mineral resources, saying Ogun State should be accorded a special status in terms of its revenue contribution from solid minerals and derivation should also be considered in that regard.

He said, “Presently in the country, most of the income that goes to the Federal Ministry of Mines and Steel Development, 60% are from Ogun State and the reason is that Ogun State is a State that is endowed with a lot of mineral and natural resources. What we are saying in essence is, look at limestone for instance, it is in commercial quantity.

“Lafarge has been in the country for the past 56 years and they are still mining; Dangote is here, they have been here for almost 10 years now; Purechem and many other cement companies that are coming here too. The ceramic companies are also here, 90% of their raw materials are here. Cement companies source 95% of their raw materials here. You can see that we need special status and special derivation from Federal Government for that.”

For Wale Oshinowo, Commissioner for Finance, said the influx of industries into the state which is now at a geometric rate, coupled with fiscal discipline, had influenced greatly, the socio-economic growth and development at all levels and is responsible for current rating released by BudgIT for 2017 Fiscal Sustainability Index.

He noted that 2018 fiscal years holds a very bright prospect in terms of gross domestic product contributions to the country which is expected to transform into more revenue for the state, saying:

“We have been able to move monthly Internally Generated Revenue from N700 million to about N7 billion and also reduce our expenditure, we hope this would improve our ranking in the next fiscal year.”

But, Adekunle Adeosun, Chairman of Ogun State Internal Revenue Service, is of the opinion that much more revenue will be generated by government if some cogent steps were taken to change the narrative as regards how value added tax collection is reported as well as frantic effort on remittance of pay-as-you-earn because of thousands of residents of Ogun state that work in Lagos State don’t remit taxes to Ogun state.

“There is need for us to change the narrative around the way VAT collection is reported when they (FG) distribute VAT, they put Ogun state at No 26 and, we believe, that is not correct. Ogun state is a leading state in terms of foreign direct investments in the country, and all major companies are here.

“Lafarge, Nigerian Breweries, Nestle, P&G, Cadbury, Dangote, Unilever, Sona Group and a host of others are here and of course, when they report VAT, they don’t report from consumption location, they report VAT from Head offices of these companies and we know that the Head offices of the companies are mostly in Lagos, the same way they (FG) do for corporate tax.

“And we know that the quickest way to do is to influence these companies to start reporting their VAT from locations where goods and services are consumed and most difficult way is restructuring, that requires Constitutional ametndment and it’s a longer way, but we can tell the companies that operate in Ogun state that when they report VAT collection, they should report the one that is attributable to Ogun state from their Ogun state location”, he said.

Speaking on what government would do on PAYE wrongly remitted to Lagos state, Adeosun noted, “The job of making some people that live in Ogun state update their residential records with their employers really resides with Ogun State Internal Revenue Service (OGIRS). We have written to many companies, we need to engage them in a persuasive way to update residential addresses of their employees.

“I don’t see reasons why we cannot do N10 billion in a month with all the infrastructural development that the governor is doing and with more and more global companies coming into the state.

“So, our target is a minimum of N10 billion in a month, in just taxes alone, I’m not talking about what Ministry of Commerce and Industry collects, what Ministry of Urban and Physical Planning collects, what Bureau of Lands and Survey collects, it is just based on taxes, the minimum target is N10 billion per month”, he said.

He added, “The huge investment in infrastructure, especially roads and bridges, effective security mechanism, easy and unhindered access to upscale residential areas and industrial estates, harmonized fees and levies among other economic factors, now contribute largely to ease of doing business and the entire economic growth and development in the state.

“Consequently, the less than N800 million monthly internally generated revenue, has now been raised to an average of between N5 billion and N8 billion monthly, with the largest percentage coming from personal income tax, mainly from High Networth Individuals.

“The Ogun State Internal Revenue Service (OGIRS) is able to capture 45 high networth individuals into tax net and now rakes in over N500 million from such individuals. It also increases number of tax payers in that category from 2 to 45, which represents a milestone in the quest to earn revenue from non-oil sector championed by Federal Government.

“Needless to say that the massive investment in infrastructure and effective security mechanism for which Ibikunle Amosun-led government undertook in Ogun state is now paying off as more high networth individuals living and working in the state are not only brought into the tax net, but also remit over N10 million and above, with three of them paying over N20 million as tax and one paying over N40 million.

“We note here that intensive and rigorous tax drives embarked upon by the state-owned internal revenue service targeted at taxable individuals and corporate organizations from both formal and informal sectors, coupled with massive infrastructure upgrade and security solutions, account for the increase in the level of tax remittance and tax compliance among the taxable population, particularly the high networth individuals.

“We must also note that although, the Federal Government through the Federal Ministry of Finance in conjunction with the Federal Inland Revenue Service (FIRS) recently launched Voluntary Assets and Income Declaration Scheme (VAIDS) as well as profiling the high networth individuals for tax purposes, tax drive and campaign had started in Ogun state before such moves were launched nationwide as the state is well known to be a bellwether in the informal sector tax initiatives.

“And enhanced tax drives earlier started in Ogun state were preceded with intent to improve ease of doing business, having realized that the state hosts the largest concentration of manufacturing industries and needs to upgrade existing critical infrastructure, including security with a view to ensuring that both foreign and local investors do not only work, but reside in the state.

“Ogun state being largest industrial hub with largest number of manufacturing companies (according to Manufacturers Association of Nigeria – MAN) and the preferred destination to inflow of foreign direct investment (FDI) into Nigeria in the country, lend credence to disagreement with the news item that one state accounts for 55% of VAT collections in the country.”

RAZAQ AYINLA