According to Premium Times, Obafemi Awolowo University has been shut down for alleged tax default. This is very interesting. It shows a new Nigeria is coming up. First, OAU is a quasi non-profit and second, it is a federal university. That Osun State can close it for tax purposes is an indication that internally generated revenue (IGR) is now a hardball. Any state that cannot improve its IGR will certainly struggle.

The Osun State Internal Revenue Service has closed down the Obafemi Awolowo University, Ile Ife, over alleged N1.8 billion tax debt to the state government.

The institution was shut down Wednesday morning by the officials of the state revenue (IRS) led by Oladipo Babatunde after obtaining a court order to seal the school.

Mr. Babatunde has, however, said that the institution will be reopened when the management is ready to pay its tax debt.

The IRS sealed the university Senate building, administrative block, the bursary department and the university main gate which interrupted easy flow of vehicles and registration of fresh students who resumed on Sunday.

The state government had earlier issued seven days ultimatum to the companies accused of owing the state well over N12.5 billion as un-remitted taxes.

As I noted few days ago, the central purse is shrinking which means states cannot depend on the federal government to run their services. They need to invent new ways to ensure companies pay taxes. I expect states to develop better ways of collecting taxes from the informal sector which remains largely out of the tax system.

IGR includes Pay-As-You-Earn Tax (PAYE), Direct Assessment, Road Taxes, and revenues from Ministries, Departments and Agencies (MDA)s. In coming months, for the sake of survival, state governments would deploy arsenals to deepen the efficiency of collecting these taxes and fees. You do not close OAU if you are not serious in improving IGR.

Meanwhile, if you are paying attention, you would have noticed that Nigeria’s federal, state and LGAs governments increasingly have lesser to sharefrom NNPC generated revenue from crude oil business.

The federal government, states and local governments shared N626.8 billion for the month of April. …Giving a breakdown of the revenue accrued in March, Mr Idris said N480.59 billion was received as gross statutory revenue, lower than N557.94 billion received in March by N77.34 billion

Non-Economically Viable States

We do note that many states are not economically viable. Now that depending on the federal government will not cover their financial obligations, things will change.

Economic Confidential noted few days ago that about 17 states in Nigeria cannot really open doors for business without the federal government support. This clearly shows that states must innovate to diversify their sources of revenues. And as they do, they must ensure that the quest for revenues would not cripple the few companies that operate in the locations. Where the balance is not optimal, most of the companies will depart triggering more challenges for the states. Yes, collect only taxes and fees backed by the law and do not exploit companies.

The Economic Confidential has released its Annual States Viability Index (ASVI) which shows that 17 states are insolvent as their Internally Generated Revenues (IGR) in 2017 were far below 10 per cent of their receipts from the Federation Account Allocations (FAA) in the same year.

The index proved that without the monthly disbursement from the Federation Account Allocation Committee (FAAC), many states remain unviable, and cannot survive without the federally collected revenue, mostly from the oil sector.

Economic Confidential Annual State Viability Index (ASVI) 2017 
Ranking of States by Internally Generated Revenue (IGR) Compared to Federation Account Allocation (FAA) in 2017

Source: www.EconomicConfidential.com

The Economic Confidential ASVI further showed that only three states in the entire Northern region have IGR above 20 per cent. They are Kwara, Kano, and Kaduna States. Meanwhile ten states in the South recorded over 20 per cent IGR in 2017. They are Lagos, Ogun, Rivers, Edo, Enugu, Delta, Cross River, Anambra, Oyo and Abia States.