Effective harmonisation of revenue laws at subnational level

The challenge of multiple taxes has been part of Nigeria’s history. As early as 1954, when Nigeria became a federating unit, there were concerns and disputes about sharing taxing powers between the regions and the federal government. They subsequently resolved it through the 1957 Raisman Commission set up at the Nigerian constitutional conference in London, the same year. Despite this early resolution, the pressure of fiscal insufficiency at the subnational level continued to replicate the problem. This continuing challenge hit a milestone in the late 1990s when the federal military government enacted Taxes and Levies [approved list for collection] Decree Number 21 of 1998, setting out the list of taxes and levies that each tier of government can collect. Although the harmonisation of revenue laws between the states and local governments has substantially reduced it in recent times, there is still more work to be done. Multiple taxation usually manifests vertically or horizontally. In the former, different government levels may demand the same or similar taxes from a taxpayer. They may also use intimidation and harassment to collect unlawful mandatory payments not backed by law. In the latter, the same level of government or a variety of government agencies may impose taxes on the same base.

Harmonising revenue laws between states and local governments in Nigeria is, therefore, a critical step towards minimising multiple taxation and revenue leakages, achieving fiscal efficiency and transparency. Although considerably resolved by many subnational governments, the multiplicity of taxes and levies frustrates and creates complexity and confusion for businesses and individuals, which also strengthens the decision to evade tax payments. Therefore, by adopting uniform tax regulations and procedures, tax harmonisation streamlines the tax system, eliminates redundant levies, and improves compliance. One of the strongest offshoots is the increased financial autonomy and efficiency afforded to local governments. Local governments with authentic financial autonomy undoubtedly enjoy added revenue power to embark on more development projects. For instance, through the Joint Tax Board [JTB], states like Lagos, Kano, and Rivers collaborate with their respective local governments to harmonise tax collection procedures, share taxpayer information, and eliminate duplication of efforts, which has streamlined tax administration, reduced compliance costs for businesses and individuals and ensured a fair allocation of tax revenue among the different tiers of government. Property tax harmonisation has been a successful endeavour in states like Kaduna, Anambra, and Ondo. The harmonisation has led to increased property tax compliance and revenue generation for state and local governments.

Harmonising revenue laws between states and local governments in Nigeria is complex and fraught with several challenges. Inadequate data sharing, diverse legal frameworks, political interests, capacity constraints, and intergovernmental conflicts are some of the key obstacles impeding progress in this regard. Effective harmonisation always requires accurate data and information sharing between the state and local governments. However, subnational governments in Nigeria still suffer from inadequate data collection problems. They also do not have robust systems and the right level of transparency to power the exchange of vital information, making it difficult for them to accurately assess the revenue potential and needs. This data deficiency exacerbates the disparities between states and local governments and undermines efforts to implement equitable revenue-sharing mechanisms. Aside from inadequate data sharing, the second challenge, albeit between states, is the independence and diversity of revenue laws and regulations for each state in Nigeria. This legal heterogeneity frustrates the creation of unified systems to cater for the distinct needs of different states and local governments. A good example is the controversy surrounding the imposition of a single inter-state road tax sticker for highway commercial vehicles, initiated by the Joint Tax Board. To date, many states, such as Anambra, have not implemented it.

Another rarely occurring, albeit significant, challenge derives from the fiscal autonomy of state and local governments. Where each level is substantially prosperous with its revenue collections, it seeks to more jealously safeguard its financial independence and retain control over its revenue-generating activities. That behaviour often leads to reluctance to adopt harmonised revenue laws. Local governments in Nigeria are still substantially state government appendages, and until they secure genuine fiscal independence, this challenge will remain hypothetical. Again, capacity constraints within the state and local revenue agencies also hamper the harmonisation process. Local governments often do not have the necessary expertise and resources to administer and enforce revenue laws effectively, which leads to low compliance rates and revenue leakages. In contrast, some states possess more robust administrative capabilities, leading to disparities in revenue collection and hindering the equitable distribution of resources.

There are five important considerations for effectively harmonising revenue laws at subnational development levels. These include the establishment of a unified revenue code, facilitating enhanced cooperation between states and governments, simplifying the taxation process, capacity building and training, and conducting sensitization campaigns. A unified revenue code outlines a consistent framework for taxation, levies, fees, and other revenue-generating mechanisms. Developing these codes is usually a collaborative effort between states and local governments. The unified revenue code must address the unique economic and social factors peculiar to each local government while maintaining overall coherence. Generally, the unified code simplifies tax processes, reducing bureaucratic hurdles and making it easier for taxpayers to comply with tax laws. The second consideration is the effective harmonisation of standards and strong cooperation and communication between the states and local governments. Regular meetings, conferences, and workshops are important parts of this process, facilitating discussions of revenue challenges, sharing best practices, and aligning policies. This collaborative approach should lead to a more unified and efficient revenue-generation system. Sharing best practices considerably enhances this process. Fortunately, the Joint Tax Board provides a veritable platform where states collaborate on tax administration and share information to enhance revenue collection.

Thirdly, effective harmonisation of revenue laws also depends on the strong capacity of the revenue collection agencies at both the state and local government levels. By investing in training and education programmes, governments at both levels can equip their staff with the necessary skills to implement the unified revenue codes effectively. This will reduce inconsistencies in revenue collection and improve compliance rates. The fourth consideration [in no particular order] is the simplification of the taxation processes. One good approach to this step is the establishment of a centralised database for revenue information. In general, adopting modern tax administration technologies, such as online payment systems and electronic filing, to make the tax-paying process more accessible, transparent, and efficient is key to the success of this process. Lagos State is a leader in this respect with its centralised revenue data and the use of digital technology and data analytics to enhance decision-making. This process significantly reduces paperwork, minimises the opportunities for corruption, eliminates duplicate levies, and enhances the overall efficiency of tax collection. The fifth consideration is launching widespread public awareness campaigns to build a culture of tax compliance and revenue awareness among citizens and businesses. These campaigns should emphasise the importance of paying taxes and highlight how tax revenue directly contributes to development and public services. When people understand the benefits of tax compliance, they are more likely to support harmonisation efforts.

There are several benefits to harmonising revenue laws between states and local governments. First, it ensures consistency and uniformity of tax rules across local governments in the state and clarity around the right to collect particular taxes. This means that taxpayers will be subject to the same set of laws, regardless of their location in the state. For example, if local governments have differing tax [including rates, levies, and fees] laws, the inconsistency can be confusing to taxpayers. Such discrepancies are avoidable by harmonising revenue laws. Second, revenue harmonisation improves tax compliance and reduces tax evasion. When tax laws are uniform and properly coordinated between states and local governments, tax authorities can more easily enforce compliance measures. Taxpayers are less likely to engage in tax evasion or avoidance strategies when they know that the same rules apply everywhere. This can result in more revenue for both the state and local governments.

Another advantage of harmonising revenue laws is the facilitation of intergovernmental cooperation and coordination. When states and local governments harmonise tax laws, it becomes easier for them to collaborate on various issues related to revenue generation and administration. They can share best practices, exchange information, and coordinate efforts to address common challenges. This can lead to more efficient use of resources and improved service delivery for taxpayers. For instance, if different states have harmonised their property tax laws, they can collaborate on data sharing and assessment methodologies, resulting in fairer and more accurate property valuations.

Finally, despite the commendable milestones achieved by states and local governments in this regard since 2016, when there was a resurgence of the JTB and development partner support, the urgency of harmonising revenue laws between and among these two levels of government remains. Harmonising revenue laws is not just an administrative exercise; it is an opportunity for subnational governments to unleash their economic potential, drive prosperity, and foster unity among their diverse constituents. By harmonising revenue laws, Nigerian states and local governments can unlock their true fiscal potential and create a more prosperous future for all citizens. The lack of or inadequate levels of harmonisation has resulted in inconsistencies in tax structures, licensing fees, and revenue collection mechanisms, leading to confusion and compliance challenges for taxpayers. This fragmentation discourages entrepreneurs and investors, impeding economic growth and job creation. By harmonising revenue laws, subnational governments can streamline taxation processes, minimise administrative burdens, and promote a more conducive business environment. This, in turn, will attract both local and foreign investments, foster economic diversification, and boost overall revenue generation. Additionally, harmonisation will enable states to collaborate more effectively in resource allocation and ensure equitable development. With harmonised revenue laws, states can better mobilise resources to address pressing socio-economic issues.