PERL-ARCBrief|September4,2017

PERL-ARCPublicFinancialManagement(PFM)Support:HighlightsonTaxation,andIGRToolsandResources

AboutthePERL–ARCAccountable,ResponsiveandCapable(ARC)Government isoneofthePillarsofthePartnershiptoEngage,ReformandLearn(PERL),which isa five-yeargovernanceprogramme,fundedbytheUK’sDepartment for International Development (DFID). PERL focusses on supportinggovernments,citizens,andevidence-basedadvocacy.PERLprovidesassistancetogovernmentsinthecoreareasofpolicydevelopmentand implementation.This isdonebyassistingthemintrackingandaccountinghowthesepolicies,plansandbudgetsareused indeliveringpublicgoodsandservicestopromotegrowth and reduce poverty to the citizenry. The programme also supports citizens to engagewiththeseprocesses.

The PERL programme is being delivered through three ‘pillars’ which plan together to supportsustainable service delivery reforms: Pillar 1. Accountable, Responsive & Capable Government(ARC);Pillar2.EngagedCitizens (ECP);andPillar3. Learning,EvidencingandAdvocacyPartnership(LEAP).Theprogrammeworksatthefederallevel,inthepartnerstatesofKano,KadunaandJigawa,andthroughregionallearningandreformhubsintheSouthWest,SouthEastandNorth-EastareasofNigeria.

PERL-ARCPFMtoolsandresourcesPERL-ARCworkinPublicFinancialManagement(PFM)buildsonthelegacyofitspredecessor–theState Partnership for Accountability, Responsiveness and Capability (SPARC), a DFID-fundedprogramme, that supported governance reforms in Nigeria’s 10 states (Anambra, Enugu, Jigawa,Kaduna,Kano,Katsina,Lagos,Niger,YobeandZamfara)betweenAugust2008toApril2016.SPARChad,duringitslifetime,amassedarichcollectionofPFMtoolsandguidesbuiltfromtheexperiencesandworkwithpartnerstosupportkeyaspectsofthepublicfinancialmanagementsystem,includinggovernancerelatedissuesininternallygeneratedrevenuesandtaxation.

ThePERLprogramme,thoughnotsimilarlydesignedasSPARC,buildsontherelevantworkofSPARC.Inadditiontosupportingfurtherreformsongovernanceandservicedeliveryissues,PERLalsoaimstobroadenthelegacyreformeffortsofSPARC,includingpromotinguptakeofreformproducts(toolsandguides)onPFM,policyandstrategyandpublicservicemanagement.PERL-ARC’sPFMsupporttogovernmentpartnersincludesthefollowingareas:

• EaseofDoingBusiness;• InternallyGeneratedRevenue(IGR);• PFMAssessmentforStates;• RevenueForecasting;• Budgetprocessimprovementtosupportpolicyandplanimplementationtoachieveservice

deliverytocitizens;• BudgetProfiling,cashforecastsandplans;• Budgetperformancereportingandmonitoring;and• FinancialReporting,basedonInternationalPublicSectorAccountingStandards(IPSAS).

IGR/TaxrelatedtoolsandresourcesThissectionhighlightsthreekeytoolsandresourcesfromSPARClegacyandPERL-ARCwork,namely:

1.FrameworkforInternallyGeneratedRevenueEnhancement(FIRE)

2.ImpactofTaxationandEaseofDoingBusinessintheSouth-East

3. Intergovernmental Relations in Tax Administration in Nigeria: A Consolidated Scoping and GapAnalysisofTax/IGRAdministrationReformsinJigawa,KadunaandKanoStates.

FrameworkforInternallyGeneratedRevenueEnhancement(FIRE)

The Framework for Internally Generated Revenue Enhancement(FIRE) isoneof the toolsdevelopedduring the implementationofthe SPARC programme (November 2015) and currently beingupdated. It provides guidance based on lessons learned, andexamplesofkeyareastobeconsideredduringthedevelopmentofanInternallyGeneratedRevenue(IGR)strategy.

AnIGRStrategyisessentialifastateexpectstoseeimprovementinits internally generated revenues. Sucha strategywill incorporaterequirements for systems to record and manage taxpayerassessments and collection, adequate process and controls over

taxpayer registration, recording, tax collections and follow up, adequate trained personnel andrelevantlegislation.

FIRE can be used as an initial guide in developing an IGR strategy in Nigerian states. It providessuggestionsandconsiderations, rather thana total solutionandpanaceatosolving thecash flowsand financialpositionofa state.However, it canhelp toprovidea 'roadmap'onhowtogoaboutdevelopinganIGRimprovementandmaximisationstrategy.Thetoolhighlightsbasicquestionsthatarevenueimprovementstrategyneedstoanswer.Itdescribescommonissuesandchallengesfacedby Nigerian state government revenue collecting agencies, and proffers tips, implications andconsiderations that should help develop a strategic approach to improving IGR by addressing anumberofthekeychallenges.FIREcanhelpagovernmenttokickstartitsIGRimprovementthroughanumberofindicativeIGRstrategyactivitieswhicharediscussedextensivelyinthetool.

PERLReportonTaxandEaseofDoingBusinessintheSouth-East

Taxationisakeyfactor inthebusinessenvironment.Itcanbean incentive or disincentive to businesses andentrepreneurship.Tounderstandhowtaxationaffectseaseofdoing business in the South-East region of Nigeria, and toenablestakeholderstoproffersuggestionstoimprovetaxationcontribution to theeaseofdoingbusiness in theregion,PERLsupportedanassessmentontheimpactofTaxation(taxpolicyand tax administrationmeasures of the Southeast states andFederal Government of Nigeria) on Ease of Doing Business intheSoutheastofNigeria.

Thereportoftheassessmentdrewdataandinformationfromprimary and secondary sources of information, specificallyrelyingoninterviewswithkeygovernmentofficialsinvolvedinrevenueadministrationinthefivestates,non-stateactorssuchas Chambers of Commerce, CSOs working on ease of doing

business, Traders’ Associations and publications on tax laws, administration and ease of doingbusiness.

Theactivitiescarriedoutinthecourseoftheassessmentincluded:

• AreviewofthetaxpolicyandtaxadministrationmeasuresoftheFederalGovernmentandtheirimpactontheeaseofdoingbusinessintheSEzone;

• AreviewofthetaxpolicyandtaxadministrationmeasuresofthestatesintheSEregionandtheirimplicationsforeaseofdoingbusinessinthezone;

• A scoping and gap analysis of the tax policy and administration measures in the SE,identificationof goodpractices for region-wide learningand replication, identificationandprofilingoftaxstakeholdersacrosstheSEzone,identificationofkeytaxissuesthatimpingeon ease of doing business, and establishment of actions that can be taken by thestates/regiontoreducethenegativeimpactsofandimprovethepositiveaspectsofthetaxpolicymeasures.

The assessment shows that while some tax policies and measures in the five SE states (e.g.harmoniseddemandsservedonbusinessforsometaxes, leviesandchargesbyImoStateBoardofInternalRevenue)arepositivelyimpactingontheeaseofdoingbusiness,therearealsoasignificantnumber of policies and measures that are impacting negatively on ease of doing business. Thequalityofrevenueadministrationinsomestatesisstillatalevelthatwillnegativelyimpactonthe

investment climate and private sector development. Multiple taxation by local and stategovernments, lackofclarityontheamountoftaxpayable, lackofadequatepubliccomplaintsandconflict resolutionmechanisms, and activities of illegal private collectors of revenue have seriousimplications for investors as these challenges create uncertainties about the potential return ontheirinvestments.

Intergovernmental Relations in Tax Administration in Nigeria: A Consolidated Scoping and GapAnalysisofTax/IGRAdministrationReformsinJigawa,KadunaandKano

TheneedfortheFederalGovernmentofNigeriaanditsstategovernmentstomobiliseinternalrevenueshasbecomeinevitableowingtodwindlingrevenuefromoil.TheNationalEconomicCouncilRetreatofMarch2016hadwithinits71Resolutions,adedicatedthemeonRevenueGenerationandFiscalStability.TheTechnicalReportoftheRetreathassuggestedthatforNigeriatoattaintheaveragerevenuetoGDPratioofsimilareconomies,ithastoincreaseitstaxrevenuesby300%fromthelessthan7%to20%ofGDP,andthatatleast70%ofitsrevenuesmustcomefromnon-oilsourcestoensuresustainabilityandforestallthecountry’sexposuretoshocksinoilprices.Meanwhile,anumberofinterventionshavebeenundertakeninthevarioustaxrelatedreformsinpartnerstatesbyprogrammesfunded DFID and other development partners. These include

SPARC,theStateAccountabilityandVoiceInitiative(SAVI),theGrowth,EmploymentandMarketsinStates(GEMS3),andEnhancingNigerianAdvocacyforaBetterBusinessEnvironment(ENABLE).Andnow the approach of the Partnership to Engage, Reform and Learn (PERL) is to support InternalRevenue effort with partners, and support DFID’s strategy to support the federal and stategovernmentstoimprovetheircapacitytoincreaserevenuesinthelong-term.

In response to this need and current demand, PERL embarked on an IGR scoping assignment toidentify gaps that would provide opportunities for potential support by development partners.Domestic revenuemobilisation is not only useful in augmenting dwindling revenues fromoil, butalsoprovidesamorestableandsustainablesourceofrevenues,withthepotentialtoincreasevoiceandmutualaccountabilityingovernance.

The scoping assignment sourced information from the discussions with federal agencies,developmentpartners and stategovernmentsand concentratedonPERL’s threepartner statesofJigawa, Kaduna and Kano, and the Federal Government, whilst considering intergovernmentalleveraging.

Atthefederallevel,thescopingstudyofIntergovernmentalfiscalinstitutionsprovidesobservationsandfeedbackonabroadscanofintergovernmentalrelationsaroundtaxationandrevenuebetweensubnationallevelgovernmentsandfederalagencies–includingtheNigeriaGovernors’Forum(NGF),the Joint Tax Board (JTB), the Federal Internal Revenue Service (FIRS), the Federal Ministry ofFinance(FMoF)andtheRevenueMobilisationAllocationandFiscalCommission(RMAFC).

At the state level, the scoping study covers discussions with the State GovernmentMinistries ofFinance and Economic Planning, the Internal Revenue Services, development partners and

programmes, including DFID’s PERL Programme pillars (ARC, ECP and LEAP), GEMS3 and ENABLE.Theworks undertaken by previous programmes such as SPARC and SAVIwere also considered inrelationtocapacityassessmentsandIGRstrategyworkwithinJigawa,KadunaandKanoStates.

ThePERL reporton, ‘IntergovernmentalRelations inTaxAdministration inNigeria:AConsolidatedScopingandGapAnalysisofTax/IGRAdministrationReformsinJigawa,KadunaandKano’hasdetailsofgaps identifiedaswell aspotentialopportunities for supportbydevelopmentpartners, in tax /IGR administration reforms at federal level and in the PERL partner states of Jigawa, Kaduna andKano.

The opportunities for state support and advocacywere identified through theNigeria Governors’Forum (NGF), working primarily with Governors, and the Joint Tax Board (JTB), working withExecutiveChairmenofStateBoardsofInternalRevenue.Atthestatelevel,findingsandimplicationsarediverseandreportedseparatelyforJigawa,KadunaandKano.TherearealsoopportunitiesforworkingthroughtheOpenGovernmentPartnershipacrossboard.

ContactDetails:PartnershiptoEngageReformandLearn(PERL)Nigeria40MississippiStreet,Maitama,Abuja,FCT.Email:info@arc.perlnigeria.netWebsite:www.perlnigeria.netFacebook:https://www.facebook.com/perlnigeriapage/Twitter:https://twitter.com/perlnigeria