Taxation & Representation in
Africa Determinants of Local and State Budgeting
and Revenue Generating Priorities
Olufunmbi M. Elemo
Department of Political Science
Michigan State University
Institute for the Study of International
Development
McGill University
Friday, March 22, 2013
Main Question
Under what conditions are African local and state governments more likely to spend public revenues on public services?
◦ Growing Duties for Local and State Governments
◦ New Authority to Raise Revenue via Taxation
◦ What determines Local and State Government spending?
So What?
Practical Implications ◦ Africans report “representing the people” as
elected official’s most important responsibility
◦ Concrete policy prescriptions for expanding representation across levels of government
Theoretical Implications: Revenue and Governance ◦ Taxation Representation
◦ “Oil impedes Democracy”
Literature is Too Broad
Theoretical Framework
Gibson and Hoffmann (2006)
◦ Local Governments in Tanzania and Zambia
◦ “Do sources of revenue affect government
expenditure?”
◦ Tax Revenue Spending on Public Services
◦ Non-Tax Revenue Spending on
Government Salaries
Analytical Focus
Does the source of revenue affect government
expenditure in Nigeria?
H1: As government income from taxation
increases:
◦ Spending on government salaries will
decrease.
◦ Spending on public services will increase.
H2: As government income from transfers
increases:
◦ Spending on government salaries will increase.
◦ Spending on public services will decrease.
Research Design
774 Local Governments, 2000 – 2004 and 2008
36 State Governments, 2000 – 2003 and 2007 –
2009
Central Bank of Nigeria Annual Statements, 1999
– 2009
Controls: Population, Area, Socio-Economic
Capacity, Size of Economy
Cross-Regional Comparisons (I)
0
2
4
6
8
10
12
14
16
18
20
2005 2007 2008 2009
NORTH-WEST
MIDDLE BELT
NORTH-EAST
Cross-Regional Comparisons (II)
0
5
10
15
20
25
30
2005 2007 2008 2009
SOUTH-WEST
SOUTH-SOUTH
SOUTH-EAST
Lagos vs. Kano: Demography (I)
STATE
POPULATION
(% OF TOTAL
NIGERIA)
% POPULATION
EMPLOYED
LAGOS 6.4 37
KANO 6.7 37
Lagos vs. Kano: Demography (II)
WORKING
POPULATION BY
ACTIVITY (%)
LAGOS KANO
AGRICULTURE 2 25
FISHING 1 1
MANUFACTURING 8 12
CONSTRUCTION 5 2
TRADE 40 33
TRANSPORT 7 2
PUBLIC
ADMINISTRATION 7 2
EDUCATION 5 3
HEALTH/SOCIAL
WORK 3 1
SERVICES 20 14
OTHER 3 2
Culture of Cooperation in Lagos (I)
“For sustainable and meaningful
development, taxation is necessary. Nigeria
cannot only have an oil economy…It’s not
sustainable for economic
development…Taxes are the only viable
means…”
--Director, Lagos Internal Revenue Service
Culture of Cooperation in Lagos (II)
“Recently, there’s even more realization
that states can’t survive without internally
generated revenue. Politicians have put
pressure on the civil service to improve the
tax administration. They have also been
encouraging citizens to make their
payments.”
--Director, Lagos Internal Revenue Service
Culture of Cooperation in Lagos (III)
“…the ability of government and public officers to play their part depends largely on resources made available to them; and the most certain, most durable, and most sustainable of these resources are the public funds which the people themselves contribute by way of taxation…
“…In Lagos, it is becoming increasingly clear that a government cannot do more than it is financially empowered to do, and that taxation remains the golden key to economic development…”
--Governor Babatunde Fashola, Lagos
Culture of Cooperation in Lagos (IV)
“The informal sector, as the name connotes, [is made up of] very informal people. They don’t keep accurate records. We have had to have discussions with them and agree on what is called a minimum tax expectation based on their income…a minimum of N2,500, then we’ve moved up gradually from there”
--Tunde Fowler, Lagos Internal Revenue Service
Adversarial Relations in Kano (I)
“Certainly yes. It is through tax that we can build infrastructure. But in Kano, if the statutory allocation [federal transfers of petroleum income)] was not there, how would Kano survive? This is the big question. We can only survive through tax revenue. We must tap taxation to survive in future…We are not collecting enough. In fact, it is grossly inadequate…”
--Director, Kano Board of Internal Revenue
Adversarial Relations in Kano (II)
“For now, [politicians] have not grasped the benefits to accrue from taxation. There is a total lack of support for the tax administration. The facilities don’t meet our needs. [KBIR] is treated as if we are not a ministry. We are not given resources. We don’t have vehicles or computers. There is not enough for the adequate payment for our salary. There is no capacity building…” --Director, Kano Board of Internal Revenue
Adversarial Relations in Kano (III)
“It is irresponsible to ask for more revenue
based on what is given to oil bearing states.
Rather than ask for more funds from the
federal government, Kano should explore
ways of making more money for itself.
Leaders should concentrate on diversifying
of our revenue base and use sustainable
alternatives like taxes.”
--Director, Kano Board of Internal Revenue
Adversarial Relations in Kano (IV)
“…As regards physical infrastructure, the
Kano State BIR offices are housed in rented
premises making it very difficult for long
term planning. The buildings, furniture and
general office equipment are largely in a
dilapidated state and are unsuitable for
modern ways of working…”
--2009 KBIR Modernization Plan, World Bank
Summary
Differences in political leadership help
explain why Lagos and Kano have two
different tax cultures.
◦ This ultimately results in two different
rates of tax generation.
In Lagos: Cooperation and compliance.
In Kano: Indifference and a lack of
engagement.
Conclusion
Non-Tax Income Decreased Public
Service Spending
Tax Income Increased Public Service
Spending
Political leadership and relationships to tax
agencies influence state tax generation.
◦ Cooperative Stronger Tax Generation
(LAGOS)
◦ Adversarial Weaker Tax Generation (KANO)
Lagos vs. Kano: Legislative
Perspective (I)
0
10
20
30
40
50
60
70
80
90
FEDERAL LOCAL STATE
KANO
LAGOS