The Nigerian Extractive Industries Transparency Initiative (NEITI) has said internally generated revenues (IGRs) of most states and local government areas (LGAs) are low compared with the federal government because some of the federally collected taxes are generated from activities at the sub-national level.

This was contained in NEITI Policy Brief document titled: “Beyond Assent: Pathways for Implementing Nigeria’s New Tax and Revenue Framework”.

The document added that the low level of states IGR was also attributable to their weak revenue generation capacity and low economic activities.

NEITI said, “Presently, the majority of States’ internally -generated revenues are low compared to federally collected revenues, which are in turn shared by the states based on the federation revenue -sharing formula.

“While the low level of State lGR by the states and local governments may be partly attributable to weak generation capacity or low level of economic activities at the local level, one of the reasons is that some of the federally collected taxes like VAT, are actually generated by economic activities at the sub-national level.”

It explained that in practice under the new dispensation, the revenues would actually be collected by the National Revenue Service on behalf of the states.

NEITI however sought policy options to ensure sub-national inclusiveness and federalism compliance.

The watchdog organization advocated that a fixed percentage of all federally collected sub-national taxes such as VAT, PAYE, mining royalties should be automatically remitted to the states and LGAs, with constitutional backing and published disbursement timelines.

It also sought the strengthening of administrative autonomy of State revenue authorities.

According to NEITI, while tax collection may be centralized, states should retain the right to administer local taxes, enforce compliance, and co-manage data collection systems, especially for taxes domiciled within their jurisdiction.

The watchdog organization also sought the institutionalization of a Joint Tax Governance Council comprising representatives of the National Tax Act, State Boards of Internal Revenue, LGAs, and Civil Society to oversee the implementation of tax policy, resolve disputes and ensure equitable representation on revenue related decisions.

The document also urged the Federal Government to ensure disaggregated reporting of sub-national revenues.

It insisted that all revenues collected by the Nigeria Revenue Service on behalf of the sub-national entities must be reported by the state and LGA with monthly publication of remittance reports to enable public oversight and track equity in distribution.

NEITI called for the protection of states, LGA rights to extractive -derived revenues.

According to the document, royalties from mining and other extractive activities should be treated as shared revenues under the constitution, with a guaranteed return to host communities in line with the principles of derivation and environmental justice.

It also sought support for capacity building for state tax administrations.

NEITI said the centralization of revenue collection must not lead to the weakening of state tax systems.

It added that instead the reform should be accompanied by technical assistance, infrastructure investment, and data sharing protocols to enhance sub-national revenue administration.