UNIVERSITY OF ADO-EKITI INTERNATIONAL JOURNAL
OF ACCOUNTING
Editor-in Chief:
Professor C.S Ola
Managing Editor:
Dr. H.T. Iwarere
Associate Editors:
Mrs A.R. Agbaje
Mr Awe. I.O. Mr. Osekita
Mr. Adesina
Editorial Board:
Prof F. Kayode
Prof. R.O Anao
Prof. I.I. Ihimodu
Prof. I.Onbabor
Prof. D.C.Uguru-Okorie
Dr. A. A. Owojori
Dr J.A OIoyede
Dr. J.A. Olaogun
Dr. M.I.. Nassar Dr. J.O Ohijide Dr. S.A. Adebola Dr. Bamiduro
Business Manager:
Mr. F.A. Baiyewu Mr. Oluwakayode Mr. O. Aduwo
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Volume I. No. 1:
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A PUBLICATION OF THE DEPARTMENT OF ACCOUNTING, FACULTY OF
MANAGEMENT SCIENCES, UNIVERSITY OF ADO - EKITI, NIGERIA.
UNIVERSITY OF ADO-EKITI
INTERNATIONAL JOURNAL OF
ACCOUNTING
VOLUME 1, NUMBER 1,2002
A Publication of
THE DEPARTMENT OF ACCOUNTING
FACULTY OF MANAGEMENT SCIENCES,
UNIVERSITY OF ADO-EKITI
UNIVERSITY OF ADO-EKITI
INTERNATIONAL JOURNAL OF ACCOUNTING
VOLUME 1, NUMBER 1,2002
Contents
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Widening the Revenue Base of Ekiti Slate
Prof. C.S. Ola……………………………………………………………………… 1
The Hindrances of using the Original cost Method To Depreciate Manufacturing
Assets in An Inflationary Environment
Dr. H.T. Iwarere & A.R Agbaje (Mrs.)…………………………………….
11
An Empirical Analysis ol the Variations in Financial Resources Utilization
Efficiency in the Health Care Delivery System of Lagos State - A SocioEconomic Perspective
Dr. S.A. Adebola........................................................
18
Effects of Accounting Theory and Regulation Framework on Nigerian
Accountants
Dr. A.A. Owojori……………………………………
28
A Development Group Model for Bank Forecasting
Dr. (Mrs.) S.L Adeyemi ……………………………………………………
37
Tax Incentives As Investment Catalyst in the Manufacturing Business.
F.A. Bayewu & Agbaje A.R. (Mrs.)..............................................................
47
Education Tax Fund: A Necessary Tool for Educational Structures
Improvement in Nigeria 1. R, Akintoye………………………………….
55
Assessing the Consistency of Auditors ‘Prior Distributions and Sampling Results
S. F. & Dr. M. L. Nassar ………………………………………………….
64
A Comparison of Passenger Vehicle Financing Strategy through Borrowing and
unregulated Hire Purchase Arrangement
Dr. H.T. Iwarere…………………………………………………………………… 73
Accounting as a Tool for Strategic Management
Dr. J.O. Olujide......................................................................................
11.
12.
13.
14.
15.
16.
81
Tackling the Expectation Gap in the Audit of Financial Institution.
O. I. W. Awe................................................................................................
91
Measuring the Performance of Local Government Councils in Nigeria:
The Values. Difficulties and Solutions
P.O. Yabugbe & G.T. Akinleyc.........................................................................
96
Community Banking System in Nigeria: Evaluation of Conduct and Performance
Dr. J.S. Sogo-Temi .....................................................................................
103
Nigeria Privatization Exercise and Corporate Governance:
What are Future Challenges
Dr. R. J. A. Bamiduro………………….
110
Accounting for Deferred Taxes: Review of the Changes Arising from
SAS 19
A. A. Owolabi ……………………………………………..
116
Evaluation Loans and Advances Management in Commercial Banks
G.T. Akinleye................................…………………………………………
124
I10
Dr. R. J.A Bamiduro
NIGERIA PRIVAFIXATION EXERCISE AND CORPORATE
GOVERNANCE: WHAT ARE FUTURE CHALLENGES
By DR. R. J.A. BAMIDURO
Dept of Business Administration. University of llorin
Abstract
Privatization as a concept crop! into the Nigerian economic dictionary in mid eighties with the
advent of the Structural Adjustment Programme (SAP). Privatization programme generally has
transformed the economic landscape in countries around the globe. Unless developing countries, in
which Nigeria belongs embrace a corporate governance perspective, privatization is unlikely to provide
the benefits of improved performance and accountability.
This article introduces the concept of governance chains that can constrain the "grabbing
hands" of public and private actors by proving information, empirical studies and accountability
mechanisms to help investors monitor managers of Nigerian privatization exercise. The proposed
privatization of electricity utility, that is the National electric Power of Authority (NEPA) and the gates
of privatization of tax administration of Hoard of Internal Revenue (BIR) in three states of the
federation for five years arc examined and future challenges enumerated, thereby drawing suggestions
for our policy makers.
Introduction
Privatization is a policy which has been strongly advocated by the IMF and the World Bank to
improve the performance of state run enterprises and for developing countries to reduce their levels of
debts. Over the past 15 years, privatization programmes have transformed the economic landscape in
countries around the globe, transferring close to $1 trillion in assets from government controlled
enterprises to private hands (Dyck 2001 ).
Analysts report that the shift provides benefits ranging from increased state revenues to a
reduction in government's role as sole provides of certain goods and services, and academic research
has documented significant improvements in operating and performance criteria (Galal 1994). La Porta
and Lopez - de - Salines (1999).
According to Shleifer (I998). such evidence moved thinking away from a qualified acceptance
of privatization toward an enthusiastic endorsement of the process. But more recent studies challenge
this view. Such transfers not only have failed to stop the "grabbing hands" of the state, hut evidence
suggests that they also allowed profits to be diverted to the grabbing hands of insiders or privatized
firms. Wright (1999). '['his revelation presents challenges for government run enterprises that are about
to be privatized.
In view of this relevant, the objective of this paper is therefore to examine the Nigerian
privatization exercise and ascertain the gains that have accrued to the state that had privatized their tax
administration and the about to be privatized NEPA. looking at the future challenges and suggest the
way forward for our policy makers.
Conceptual Framework
The issue of privatization of NEPA and the Board of Internal Revenue (BIR) have
remained, for long, an intractable issues that need to be solved once and for all .'There is no doubt
that the ineptitude and bad management that characterized the running of these organizations was
the only truism that propelled the federal government and some states in the federation to decide to
privatize NEPA and the BIR receptively.
UNAD International Journal of Accounting
111
There is need to answer the following questions then:
What necessitated the call for NEPA privatization ?
What exactly can he done to subdue the anomalies prevalent in the Board of Internal
Revenue (BlR)?
Is privatization the only alternative'.'
What challenges await the policy makers after privatization.'
To this end, the rationale for establishing public corporation in Nigeria is examined critically
examining genesis of NEPA privatization and the revenue profits of three states for five years that
privatized their Board of Internal Revenue units as revenue generation strategies. The sampled states
are lido. Delta and Kaduna slates. The article thus finalise by considering the benefits of corporate
governance which are brought about by improved information and accountability.
Rationale for Establishing Public Corporation in Nigeria
In considering the rationale and (lie motives which compel Nigeria government to engage
in public ownership, it is difficult lo distinguish dearly among motives whether these are merely
implied or they are overtly expressed Aboyade (1973). But it can he conveniently be said that goal
of rapid social economic restructuring tend to be paramount in establishing public corporations
Brown (1981). The absence of a balanced economic structure manifests itself in distortion in the
allocation, ownership and use of resources, private sector activities which is not oriented towards
societal needs, and the ownership of key resources by non-nationals Blunt (1964). Furthermore.
Nigeria economy are permeated by private sector monopolies and quasi monopolies, and
unemployment is endemic. These conditions called for state intervention and impose
responsibilities on the national government, no matter what their complexity to assume a positive
role by establishing public corporations, inter alia:
(i)
To provide social amenities for the public which on the other hand is not feasible to be
provided by private sector, but by government alone, that is electricity, water, railways
etc. All these were established under corporations in order to serve the needs of the
issues:
(ii)
To regulate and control private enterprises activities in the public interest:
(iii)
To protect the national interest against foreign domination of the economy, that is,
perceived as ways of achieving independence from foreign companies:
(iv)
To be active initiator and participants in the development process by engaging in the
ownership, management and operation of crucial agricultural, industrial, commercial and
service and other development undertakings:
(v)
Assuming the risk of capital intensive projects adjudged to large for the private sector;
that is private sector may not be able to afford the huge amount of money likely involved
in such corporation;
(vi)
The unwillingness of the private sector to move into new areas of investment which
involves large capital outlay, undue risk or long period of gestation; traditionally private
corporations investment concentrate on the relatively assured avenues of import
distribution activities and land speculation;
(vii)
To play a significant role in the industrialization process in Nigeria. This is because they
are feasible method for initiating industrialization .goals and objectives.
Privatization in simple terms means a transfer of ownership and control of public
corporations from the public to the private sector, with particular reference lo asset sales. While
privatization involves the act of diverting the government shares in the public corporations,
commercialization on the other hand allows the government to retain its presence only as
shareholders, Ajakaye (1988).
112
Dr. R. J.A. Bamiduro
Three methods of privatization have been adopted:
(i)
Pubic offer for sales of shares of the affected corporations through the Nigerian Stock
Exchange. It is envisaged that 65 out of the 110 (that is about 59.1 percent) affected
corporations will be privatized through this method.
(ii)
Private placement of shares of affected corporations. This will take the form of
"coregroup" investors with demonstrated capacities in similar industrial or workers of an
enterprise forming themselves into agencies can be used to warehouse shares of affected
corporations pending the time they are ready to be sold through public offer of shares on
the Nigerian Stock Exchange. About 35 companies are expected to be privatized this
way.
(iii)
The third method is the sales of assets where the affected corporations cannot be sold
either by public offer of shares or by private placement. These are likely to arise in cases
of corporations whose performances record are bad and future outlook is hopeless
Zayyard(1990).
In all cases, the assets will be sold by public tender advertised naturally and about ten
corporations were expected to be treated this way. The choice of public offer for sale as the predominant method of privatization was informed by the need for wider share ownership and the
desire to extend the frontiers and depth of the Nigeria capital market.
National Electric Power Authority (NEPA) and Privatization
Recently, some of the privatized or commercialized enterprises enjoy the benefit of
making price adjustment in response to market trend. Thus, it is a surprise to many people that
electricity supply business which demands complex systems of generations, sophistry of
technology to transmit load, vast net work to distribute into and of course, widely spread
population of consumers to deal with is still carried on in Nigeria as a social service under strict
tarry policy.
Advanced countries like Britain, Canada, the U.S.A. and Australia have decided to leave
most of the public corporations like communications, housing and even electricity in the hands of
private entrepreneurs with very little control from government and success of such corporations
cannot be over emphasized, thereby lifting their burden off government's shoulder while their
performance is very satisfactory. Therefore, if electricity supply which is in the hands of private
sector in advanced countries is a success story, then the question is shouldn't Nigeria government
privatized NEPA?
Up till now, it is well believed that electricity supply has been erratic and the problems
still persist if not getting worse. The overall assessment of NEPA shows that it is performing for
below expectation and to this many people believe that it is because of government involvement in
its management.
Background To The Privatization of Tax Administration in Nigeria
The creation of the State Boards of Internal Revenue (BIR) as a separate agency for tax
administration at the state level is a logical result of the federal nature of Nigeria. The major taxes
that are collectable by the states as stated in Decree No. 21 of 1998 are Personal Income Tax (Pay
As You Earn (PAYE) and self-employed direct taxation, capital gains tax on individuals etc. The
Board of Internal Revenue administers these taxes on behalf of the state governments.
A comparison of taxes that are administered by the BIR in the sampled states and other revenue
accruing to the sampled states before the privatization .of their tax administration is presented in
table 1.
UNAD International Journal of Accounting
1 13
Table1: Board of Internal Revenue Administered Taxes and other Revenue for Edo, Delta
and Kaduna States (1992 - 94
1992
Edo
Delta
Kaduna
(N' 000)
BIR Taxes
78,606
143.l79
172.932
others
37.659
7.13s
160.779
Total
116,265
150,317
333,711
B1R % of Total for 1992
68%
95%
52%
1993
BIR Taxes
81.7681
445.886
240.704
Others
24.794
65,091
179.213
Total
106,575
510,977
419,917
BIR % of Total for 1993
77%
87%
57%
1994
Edo
Delta
Kaduna
BIR taxes
109.248
496.285
518.557
Others
27.203
48.398
91.544
Total
136,451
544,683
610,101
BIR % of Total for 1994
80%
91%
85%
BIR % for 3 years
75%
90%
68%
Others % for 3 years
25%
10%
32%
Source: Annual budget analysis of the sampled slates.
From table 1. the contribution of taxes to the total Internally Generated Revenue (IGR) of
the states ranges from 68% to 95%. In Edo state, it ranges from 68% to 80% and from 87% to
95% in Delta state and 52% to 85% in Kaduna state. For the three states over the three year period:
other revenue put together contributed as little as 10% in Delta slate and as much as 34% in
Kaduna state.
From the table, it is obvious that most internally generated revenue of the sampled states
are derived from taxes administered by the Board of internal revenue. Thus, it can be seen that the
revenue generation activities of u state are concentrated in the BIR whose traditional function is
tax administration. This function is however, bedeviled with a lot of problems in Nigeria.
Generally, Nigeria public enterprises are infested with lot of problems that preclude them being
.effective. Some of these problems are identified by Zayyard (1995) as. confused and conflicting
missions, political interference in operating decisions, misuse of monopoly powers, defective
capital structures resulting in heavy dependence on the treasury for funding, bureaucratic
bottlenecks in their relations with supervising ministries and mismanagement and corruption. The
Board of Internal Revenue (BIR). though established and run as ministerial departments rather
than enterprises, are largely faced with similar problems. According to Ibraheem (1997) such
problems combined with lack of training facilities and effective management information system
to make the BIR ineffective.
The prevalence of the problems and the positive turnaround experienced by government
moribund enterprises through the privatization exercise of the early nineties suggests that the
public sector could learn a few tricks from the private sector.
Emergence of Accelerated Revenue Generation Programme
The Accelerated Revenue Generation Programme (ARGP) was first introduced in Niger
state in 1994. It has been implemented in twenty-six states of the federation. The mode of
operations of the ARGP is designed to take cognizance of the peculiarities of each state in such a
way that the objectives of the programme are achieved in the shortest possible time.
In order to examine the effect of privatization on to administration in the sampled slates.
the three Years preceding ARGP were analyzed and companied with five years post ARGP. Using
114
Dr. R. J.A. Bamiduro
regression analysis at significant level of 0.05, the behaviour of tax collection trend during the
periods was studied. The major hypothesis tested was that:
There is no significant difference between the amount of taxes collected by the Board of
Internal Revenue and those collected by the ARGP in each of the sampled states
Table 2: Summary of Minimum, Maximum and Average other I. IMS Collections (1997 -2001)
State
Minimum Collection Maximum Collection
Average Collection
BIR
ARGP
BIR
AGRP
BIR
ARGP
Edo
1850000
2607000
26100000
1545.000
6.827.100
Delta
61,3000 828,000
4,630,000
13,124,000
2,304,000
4,244,000
Kaduna 1123000 30,97000
8,657,000
50,388,000
3975,000
16,944.000
Source: BIR of the sampled states
From table 2. the implication of the foregoing trends is that as far as tax yield is
concerned, the privatization of tax administration through the ARGP was more beneficial to the
state governments concerned.
Benefits of Corporate Governance: Improved information and Accountability
The institutions of corporate governance are those organizations and rules that influence
the expected returns to investing and giving authority over one's resources to insiders. Such
institutions alter the payoffs, thus affecting the actions that will be observed, and facilitate or
constrain the grabbing hands of public and private actors.
Two factors could lower the costs of such delegated decision making under privatization.
First, effective governance institution improve information flows and avoid what is often called
"lemons problem". That is, insiders have an incentive to provide information about good
investment projects, but they also have an incentive to withhold information when investment
projects go bad. for example, in the case of NEPA, the promise that investors will receive in
exchange for their resources includes specific terms and broader understandings about how future
contingencies will be resolved. Uncertainty accompanies promise. The parties to the promise, as
distinct entities with their own goals, know their interests are not perfectly aligned.
Second, effective institutions of corporate governance make managers accountable. To
ensure that resources are always being targeted on their most efficient uses, investors need to he
able to punish managers explicitly (by firing them) or implicitly (by withdrawing their
investments). Such accountability mechanisms are enhanced when investors have clearly defined
power in advance, the ability to coordinate their actions, and low-cost mechanisms for resolving
dispute with the management.
CONCLUSION AND RECOMMENDATION
For Privatization to yield economic fruits, government must set the pace through an
articulated reform of the super-structure upon which the investments targeted for privatization
would stand. Government should endeavour to enact some regulatory control on the privatized
companies to ensure standard, efficiency and to guide against exploitation or politicization. For
privatization to fully justify its cause, a record of the proceeds from the programme should be
properly managed and entrusted to eminent Nigerians for proper management and disbursements.
Close at NEPA reveals that the organization is very large both in function and in
operation. It is the only organization generating, transmitting, distributing and marketing. Thus,
splitting NEPA into smaller units or holding companies would be beneficial even at the face of
privatization.
With regards to the Board of Internal Revenue (BIR), the importance of tax
administration to a state in revenue generation cannot be over emphasized. The attempt to reduce
UNAD International Journal of Accounting
115
tax evasion made government to resort to partial privatization of tax administration using the
Accelerated Revenue Generation Programme (ARGP) outfit.
This study has repealed that partial privatization of tax administration is beneficial to
government in terms of increased tax yields and more efficient tax administration. In view of the
numerous benefits accruing from the ARGP. it is recommended that government should seriously
consider partial privatization of tax administration.
Of course, a full privatization of tax administration and NT.PA is not even ideal since
taxation is one of the few activities where a government should not lose its autonomy and
transferring organization like NEPA which is more of social property to private interest may not
be socially acceptable. It is pertinent to state that in some cases, it may not be politically expedient
to implement any form of privatization that will lead to a complete investment of ownership or
control.
It is thus recommended, given the findings of this study as regards the organizational
factors that contributed to the success of the ARGP, the government can achieve privatization by
attrition, by thoroughly reorganizing the Board of Internal Revenue and making them autonomous
that they can operate outside the civil service structure.
Finally, an effective enforcement machinery should be put in place for the reorganisation
of NEPA and BIR to make them more efficient and effective.
REFERENCES
Ajakaiye. O. (1988) "Motives and Consequence of Privatizing Nigeria Public Enterprises Under
SAP" Ibadan, UPI.
Blunt. M.E. (1964) The Place of Ideology in the Origins and Development of Public Enterprises in
Nigeria. Nigeria Journal of Economic and Social Studies Vol. 6 No. 3.
Dyck. A. (2001) Privatization and Corporate Governance The World Bank Research Observers
Vol. 16. No. 1.
Galal, A.L., Jones P. Tandon and I. Vogelsang (1994) The Welfare Consequences of Selling
Public Sector Enterprise. New York. Oxford University. Press.
Ibraheem A.W. (1997). "The Achievements and Criticisms of ARGP" The Nigerian Accountant
(April/June 1997) Vol. 30. No. 2.
LaPorta. R. and Lope/-de-Salines. F. 11999i "Benefits of Privatization: Evidence from Mexico".
Quarterly Journal of Economics 114(4).
Shleifer. Andrei (1998) "State Versus Private Ownership" Journal of Economic Perspective
12:133-50.
Wright, Rob. (1999) "Corporate Governance Goes Global: Riding The Rising Tide. "Impact 3
(Summer): 2 - 9).
Zayyard H. (1999) "The Implementation of the Privatization and Commercialization Programme".
Paper Presented at an International Conference of the Implementation of the Privatization
and Commercialization Programme. An African experience, Lagos TCPC.