The Federal Government is facing challenges meeting its revenue targets in the 2012 budget on the back of the current softening of oil prices.
Oil earnings make up 55 percent of Federal Government retained revenue for 2012, Value Added Taxes (VAT) make up 14 percent, corporate taxes 11 percent, customs and excise, 8 percent, and independent (dividends and FGN asset sales) 12 percent.
The National Assembly recently approved the 2012 Appropriation Bill, which included an increase in government expenditure by 2.76 percent to N4.88 trillion and a rise in the benchmark oil price to $72 per barrel from $70 per barrel.
The Accountant-General of the Federation reported on May 18 that oil revenue in April was 13.8 percent lower than the previous month, necessitating a small naira drawing on the Excess Crude Account (ECA) for distribution to the three government tiers.
“The shortfall appears to have been driven by production. Some estimates suggest that as much as 17 percent of crude oil output is lost to theft”, FBN capital analysts said in a research note released last Thursday. “Non-oil revenue has been historically pitiful. The projected rise of 61.5 percent in collection this year should be set against a background of modest powers of enforcement and low salaries in the three revenue collection agencies.”
FBN analysts say one reason for the CBN “cash-lite” programme is to draw more economic activity into the formal economy and to the attention of revenue agencies.
Gross federally collectible revenue is projected to rise by 5.9 percent from the 2011 budget to N9.65 trillion ($59.2 billion), and Federal Government retained revenue by 6.3 percent to N3.56 trillion.
“ Nigeria ’s revenue collection has room for improvement. Government revenue at 17-22 percent of Gross Domestic Product (GDP) is lower than the average for sub-Sahara Africa (SSA) and that of the SSA oil-exporting countries,” said Yvonne Mhango, sub Sahara Africa economist, at Renaissance Capital.
“This implies that pressure on the government to mobilise additional fiscal revenue, particularly beyond the oil & gas sector is likely to increase. The government is also likely to be urged to grow its non-tax revenue.”
The non-oil component of Federal Government revenue is forecast to increase by 61.5 percent to N1.62 trillion ($9.9 billion). Analysts say this is an ambitious target in the context of Nigerian budget history.
The Federal Inland Revenue Service (FIRS) however says the speedy passage of subsisting tax laws and amendment to existing ones would enable it attain its medium term target of N23.039 trillion and help improve the revenue generation capacity of the government.
Acting Executive Chairman, FIRS, Kabir M. Mashi, said last month in Abuja, that the FIRS would relish the speedy passage of existing tax laws–the Petroleum Industry Bill before the National Assembly and two tax bills that would be submitted to the National Assembly for review by December.
“In the next three years, particular attention would be on the following amongst others, achieving a Medium Term Revenue Framework as projected: N4, 779.41 trillion in 2012, N5,456.79 trillion in 2013, N6, 060.23 trillion in 2014, N6,743.58 trillion in 2015,” he said.
In the event that the government fails to meet its revenue targets, the resultant deficit would most likely be financed by the issuance of more government bonds.
“Obviously, one could even argue that Nigeria should not need to issue FGN bonds for domestic financing -unless the purpose is to develop the local fixed income market- given the substantial revenue generated from the oil industry,” says Samir Gadio, Emerging Markets Strategist at Standard Bank, London.
“That said, the exceptionally loose fiscal policy at the federally consolidated level has prevented Nigeria from posting the large fiscal surpluses that would be consistent with the country’s oil-exporter status.
In this context, reducing domestic borrowing and/or the continued monetisation and sharing of excess crude account proceeds will probably be tricky, until there is more tangible fiscal consolidation.”