Nigeria’s Federal Government earned more from non-oil sources than oil for most of last year, yet the country is far from weaning itself from a longstanding dependence on oil revenues that successive presidents since 1999 have promised and failed to achieve.
The government earned the bulk of its income (62.5%) from non-oil sources in the 11 months through November 2021, marking the first time that non-oil revenue has eclipsed oil revenue since the oil boom in 1973.
The government’s retained non-oil revenue, which is cash generated from sources like Corporate Income Tax (CIT), Value Added Tax (VAT) and Customs, came to N1.62 trillion in the period compared with N970 billion generated from oil, according to data from the Budget Office.
Non-oil revenue, though higher than oil revenue, however, remains insufficient to fund the annual budget and is only now the main income source of the government because oil revenues have slipped due to lower oil prices and production levels.
Oil revenues have more than halved from a peak of around N4 trillion in 2014 to less than N2 trillion since 2016, giving non-oil income the room to emerge as a more dominant source of revenue.
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Despite the rise of non-oil income, the actual amount generated from this source remains too low to cover the government’s spending, a sign that Nigeria’s post-oil future is still hanging in the balance.
Non-oil revenue, at N1.62 trillion in the first 11 months of 2021, could only cover a paltry 12.9 percent of the Federal Government’s expenditure of N12.56 trillion in the period.
Most of that expenditure was instead funded by debt, which came to N6.7 trillion in the 11 month-period under review, 53 percent of expenditure.
“We can only say we have successfully reduced our reliance on oil when non-oil revenue can fund the majority of our expenditure,” said Taiwo Oyedele, a partner and head of tax and regulatory services at PriceWaterhouseCoopers (PwC) Nigeria, saying, “Our dependence on oil revenues has only shifted to borrowing.
“Also bear in mind that even if our non-oil revenue did not improve, it would still be higher than oil revenue which has declined significantly in the past few years.”
Oyedele however admitted that some progress was being made with boosting non-oil revenues, especially as it concerns certain tax reforms like the increase in VAT, although he warned that an economy still recovering from a brutal pandemic should not be overtaxed.
Corporate Income Tax contributed the bulk of the cash to non-oil revenues in the 11 months to November 2021, with N718 billion, 15 percent more than the amount that was budgeted.
Customs revenues came to N503.75 billion while VAT surpassed the target set in the budget by 65 percent to deliver N360.56 billion.
The increase in these taxes is a reflection of an economy that is fast putting the COVID-19-induced economic disruptions behind it. Companies declared higher taxes last year compared with 2020 as profitability rebounded.
