Between January and September this year, the Federal Government of Nigeria collected N2.81 trillion in taxes but spent over N1.004 trillion, equivalent to 48 percent of taxes collected, on petrol subsidy, an expenditure pattern analysts say puts the economy at risk.
What Nigeria has paid to subsidise petrol since January is higher than what it budgeted to spend on education and health, expenses that would have raised the living standards of its people and translated to economic growth.
Worse still, the Federal Government did not make any provision for subsidy in the 2021 budget, but according to the review of the government’s expenditure since January, debt service of N1.80 trillion is the single expenditure higher than subsidy.
Data collated from the Nigerian Bureau of Statistics (NBS) show the Federal Government collected an estimated N2.81 trillion in the last nine months from Value Added Tax (VAT) and Company Income Tax (CIT).
Proceeds from VAT totalled N1.14 trillion, while CIT collections accounted for N1.33 trillion in the past nine months.
However, petrol imports gulped N1.05 trillion in the third quarter of this year, up from N782.46 billion in the second quarter and N687.74 billion in the first quarter, according to the NBS data.
Data sourced from NNPC’s report submitted to Federation Account Allocation Committee reveal petrol subsidy totalled N448.3 billion in the third quarter of this year, up 17 percent from the second quarter’s N383.9 billion; the subsidy paid in the second quarter is 94 percent higher than the N197.8 billion spent in the first three months in 2021.
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International financial institutions like the World Bank and the International Monetary Fund had advised governments to cut costly national subsidies and to provide them in a targeted fashion to poor communities.
Analysts at the World Bank in a recent report said fiscal pressures had increased for Nigeria, as higher petrol subsidy costs cut revenues, urging bold reforms to boost income.
“The Premium Motor Spirit (PMS) subsidy is eroding Nigeria’s limited fiscal space to provide essential services,” it said, noting, “Aggressive reform efforts could contribute more to growth than a sustained period of high oil prices.”
Nigeria has fallen behind on implementing reforms started at the height of the COVID-19 pandemic, the bank said, adding that growth rates will lag those of other emerging economies, unless momentum is restored.
“The subsidies regime in the (petroleum) sector remains unsustainable and economically disingenuous,” Ahmed said during the launch of the report.
Mele Kyari, NNPC’s group managing director, said in a recent interview that the ordinary man hardly benefits from this subsidy, saying, “We sincerely believe this is the perfect time to ensure that these benefits come to the ordinary man and not to the elites.”
The poor in Nigeria rely heavily on public transit. As a result, their per capita fuel consumption is substantially lower than that of the country’s wealthy, who typically drive private vehicles. Also, petrol subsidy is encouraging petrol smuggling outside Nigeria’s borders.
Nigeria is planning to replace subsidies next year with N5,000 monthly payment to over 40 million poor people but analysts say it is replacing one problem with another.
Africa’s biggest oil producer, unlike other countries, does not charge VAT for petrol, a development that denies the country valuable revenue.
A back of the envelope calculation shows if 7.5 percent VAT is applied to an estimated daily import of 60 million litres of petrol, the Nigerian economy could be generating N742 million daily and N271 billion yearly.
As Nigeria moves gradually towards another election year, some analysts are concerned the government will be unable to muster the courage to remove petrol subsidies considering the widespread poverty in the country.
Analysts at the Economist Intelligence Unit (EIU) say the Nigerian government is unlikely to remove petrol subsidy until after the general elections in 2023, despite the Petroleum Industry Act abolishing the practice.
In an election, the government may prioritise sound policy for populism but this could worsen poverty and lead to further instability.
“The Buhari administration has a track record of making U-turns when faced with severe political resistance, and this complicates the medium-term economic and fiscal policy outlook,” the analysts note.
The EIU notes that it may take a new government to finally end petrol subsidies forced by deteriorating fiscal conditions.
