Nigeria may be better off projecting at least a 50 percent decline in non-oil revenues this year due to the COVID-19 pandemic’s impact on the economy and taxes, according to tax experts polled in a BusinessDay survey.
It would appear that while the government has come to terms with significantly lower oil revenues, it remains quite bullish about non-oil revenues.
While the government expects oil revenues will slide by around 90 percent and GDP contract 3.5 percent, it is projecting only a marginal decline in key non-oil revenue items from Value Added Tax (VAT) to Custom duties.
In its fresh projections, VAT is estimated to rake in N2.0 trillion, a 4.7 percent decline from N2.1 trillion earlier planned in the 2020 budget, while Customs receipt is expected to fall 20 percent to N1.2 trillion from N1.5 trillion.
However, those estimates are deemed overly optimistic by tax experts who say the government should be expecting a much bigger decline this year due to the economic impact of the COVID-19 outbreak.
“The new projections for Value Added Tax (VAT) and Customs are still too optimistic,” said Wole Obayomi, partner & head of tax, regulatory & people service (TRPS) practice, KPMG Nigeria.
“It is unrealistic to be aggressive about VAT, which is driven by supply and consumption of goods and services, at a time when sales by businesses and consumer purchasing power have buckled due to the COVID-19 lockdown, downturn in the economy, job losses and pay cuts,” Obayomi said.
“Same goes for the projected customs receipts. Manufacturers and trading companies are not likely to import as much as they used to do due to sluggish sales. Capital importation will equally be impacted in the absence of growth and impairment of consumer purchasing power. These factors make it hard to see how the projection for Customs will be achieved,” he said.
Global consulting firm, McKinsey, estimates that the jobs or incomes of 150 million Africans are vulnerable due to the COVID-19 crisis.
Given that Nigeria accounts for around 20 percent of the continent’s GDP, that means the jobs and incomes of some 13 million Nigerians could be at risk.
Some companies, battling with lower revenues, are already either shedding some workforce or cutting salaries in response to the pandemic.
The government’s projection for Customs revenue is also deemed unrealistic, so much so that it was contradicted by Hadiza Bala Usman, managing director, Nigerian Ports Authority (NPA).
While the government estimates a 20 percent decline in Custom duties, Usman predicts a 75 percent decline in revenue from the seaports which makes up the biggest source of Custom duties.
Usman, who spoke at a BudgIT webinar Thursday, said the slump in the international prices of crude oil as well as decline in the volume of import shipment into Nigeria due to the virus are the drivers of her projection.
Analysts expect the virus to take a toll not only on VAT and Customs receipts but on corporate taxes as well.
With the government faced with the stark reality of accepting that non-oil revenues will be just as challenged as oil revenue and that it may have to deal with a bigger budget deficit than first thought, experts say the focus must shift to implementing wasteful expenditure cuts.
“The revenue shortfall calls for significant rationalisation on the size of government in all its ramifications,” Obayomi said. “Among other things, the government must privatise and get out of businesses that are a drain on public treasury, and which can be better run by the private sector. The upstream and downstream sectors of the oil and gas industry must be prioritised for this purpose.”
Taiwo Oyedele, partner and West Africa tax lead at PwC Nigeria, said the government needed to cut wasteful spending and focus on revenue optimisation.
“Government needs to look at areas where we seem to be wasting revenue, the subsidy is the biggest one,” Oyedele said.
“So we have a subsidy on petroleum products, particularly petrol. The government says we have removed subsidy but they are not paying attention to the fact that we have three components of subsidy. There is under-recovery, that is what has been removed; there is foreign exchange subsidy, that has not been removed; there is tax subsidy, that has not been removed,” he said.
These subsidies, along with the foreign exchange and electricity subsidies, if removed, could save the government between N3-4 trillion, according to Oyedele.
“The government also needs to find out how to harmonise the tax waivers and incentives that are not really adding value to the economy,” he said.
