The Law & Development Summit, a webinar jointly organised by BusinessDay and Olisa Agbakoba Legal (OAL), is scheduled to hold on October 22-23, 2020. The online summit will examine the role law can play in generating new government revenue and boosting job creation in Nigeria. This is the first in a three-part series highlighting the country’s revenue challenges and possible solutions.
Between January and May 2020, total government revenue generated was below total government expenditure by 59.1 percent, a stark reminder of Nigeria’s ailing finances.
The Federal Government’s retained revenue has continued to perform poorly against total expenditure, with deficits of over 50 percent for three years straight.
Revenue generated in the first five months of 2020 was N1.6 trillion and expenditure incurred was N3.9 trillion, according to data from the 2021-2023 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP).
What is worse is the sheer amount of money going to debt servicing from already lean government earnings.
The same data from the MTEF/FSP show that between the five-month period under review, debt servicing swallowed up to 96 percent of the total generated revenue.
Since 2015, national expenditure has doubled but the nation has continuously failed to meet revenue targets, necessitating the need to incur debt to meet the government’s obligations.
The reasons for Nigeria’s declining revenue are not farfetched. The country derives the bulk of its government revenue and foreign exchange earnings from oil exports.
However, the inflow of petrodollars has steadily declined in recent years owing to a fall in the price of crude oil from a peak of $113 per barrel in 2012 to around $60 in 2019, a situation that has resulted in the inability of the government to meet revenue targets.
Nigeria has largely attacked its revenue challenge by going on a borrowing spree. Yet, this has not impacted the economy that has been stuck in a low growth path despite higher debt levels.
As at June 2020, Nigeria’s public debt stood at N31 trillion with external debt accounting for 36.7 percent at N11.36 trillion and domestic debt accounting for the remaining 63.3 percent at N19.65 trillion. That is more than double the debt stock in 2015.
As if Nigeria’s fiscal woes were not bad enough, the Covid-19 pandemic and volatile oil prices this year have made matters worse, with the government growing increasingly broke.
The poor performance of Nigeria’s revenue profile and huge government debts have led to the introduction of several policies aimed at boosting revenues, especially from taxes.
At 6.1 percent, Nigeria has one of the lowest tax revenue-to-Gross Domestic Product (GDP) ratio in sub-Saharan Africa. This is barely 40 percent of the government’s target of 15 percent stated in the 2019 public finance bill.
The government launched the Voluntary Asset and Income Declaration Scheme (VAIDS) and raised Value Added Tax (VAT) by 50 percent, but the result has been underwhelming, as they have proved insufficient in materially boosting government revenues.
It was always going to be difficult to boost tax revenues in an economy still grappling with the after-effects of the recession it suffered in 2016, as well as spiralling unemployment and a low growth rate.
The VAIDS scheme for instance, which was to give defaulting tax payers the opportunity to make up their outstanding tax obligations from 2011 to 2016 in return for waiver of penalty and interest and criminal prosecution, was supposed to fetch $1 billion (N360bn) had only added N70 billion to government coffers as at January 2020, according to Zainab Ahmed, minister of finance, budget and national planning. That is less than 20 percent of what was targeted.
The renewed pressure on earnings this year from COVID-19 and lower oil prices means the government’s desperation is growing.
The Federal Government said last Wednesday that it was taking over the revenue management of 10 Government Owned Enterprises (GOEs).
“Government is increasingly concerned with the dwindling profile of revenue and this trend has to be quickly arrested, particularly with key revenue generating agencies of the government,” the finance minister said.
On the same Wednesday, the Federal Government put up a jet in the Presidential fleet for sale. Some findings indicate that the same jet sold for $22.91 million in 2012. The aircraft, which the government said had a range of 3,190-nautical mile and had flown for 1,768 hours, will surely be worth much less today as it is no longer brand new.
While the proceeds of the aircraft sale will have an infinitesimal impact on government revenue, the move signals an urgency to trim fat in government spending.
LOLADE AKINMURELE & OLUWAFADEKEMI AREO
