• Thursday, March 28, 2024
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BusinessDay

With ambitious budget, FG needs more than tax credit to lure private sector

How not to tax a desperate country

Nigeria’s plan to leverage the private sector in plugging infrastructure gaps in 2020 will require more than tax incentives as the stakes become higher for 200 million Nigerians with a budget that would see virtually all the government earns spent on debt and recurrent expenditure.

In the proposed 2020 budget, the government’s revenue target is at an all-time high, with up to 45.6 percent or N3.7 trillion expected to come from other income sources. Lagos-based Cardinal Stone reports that the segment has not yielded more than N500 billion per year in the last half-decade.

Meanwhile, funding to critical infrastructure is N2.46 trillion, 23 percent lower than in 2019. Similarly, N2.45 trillion is to be spent on servicing debt, while non-debt recurrent expenditure is N4.88 trillion.

The government said it plans to leverage private sector funding through, for instance, on-going tax credit schemes and would not be starting any new projects.

But it would take more than tax incentives to encourage the private sector in a country where over-regulation, multiple taxation, and capital control on foreign exchange are part of critical challenges businesses face – aside from everyday struggle with power and dilapidated roads, experts say.

“The government needs to look beyond tax credit in quest for more complementary funding sources for infrastructure,” the Lagos Chamber of Commerce and Industry said in a comment on the budget. “We should be looking more in the direction of equity financing.”

Critical aspects of the economy are still public sector-driven and deny the country gains from unbundling the sectors and opening up for private capital, while government’s unwillingness to allow market-determined rates continues to discourage private capital.

“Fair pricing and a stable policy environment are crucial to encouraging the private sector,” said Omotola Abimbola, an analyst at Lagos-based Chapel Hill Denham. Abimbola also noted a need to improve ease of doing business in the country as a way to spur private sector participation.

BusinessDay reported that electricity distribution companies (DisCos) are considering giving back power licences to FG, a move that could plunge Nigeria into darkness. The DisCos are reacting to a threat by the sector regulator, Nigerian Electricity Regulatory Commission (NERC), to revoke the licences of eight of them, highlighting regulatory risks businesses in Nigeria face.

On the other hand, Nigeria is faced with the challenge of charting a growth path for its economy which has grown less than its population owing to weak private domestic demand and a risk-off stance by foreign investors who have held back fund from the economy.

The budget, which puts capital spending on health and education per head at N470 in the fiscal year, shows no clear plan of lifting 100 million people out of poverty, another expert told BusinessDay.

Most of the revenue the government plans to earn from, among other things, raising Value Added Tax, a consumption tax, would be used instead to pay an expensive debt and finance recurrent expenditure.

According to World Poverty Clock, 94 million Nigerians are currently living in extreme poverty. Income per head has been falling since 2015, according to World Bank data.

“What the private sector wants is an enabling environment which includes power, road, security,” said Boniface Chizea, MD/CEO of BIC Consultancy Services. “This is necessary to improve purchasing power and boost aggregate demand.”

Chizea said the most important thing right now for the private sector is that the budget is passed on January 1 so players in the sector can begin to align operations correspondingly.

The Lagos Chamber of Commerce and Industry called on the government to carry the private sector along before the budget is passed into law.

“We believe that there should be a window of opportunity for stakeholders to make their inputs into the into the budget consideration process,” it said.

 

OLUFIKAYO OWOEYE & SEGUN ADAMS