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Government uncertain of Eurobond issuance in 2021, but will review tax, fiscal laws

... anticipates worse macroeconomic outcomes H2

Minister of Finance, Budget and National Planning, Zainab Ahmed, says government is not yet sure whether it would issue any Eurobond next year for budget funding, a decision that would largely depend on developments in both the local and international capital markets.

“Eurobond in 2021 is on the table and it depends on whether the international capital market would be better than the local markets to source funds,” she said in response to a question during the public presentation of details of the 2021 budget before the National Assembly in Abuja, Tuesday.

But in efforts to rev up revenue generation, the Federal Government is reviewing current tax and fiscal laws and is already consulting widely as it finalises Finance Bill 2020, which would be forwarded to the National Assembly for consideration and passage into law.

At the event, the finance minister disclosed of an incremental, but necessary, changes in the Finance Bill, which would target: supporting the realisation of the revenue projections in the 2021 budget; mitigating regressive taxation; integrating international taxation trends to domestic tax laws; better targeting of tax incentives, and supporting Micro, Small and Medium-sized businesses.

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The N13.08 trillion 2021 budget, which President Buhari laid before the National Assembly last Thursday, contains an overall budget deficit of N5.196 trillion, representing 3.64% of the country’s total GDP.

The deficit is to be financed mainly by borrowings, including for N2.14 trillion from domestic sources and N2.14 trillion foreign sources. N709.69 billion Multi-lateral/bi-lateral loan drawdowns, while N205.15 billion would be sourced from privatisation proceeds.

It would be recalled that Buhari had expressed serious concerns over government poor revenue generation, and directed that incomes of Government Owned Enterprises (GOEs) be scrutinised henceforth and limits imposed on their cost-to-revenue ratios.

But Ahmed assured that the government was already implementing several measures to overcome income constraints.

She said besides the Strategic Revenue Growth Initiative (SRGI), the government was leveraging technology and automation, plugging fiscal drainers and ensuring more effective independent revenue monitoring.

Consequently, CEOs and key management staff of GOEs are now expected to sign performance contracts expected to set financial indicators and targets for each of their institutions.

The finance minister also announced that the cost-to-revenue ratio of GOEs had, by presidential directive, been limited to a maximum of 60-70%, while regular monitoring and reporting of revenue and expenditure performance of those Entities will be undertaken by both the budget office of the federation and the office of the Accountant Generation of the Federation.

These are some of the critical initiatives as government retools strategies on revenues, which have plunged significantly this year on account of Covid-19 pandemic and low oil prices.

According to Ahmed, the current sub-optimal revenue performance of most GOEs would be addressed through effective implementation of the enhanced Performance Management Framework.

She expressed optimism that the Finance Bill 2020 would improve the revenue profile of the country as revenue generation, which has become a big threat to the funding of the 2021 budget.

She said the bill, which would accompany the 2021 budget proposal, would contain measures to advance the Sustainable Revenue Generation Initiative (SRGI), and hinted plans to work closely with the National Assembly to amend relevant laws that would drive smooth implementation of the revenue initiative.

The minister further stated that the Executive had included Tax expenditure Statements (TES) as part of documents sent alongside the 2021 budget to the National Assembly. The TES seeks to dimension the cost of tax waivers/concessions.

Tax expenditures are currently estimated at Company Income Tax, N1.18trn; VAT, N3.1trn; Customs Duties N347bn; VAT on Imports, N64bn.

“Going forward, we will set annual ceilings on Tax Expenditures to better manage their impact on already constrained government revenues,’ Ahmed said.

“Achieving fiscal sustainability and macro-fiscal objectives of government will require bold, decisive and urgent action. Government is determined to act as may be required.

“Thus, key reforms will be implemented with increased vigour to improve revenue collection and expenditure management. The government will, however, remain mindful of the need to provide safety nets to cushion the impact of any reform measures on the vulnerable segments of the population,” she said.

On the 2020 budget performance, the minister explained that relative to the revised 2020 budget parameters, H1 performance numbers are all positive, while H2 performance was generally expected to be worse than H1.

She disclosed that at the end of August 2020, N761.79bn had been released for capital expenditure, thus rising to N1.2trn by end of September 2020.

In his opening remarks, director-general, Budget Office, Ben Akabueze, said the budget process had been opened up for transparency not just within government circle.

He pointed out that 2021 was not about whose agency got what, but who is generating what and how they could improve the revenue profile of the government.

The 2021 Appropriation Bill is 21 percent (N2.27trn) higher than the N10.81 trillion revised budget for 2020.

Tagged ‘Budget of Economic Recovery and Resilience,’ the 2021 budget is expected to accelerate the pace of economic recovery, promote economic diversification, enhance competitiveness and ensures social inclusion.

Components of the 2021 proposed budget include a non-debt recurrent expenditure of N5.65 trillion, compared to N5.82 trillion approved for 2020; and N3.85 trillion for capital expenditure, as against N2.69 trillion (CAPEX) allocated for the current fiscal year.

The 2021 budget is based on crude oil benchmark price of $40 per barrel (pb), compared to $28pb in the amended Appropriation Act 2020. Oil production for next year is estimated at 1.86 million barrels (mbpd) of oil per day, as against the revised estimate of 1.80mbpd for 2020.

The 2021 proposed budget is also based on a foreign exchange rate of N379/$; and 3 per cent GDP growth projection for next year.

Minister of aviation, Hadi Sirika; the minister of State Budget and National Planning, Clem Agba and the Accountant-General of the Federation, Ahmed Idris, were other top government officials who attended the public presentation.

Onyinye Nwachukwu and Dozie Emmanuel

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