Government’s disclosure that it may not accommodate capital projects in 2023 fiscal year underlines the event of revenue constraint facing the country, ABDULWAHAB ISA reports

After the initial pretensions on state of the economy and its wellness, key officials of government manning treasury portfolios are beginning to raise red flags on the nauseating state of Nigeria’s shrinking finances. At every given opportunity and fora these days, political appointees in the finance orbit like the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed; Director General, Budget Office of the Federation (BOF), Mr. Ben Akabueze, and Director General, Debt Management Office (DMO), Ms. Patience Oniha, and heads of strategic revenue agencies engage the public with depressive figures and other downside risks facing the economy. Burgeoning expenditure and a festering debt crisis occasioned by growing debt stock portfolio show that drastic action is needed to stave off impending financial crisis across the tiers of government.

Zero capital projects budget

Indications of tough times ahead (2023 fiscal year) was hinted at, last week, by Ahmed. At a session with members of the parliament at the presentation of Medium Term Expenditure Framework and Fiscal Strategy paper (MTEF/ FSP) for the 2023-2025 budget, Ahmed said government may not be able to make provision for treasury-funded capital projects in 2023. This was as she disclosed that provision for the budget deficit next year may run between N11.30 trillion and N12.41 trillion. The minister tied the scenario to the choice government makes on the issue of subsidy payment on premium motor spirit, also known as petrol. Government provides N19.76 trillion as aggregate expenditure for 2023 budget. She hinged her projection on crude oil production challenges and PMS subsidy deductions by the Nigerian National Petroleum Company (NNPC), saying that those constitute significant threats to the achievement of the nation’s revenue growth targets. Without mincing words, Ahmed said decisive and urgent actions were required to address revenue under performances and expenditure efficiency at national and subnational levels. “In this scenario, the budget deficit is projected to be N11.30 trillion in 2023, up from N7.35 trillion in 2022. “This represents 5.01 per cent of the estimated GDP, above the three per cent threshold stipulated in the Fiscal Responsibility Act, 2007,” she said. In scenario 1, which, she said, involved funding subsidy from January to December, the minister said: “Given the severely constrained fiscal space, budget deficit is projected to be N12.41 trillion in 2023, up from N7.35 trillion budgeted in 2022, representing 196 per cent of total FGN revenue or 5.50 per cent of the estimated GDP. “This is significantly above the three per cent threshold stipulated in the Fiscal Responsibility Act 2007 and there will be no provision for treasury funded MDA’s capital projects in 2023.” She further gave an overview of government revenue, using two scenarios, saying: “Under the first scenario, the Federal Government revenue for 2023 at N6.34 trillion, out of which only N373.17 billion is expected from oil related revenue, while the balance of N5.97 will come from non-oil sources.” In scenario two, she said: “In addition to subsidy reform, this scenario assumes an aggregate implementation of cost to income limit of government-owned companies. “With these, the 2023 FGN revenue is projected at N8.46 trillion, out of which N.99 trillion or 23 per cent is projected to come from oil revenue sources.” Key assumptions of the 2023 budget is estimated as follows: $70 per barrel of crude oil, oil production benchmark of 1.69 million litres per day and an exchange rate of N435.02 to the dollar; inflation protected growth of 17.16 per cent and a GDP growth of 3.75 per cent. On the future of oil subsidy provision in relation to next year’s budget, Ahmed provided two scenarios. The two scenarios, according to her, has been presented before the Federal Executive Council (FEC). Scenario one, the minister told the House of Representatives members was business as usual scenario, which assumes that subsidy on PMS estimated at N6.7 trillion for the full year 2023 would remain and be fully provided for. The second scenario, she explained, is the reform scenario, which assumes that petrol subsidy would remain up to mid-2023 based on the 18-month extension announced early 2021, in which case, only N3.6 trillion will be provided for.

Expanding revenue space

To say government is faced with a revenue earning challenge is stating the obvious. The country’s major source of earning, crude oil, has come under dual deprivations: massive oil theft on one side leading to shortages in production cap, and importation of refined products sustained through huge forex as oil subsidy. While other oil exporting nations are raking huge revenue earnings from the current Russia/ Ukraine war, Nigeria is on a deficit. She said revenue generation remained the major fiscal constraint of the federation, stressing that the systemic resource mobilisation problem had been compounded by recent economic recessions. The non-oil sector driven largely by taxes and Customs excise duty are the wheels driving government revenue better than oil. Addressing lawmakers’ questions on the documents, the minister said: “From what has happened in 2022, clearly, what we are spending is not giving us much value because production continues to decline and what this means is whatever we are doing is not working and therefore we have to do something totally different.” To deepen government’s space, especially non-oil sources, government launched the Strategic Revenue Initiative. This is designed to entrench fiscal prudence with emphasis on achieving value for money. These measures include improving tax administration framework such as tax filing and payment compliance improvements. Other measures taken by government to improve non-oil revenue sources of the country are evaluation of the process and policy effectiveness of fiscal incentives, including review of sectors eligible for pioneer tax holiday incentives under the Industrial Development Income Tax Relief Act (‘IDITRA’), dimensioning cost of tax waivers/ concessions and evaluating their policy effectiveness; setting annual ceilings on tax expenditures to better manage their impact on already constrained government revenues and ensuring that MDAs appropriately account for and remit their internally generated revenue. Other initiatives by government to hedge revenue challenge include identifying and plugging existing revenue leakages to enhance tax compliance and reduce tax evasion; leveraging technology and automation and plugging fiscal drainers like subsidies. To further enhance independent revenue collection, government aims to optimise the operational efficiencies and revenue generation focus of GOEs, introduction of new and further increases in existing pro heath taxes, for example, excise on carbonated drinks.

Tackling tax trust deficit

Taxes have become the most reliable and dependable revenue resort of government. In the last couple of months, taxes generated by Federal Inland Revenue Service (FIRS) and excise duty of Nigeria Customs Service (NCS) are balling to Federation Account Allocation Committee (FAAC) in the face of perennial zero remittance by the Nigerian National Petroleum Company Limited (NNPCL). Nigeria is still far below the threshold of its taxation potential. The number of her citizens outside of the tax net far outweighs the number of citizens paying taxes. The Vice President, Prof. Yemi Osinbajo, at a recent lecture organised by the Chartered Institute of Taxation of Nigeria in Abuja to commemorate the Institute’s 40th anniversary, unequivocally declared that Nigeria’s eight per cent tax-to-Gross Domestic Product ratio was among the lowest globally. He also stated that the Federal Inland Revenue Service exceeded its tax collection target last year, as it was able to collect N6.405 trillion nationwide. “Today, lessons from countries that are dependent solely on revenue from oil have proven to be quite instructive,” the vice president, who was represented by the Permanent Secretary, Federal Ministry of Finance, Budget and National Planning, Aliyu Ahmed, said. “Nigeria’s tax-to-GDP ratio is still one of the lowest in the world, at about eight per cent, while our contemporaries are in the neighbourhood of 16 per cent to 25 per cent, even in Africa. We can surely do better.” He said tax was an important fiscal tool that can be described as a more sustainable means of achieving national development. “This is especially since we know that oil, which was and is our mainstay, is a dwindling resource and because the rest of the world is moving away from fossil fuel,” Osinbajo stated. There is a problem of public trust deficit, which government must address if it wants to galvanise maximum tax collection from over two million people. Over the years, taxes collected by government were largely misapplied and diverted to private pockets. This creates tax apathy, with the majority not trusting government in the utilisation of tax proceeds for public good. Government must start by earning the trust, confidence of the public. This will mean, in effect, that government must be accountable. It must recreate infrastructure, hospitals, schools and other developmental projects with the tax proceeds. When public trust is earned, citizens will voluntarily comply with tax payment.

Last line

Since the economy is faced with fiscal challenges of poor revenue harvest amidst burgeoning expenditure, it’s high time government got serious with its diversification agenda to non-oil sector.

Please follow and like us: