Nigeria heading into fiscal crisis – Presidency warns

The Presidency Monday, raised the alarm that the country might be heading for a fiscal crisis unless urgent steps were not taken to halt the negative trends in target setting and realisation in government revenue.

This was even as it said that under the Muhammadu Buhari administration, the number of taxable adults have risen from 10 million to 20 million as concerted efforts were still on-going to bring a lot more into the tax net.

The Senior Special Assistant to the President on Media and Publicity, Garba Shehu, said this in a statement denying media reports that the Chairman of the Federal Inland Revenue Service, Babatunde Fowler, is not under any investigation.

In a letter dated August 8 and signed by the Chief of Staff to the President, Abba Kyari, the government had asked Fowler to explain  variations in budgeted collections and the actual collections reported by the agency for the period in question.

Fowler’s query was conveyed under the heading: “Re: Budgeted FIRS Collections and Actual Collections”, with reference number SH/COS/08/5/A/301.

The letter was a response to an initial report on tax collections the FIRS’ boss forwarded to the President earlier on July 26. It had reference number, FIRS/EC/CWP/0249/027.

The Presidency directed Fowler to give reasons for variances by providing a “comprehensive” “variance analysis” for each tax item from 2015 to 2018.

The letter raised particular concerns over the collections for 2015 to 2017, describing them as “worse than what was collected between 2012 and 2014.”

Shehu on Monday said: “The letter from the Chief of Staff to the President, Abba Kyari, on which the purported rumour of an investigation is based, merely raises concerns over the negative run of the tax revenue collection in recent times.

“Taking a cue from today’s (Monday) presentation of Vice President Yemi Osinbajo at the Presidential Retreat for Ministers-Designate, Federal Permanent Secretaries and Top Government Functionaries, which dwelt on an  ‘Overview of the Policies, Programmes and Project Audit Committee,’ a body he chaired,  projected revenue of government  falls behind recurrent expenditure even without having factored in capital expenditure.

“Consequently, it would appear that the country might be heading for a fiscal crisis if urgent steps are not taken to halt the negative trends in target setting and target realisation in tax revenue.

“Anyone conversant with Federal Executive Council deliberations would have observed that issues bordering on revenue form the number one concern of what Nigeria faces today, and therefore, often take a prime place in discussions of the body.

Fowler Responds to Query

Meanwhile, Fowler in his response to Feeral Government’s inquiry, said the recession experienced by the Nigerian economy in 2016 as well as lower oil prices affected the revenue collected by the Federal Inland Revenue Service (FIRS) between 2015 and 2018.

Despite these challenges, Fowler explained that non-oil revenue such as VAT and company income tax which he said were within the control of FIRS increased when compared to pre-2015 figures, adding that oil-based taxes, such as petroleum profit tax (PPT), are beyond the control of the Service.

Part of Fowler’s reply read “Your letter stated that actual collections for a 3-year period were significantly worse than what was collected between 2012 and 2014. Total actual collection for the said period was N14,527.85 trillion, while total actual collection between 2016 to 2018 was N12,656.30 trillion. The highlight of these collection figures was that during the period 2012 to 2014, out of the N14,527.85 trillion, oil revenue accounted for N8,321.64 trillion or 57.28 per cent, while non-oil accounted for N6,206.22 trillion or 42.72 per cent and during the later period of 2016 to 2018, out of the N12,656.30 trillion, oil revenue accounted for N5,145.87 trillion or 40.65per cent and non-oil revenue accounted N7,510.42 trillion or 59.35 per cent. FIRS management has control of non-oil revenue collection figures while oil revenue collection figures are subject to more external forces.”

“The non-oil revenue collection grew by N1,304.20 trillion or 21 per cent within the period 2016 to 2018.

“Kindly note that the total budget collection figure during 2012 to 2014 stood at N12,190.52 trillion compared to N16,771.78 trillion for the period 2016 to 2018, which represent an increase of 37.58 per cent.

“Please note that the variance in the budgeted and actual revenue collection performance of the Service for the period 2016 to 2018 was mainly attributed to the following reasons:

“1. The low inflow of oil revenues for the period especially Petroleum Profit Tax (PPT) was due to fall in price of crude oil and reduction of crude oil production. Notwithstanding government efforts to diversify the economy, oil revenues remains (remain) an important component of total revenues accruable to the Federation. The price of crude oil fell from an average of $113.72, $110.98 and $100.40 per barrel in 2012, 2013 and 2014 to $ 52.65, $43.80 and $54.08 per barrel in 2015, 2016 and 2017. There was also a reduction in crude oil production from 2.31mbpd, 2.18mbpd and 2.20mbpd in 2012, 2013 and 2014 to 2.12mbpd, 1.81mbpd and 1.88mbpd in 2015, 2016 and 2017 respectively.

“2. The Nigerian economy also went into recession in the second quarter of 2016 which slowed down general economic activities. Tax revenue collection (CIT and VAT) being a function of economic activities were negatively affected but actual collection of the above two taxes were still higher in 2016 to 2018 than in 2012 to 2014. During the years 2012, 2013 and 2014, GDP grew by 4.3 per cent, 5.4 per cent and 6.3 per cent while in 2015, 2016 and 2017 there was a decline in growth to 2.7 per cent, -1.6 per cent and 1.9per cent respectively. The tax revenue grew as the economy recovered in the second quarter of 2017.

It is worthy of note that strategies and initiatives adopted in collection of VAT during the period 2015-2017 led to approximately 40% increase over 2012-2014 collections. In 2014 the VAT collected was N802billion, compared to N1.1 trillion in 2018. This increase is attributable to various initiatives such as ICT innovations, continuous taxpayer education, taxpayer enlightenment, etc embarked upon by the Service.

“4. Furthermore, it is pertinent to note that when this administration came on board in August 2015, the target the target for the two major non-oil taxes were increased by 52% for VAT and 45% for CIT. Notwithstanding the increase, FIRS has in line with the Federal government’s revenue base diversification strategy has grown the non-oil tax collection by over N1.304 trillion (21%) when the total non-oil tax collection for 2016-2018 is compared to that of 2012-2014.

“I am confident that our current strategies and initiatives will improve revenue collection and meet the expectations of government.

“Please accept the assurance of my highest regards.”

Reacting to the development, the Managing Director, Cowry Assets Limited, Mr. Johnson Chukwu, said he was happy that Federal Government has eventually realised that the country was moving into fiscal crisis, stressing that its revenue in the last four years had failed to meet both recurrent and capital expenditure.

He said it was worrisome that there has been a consistent increase in recurrent expenditure, which would further escalate with the implementation of  the new minimum wage.

Chukwu said the continuous payment of fuel subsidy which currently stands at about N1.2 trillion which is not creating employment or value in the local economy is also a setback. – The Sun.