We have often noted that federally-collected revenue in aggregate still runs well behind budget. For the 13 months through to November, total non-oil collection (gross) did not once reach the pro rata budget figure of N467bn (Good Morning Nigeria, 07 March 2019). There are several reasons for this underperformance, not forgetting the aggressive setting of budget targets. The increase in the national minimum wage, which now has the approval of the Senate, adds to the challenge, so we are pleased to see suggestions in the local media of an appropriate response.
- These reports of meetings of senior officials with a Senate commission cite plans to raise VAT by between 35% and 50%, as well as increases in both companies’ income tax and petroleum profit tax.
- They do not mention a hike in tax rates specifically. Rather, the executive chairman of the Federal Inland Revenue Service is quoted as anticipating the rise “by the end of the year” and, ominously, referring to “our enforcement activities”. The last quotation could well be a code for efficiency gains.
- The increases are intended to fund the higher minimum wage. We understand from other reliable sources that the differential payable to those earning above the minimum could be limited to N5,000 per month rather than the full N12,000 (implied by the planned hike in the wage from N18,000 to the ceiling of N30,000).
- A technical advisory committee on the minimum wage, appointed by the president, may well report its findings this week. It is likely to recommend tax rises in some form. A more cumbersome and lengthy way of funding the wage increase, suggested by the Senate, is to revisit the revenue-sharing formula.
Federally-collected non-oil revenue (gross; N bn)
Sources: CBN; FBNQuest Capital Research
- The bolder step in our view would be to hike tax rates selectively so as to cover the wage increase and some additional spending.