Gross federally collectible non-oil revenue of N3.1trn in 2015 amounted to just 3.3% of GDP. This compares poorly with most frontier, let alone emerging markets. The salient question is how quickly the authorities can push collection up to a respectable level. Our chart shows that there has been an improvement in naira terms other than last year. The budget projection for this year of N5.7trn does include one-offs, notably recoveries. Yet the preliminary outturn of N1.2trn for H1 2016, while striking because it matched oil revenues, tells us that the projection was overoptimistic.
The authorities have to overhaul compliance and their principal challenge is to conquer the culture of not paying tax.
There are an estimated 37 million micro, small and medium enterprises in Nigeria. The Corporate Affairs Commission says that just 14% are registered.
On VAT, the policy is to improve coverage rather than raise the standard rate of 5%, which is the lowest in the region. On recoveries, the FGN calls for patience, given the lengthy judicial processes. On asset sales, its concern is that it would be selling into a buyer’s market although it may well decide to divest a few state-owned holdings.
Sources: CBN; FBNQuest Research
The FGN’s efforts at boosting its non-oil revenues are complemented by measures to contain recurrent expenditure. The remit of the efficiency unit, inaugurated in November 2015, includes a through scrutiny of overheads and of the terms paid to contractors.
Separately, the federal finance ministry has established a committee to lean on the 31 revenue-generating government agencies to transfer their unremitted operating surpluses, which it provisionally estimated at N450bn, to the federation account.