Time surely to revisit non-oil tax rates

Gross federally collectible revenue from oil declined by -28.2% in 2016 to N2.70trn, and that from the non-oil economy by -0.3% to N2.35trn. The fall in oil revenue can be explained by the supply disruptions in the delta and, to a lesser extent, by a modest easing in the average annual oil price. It might appear that the attainment of flattish non-oil revenue in a year of recession was a reasonable effort. However, this would ignore very poor coverage. (We stress that the revenue cited above is that of all tiers of government, and not just the FGN.)

The collection agencies have a long road ahead of them. Turning briefly to the FGN, its 2016 budget projected an interest payments/total revenue ratio of 35.4%. The IMF has noted an actual figure of 66%, which highlights the scale of the shortfall in revenue (Good Morning Nigeria, 04 April 2017). 

Our chart shows the seasonality in non-oil revenue. The peaks in July/August/September in both years coincide with the concentration in the collection of companies’ income tax. In July 2016, unusually, non-oil revenue exceeded oil revenue. In Nigeria’s ideal fiscal world, this would be the norm rather than the exception.


Time surely to revisit non-oil tax rates Sources: CBN; FBNQuest Research

Gross VAT receipts rose by 4.1% in 2016 to N811bn. In a developed economy with high coverage, this would be a decent performance in a year of GDP contraction. However, where compliance is poor, as in Nigeria, the improvement in receipts in 2016 is probably the result of efficiency gains.

The FGN has resisted the temptation of increasing the 5% standard rate of the tax but may make an exception for luxury items. Its heady targets for non-oil revenue through to 2020 are likely to remain elusive if it is not prepared to raise tax rates as well as extend coverage.

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