Nigeria Returns to Crude Oil to Fund Budget as Non-oil Revenue Falters

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  • Nigeria Returns to Crude Oil to Fund Budget as Non-oil Revenue Falters

Following the dismal performance of non–oil mineral revenue in 2016, Nigeria has again turned attention to crude oil to fund the 2017 fiscal plan, as can be gleaned from the proposed plan before the National Assembly, where oil mineral resources are projected to provide the bulk of the revenue.

They have now moved from the 19 per cent they were projected to fund the plan, to 40 per cent, and non-oil revenue, which this year was projected to play the lead role, is now to take the back seat.

The projection for its revenue has cascaded down, with expectation from independently generated revenue cut down from N1.506 trillion in 2016, to N808 billion; taxes from companies income taxes from N867 billion to N808 billion, while only Value Added Tax (VAT), which is a consumption tax, has been slightly moved up from N198 billion to N242 billion.

Accordingly, the 2017 proposal based on the key assumptions and budgetary reform initiatives now envisages the total Federal Government revenue of N4.94 trillion, which will exceed the 2016 projection by 28 per cent.

In the projected revenue, receipt from oil now is N1.985 trillion and that of non-oil is N1.373 trillion. The contribution of oil revenue is 40.2 per cent compared to 19 per cent in 2016, driven mainly by JVC cost reduction, higher price, exchange rate and additional oil-related revenues.

The implication of a resort to the dependency on crude oil by the Nigerian economy is that the GDP will continue to contract as oil mineral resources contribute a negligible percentage to the country’s growth, both in terms of inclusiveness, revenue earnings, employment and local self–sufficiency in most of the items the country spends billion of dollars importing from other countries.

Late last year, as part of a deliberate policy of diversifying the country’s sources of revenue, and insulating the economy from depending largely on crude oil, which fortune is uncertain due to price volatility and quantity shock, managers of the country’s economy toyed with the idea of largely depending on non-oil revenues, largely from non–oil taxes and customs duties as the focal point of dependency to finance the 2016 plan.

Unfortunately, this hope has come crashing as the experiment with non-oil resources as a major funding source of this year’s budget has left a sour taste in the mouth of both policy makers and citizens alike, following the gross underperformance of the non–oil revenue stream of income.

A recent report of the revenue performance by the Minister of Budget and National Planning, Senator Udoma Udo Udoma, said the non–oil revenue stream of income left much to be desired and negatively affected the 2016 budget implementation.

According to him: “The projected independent revenue was N1.1 trillion as against N0.2 trillion realised during the period. The projected revenue from the Nigeria Customs Service was N0.3 trillion as against N0.2 trillion realised, while the projected non-oil tax receipts for the first quarter of 2016 was N0.8 trillion as against N0.5 trillion realised during the period.”

The information above shows that the N500 billion revenue generated by the FIRS from taxes in nine months is nowhere near the N4.9 trillion promised by the helmsman of the tax agency, Mr. Babatunde Fowler, and may eventually turn out to be the worst collection figure in six to seven years.
Mr. Fowler, who made the promise at different fora after assumption of duties including at the opening of the 134th Joint Tax Board meeting in Kano had gone ahead to promise that 80 per cent of the targeted amount would be collected before the end of 2016.

The annual summary of tax collection from year 2000 to last year indicates that the highest collection was recorded during the tenure of Ifueko Omoigui Okauru, with N5.007 trillion in year 2012, following hi-tech and revolutionary reforms introduced by her administration.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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