Budget 2019: Dwindling revenue Vs bloated expenditures

Buhari laying budget

The major problem of the 2019 Appropriation Bill is revenue.  The architects of the budget proposal have a clear picture of where to channel the nation’s resources into.  But the money is simply not there.  Nigeria is sailing perilously close to fiscal calamity.  Government’s revenue is barely enough to fund recurrent expenditure.
The federal government’s revenue in the 2019 Appropriation Bill is projected at a paltry N6.97 trillion even as the budget’s oil reference price and production target are becoming increasingly unattainable.  With recurrent expenditure of N4.04 trillion, debt servicing bill of N2.14 trillion, statutory allocation gulping N492.36 billion, and sinking fund of N120 billion, what is left for investment in decaying infrastructure is a scant N300 billion.  That explains why the budget has to be funded with a deficit of N1.86 trillion.

The problem is that even with dwindling revenue, no one in the federal government knows how to curb Nigeria’s voracious appetite for cash guzzling.  
The cost of governance is unsustainably high.  Government knows how to spend money, but does not know how to make income.  At the rate we are going, government revenue would soon be lower than the cost of governance. All our income would only manage to pay politicians and civil servants. 

Out of the three major sources of government revenue, only one is making any meaningful progress.  The other two are in disorderly retreat.
Oil is Nigeria’s primary source of revenue and foreign exchange earnings.  It accounts for 70 per cent of the nation’s revenue and 80 per cent of its foreign exchange earnings.

However, most of the projections in the 2019 Appropriation Bill are collapsing like a pack of cards in the face of plummeting oil price and unattainable production target.  The oil market closed last week at $53 per barrel, about $7 below the 2019 budget oil reference price.

No one in the oil market expects prices to shoot up dramatically.  The market is over-flooded with the United States of America now beating Russia and Saudi Arabia to the enviable position of the world’s largest oil producer.  The U.S. now pumps 11.6 million barrels per day while Russia and Saudi Arabia still struggle to pump just above 10 million barrels per day.

The U.S., a former major importer of Nigerian crude oil is now contesting the crude oil export market with Nigeria.  The situation on the demand side off the oil market is even more worrisome.  

Donald Trump, America’s sanctimonious president has engaged China in a senseless trade war that is drawing the breaks on world economic growth and curbing the world economy’s hitherto rapacious oil consumption appetite.  The 2019 budget oil reference price must therefore be reduced drastically. Government revenue would definitely plummet.

Import duty revenue collected by the Nigeria Customs Service (NCS) is Nigeria’s next major source of income.  That source of income has been in a disorderly retreat in the last three years even as the NCS celebrates its gross incompetence and uninhibited corruption in the name of over-shooting revenue target.
Since 2014, the dollar value of the NCS annual import duty revenue has been in a steep decline.  The NCS made revenue of N977.09 billion in 2014.  At the 2014 official exchange rate of N197 to the dollar, that amounted to $4.9 billion in import duty revenue.

Three weeks ago, the NCS rolled out the drums to celebrate an alleged over-shooting of its 2018 revenue target of N770 billion as it netted N1.1 trillion at the end of November 2018.  The directors of NCS were oblivious of the fact that N1.1 trillion at the current official exchange rate of N305 to the dollar is a scant $3.6 billion.  In other words, government’s import duty revenue has tumbled by something close to 20 per cent even in the face of higher import tariffs on rice and used vehicles.

No one knows how to beef up Nigeria’s dwindling import duty revenue.  Besides the crater-riddled port roads in Apapa, Lagos that has driven importers to neighbouring Cotonou Port in Benin Republic, endemic corruption in the NCS is the only explanation for the dwindling revenue.
The leakages in the NCS have however defied all solutions.  We might need men from the planet Mars to tackle it.

Tax is the next source of revenue for the federal government.  This year the Federal Inland Revenue Service (FIRS) broke the jinx and netted tax revenue of N4.3 trillion by the end of October 2018. By the end of the year we might be talking of something close to N5 trillion. The number of taxable persons in FIRS net is sailing pretty close to 20 million. Besides, FIRS was able to drag an additional 6,000 firms with annual turnover of N1 billion into the tax net. That is a fantastic performance that should be commended by the federal government.  But there is room for improvement.    

Nigeria’s tax to gross domestic product (GDP) ratio is abysmally low at 6.1 per cent.  Norway has a tax to GDP ratio of 54.8 per cent.  The FIRS can attain a tax to GDP ratio of 15 per cent if the tax net is effectively widened.

We do not need higher or new tax levies at the moment. What is needed is to get every taxable person or corporate body to pay the required percentage stipulated by law.  That would improve government’s precarious revenue situation.

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