Varied reactions have trailed the 2015 national budget unveiled by the Finance Minister and Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala. Notwithstanding the diversity of opinions, they agreed on the need to diversify the economy, but expressed misgiving about the government’s determination to carry through its new tax drive, reports Group Business Editor, SIMEON EBULU
The falling crude price has brought to the fore the transient nature of oil as a sustainable source of driving the nation’s economy. In the 2015 budget before the National Assembly, the Minister of Finance and Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, said the bulk of the budget would be driven by proceeds from the non-oil sector.
Ever before the reality of revenue volatility from oil comes home to roost, the government, and indeed a section of the society, especially the Organised Private Sector (OPS), have warned on the dangers of relying solely on oil to run an economy. They have often warned that as a wasting asset, it was dangerous for Nigeria to stick ipso facto to oil for over 85 per cent of its federally collectable revenue.
While reactions to Mrs. Okonjo-Iweala’s budget outing are varied, there is a convergence of views on the need for the government to move the revenue base of the economy away from oil. A Senior Bank Executive, told The Nation that it was heart warming that the Minister admitted for the first time the necessity to refocus the economy from its monolithic nature, to a diversified one, by opening it up to other sectors.
He said laudable though the budget may appear, “the assumptions upon which the document is premised, are unrealistic.”
He cited the $65 per barrel oil benchmark upon which the document is fashioned, as an example. He argued that at the moment, the prevailing spot market price for oil is well under $60, wondering how realistic it is to assume that the price would have appreciated in the next few months left for the budget to be passed and implemented.
He said given the nature of our society, the expectation that much revenue will be realised from taxation, is equally a futile hope, stating that the dynamics on ground do not support that provision. He said if it was that easy for government to raise taxes, they would have been doing that over the years, adding that the chances of realizing the projected revenue from this sub-head are slim.
The banker pointed out that there was need for re-orientation of our tax administrators, arguing that as it stands, there is no clear assurance that our tax officials will stand firm with government to collect, or realise the requisite taxes from every taxable income. He explained that the problem of administering the tax does not lie solely with the tax administrators, but more importantly with the net target tax payers, most of whom, he stated, “are the powers that be.”
Nonetheless, the banker foresees greater ease in realizing the expected proceeds from luxury fliers and private jet owners. As he put it, “those who will fly will do so,” but noted that the government will have to agree with the airlines for the smooth administration of the service.
He said the budget is contingent upon a lot of ifs, wondering what else the nation can really hold on to outside the oil.
“Outside oil, what do we have? he queried, saying there is no assurance, or guarantee that oil will rise When these revenues are not made up, then the deficit will become so large,” he stated.
However, the former Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Dr. Chamberlain Oyibo, said the fresh measures would give the economy some lease of life.
He said with crude oil price, the mainstay of the national economy, going down by as much as 40 per cent in so short a time, the wise thing would be for “us to cut our coat according to our sizes”, adding that cutting down on frivolous expenditure, especially by government and its officials, will reduce waste in the system.
Oyibo lamented the non-passage of the Petroleum Industry Bill (PIB), which he said is designed to grow the oil sector and the economy. He regretted that the Bill has become a big problem for the economy as its non-passage has scared investors and denied the nation huge foreign exchange, lamenting adding, that it would have been better if the bill was not introduced at all.
Council member, Chartered Institute of Taxation of Nigeria (CITN), Chukwuemeka Ezeh, said the government’s step is only a partial solution to the problem.
He explained that the action would lead to slight increase in the revenue, but would not be enough to sustain an economy which currency has recently been devalued, an economy with high interest rate, high recurrent expenditure, and high corruption index.
Taxation, he said, no doubt, is an instrument of economic sustainability but Nigeria lacks the requisite tax culture that can raise the revenue that can easily complement our mono-product source of foreign exchange.
“My advice is that there is need to take serious the taxation of high net-worth individuals and politically exposed persons. For instance, politicians spend billions of naira and dollars without commensurate impact on their tax worth. Some of these politicians pay income tax as low as N100,000 per annum. The tax authorities concentrate on levying taxes on businesses leaving politicians who run no businesses to live in opulence,” he said.
The obvious implication, he said, is that tax authorities are being driven hard by government to meet revenue targets and this is leading to desperation and abuse of Best-of-Judgment principle of taxation.
“More taxes or aggressive recovery may lead to investment flight. Poor governance will reduce voluntary tax compliance. Recurrent expenditure will become a recurring decimal in our budgets. Revenue from taxation will be insufficient to sustain the level of corruption in the system and this will lead to reduction in capital expenditure and promotion of spiraling inflation. The stock market will become bearish leading to poor return on investments. At the fiscal level, the Medium Term Expenditure Framework will be difficult to adhere hence budget implementation will be academic,” he said.
The Director General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, said there is need to diversify the nation’s sources of revenue to shore up the economy in view of current realities, but he however cautioned that it is not the best of time to impose new taxes on investors and the citizens.
He said: “They are already burdened with the cost of providing their own infrastructure, security, logistics and port charges. Other limitations are the high costs of funds, interest rates, depreciation and current devaluation of the currency.”
Yusuf advised the Federal Government to look in the direction of cutting the cost of governance, curb corruption and block all leakages, while improving efficiency in tax administration.
He also urged on the need to ensure better compliance with tax laws and reduction on importation of petroleum products.
The LCCI boss further called attention to the burden and pressure that fuel importation is imposing on the national treasury which is an abnormity for an oil producing nation unlike other countries in our position.
He also called for the quick passage of the Petroleum Industry Bill (PIB), stressing that it is the only way the sector can add maximum benefit to the growth of the economy.
Also, other stakeholders urged the Federal Government to ensure strict implementation of all measures being put in place in the 2015 budget proposal to stabilise the economy.
They said if the government could cut down allocation to payment of subsidy on kerosene, it would go a long way to saving money for other critical areas of the economy.
Mr Dayo Adeshina, President, Nigeria Liquefied Gas Association, said that money saved from the payment of subsidy on kerosene should be used to develop the gas industry to replace kerosene infrastructure.
He said that government should encourage manufacturers by reducing the interest rates for the small and medium scale enterprises, warning that with the continuing fall of oil prices, Nigerians would face tougher challenges in 2105.
“The way oil prices have gone down, it is going to be a tougher year in 2015; the revenue will have gone down significantly,.” Pointing out that government must come up with some incentives to encourage local investors.
He maintained that until power is stable in the country, the cost of manufacturing would remain very high.
Adeshina stressed that government should have enough fund to cushion the 65-dollar oil benchmark even when it fell below the proposed benchmark.
“I hope they have made efforts to cushion that forecast if the price falls lower than what they are predicating the benchmark on.
He said there was a need for government to cut down on its expenditure.
Uche Okoro, Personal Assistant to the Chairman, Nigerian Electricity Regulatory Commission (NERC) on Research and Strategy, said that the 2015 budget estimates would encourage local manufacturing as government was shifting from oil revenue to non-oil revenue.
He said that the measures adopted by government would encourage local manufacturing as more energy would be produced and
targeted at industrial base of the country.
“We are very optimistic about the 2015 budget proposal as it is geared towards economic growth of the country,“he said.
The aggregate budget revenue for 2015 is N3.6 trillion, comprising oil revenues of N1.918 and non-oil revenues of N1.684 trillion to fund an aggregate budget of N4.3 trillion proposed for 2105.(NAN)
The federal government’s efforts to generate revenue aside from the sale of crude oil has been described as a lazy way of raising money with accountability to the people.
On his part,, Nze Chidi Duru Chief Executive Officer (CEO) Grand Towers Nigeria Limited described as a tragic mistake the federal government’s contemplation of increasing Value Added Tax (VAT) to be paid on goods and services.
Such increase in VAT he said, “will place a lot of burden on businesses without capturing every business person.
To increase revenue, Nze Duru advised the federal government to “inaugurate a proper tax regime to capture everybody into tax net and generate appropriate data, demographics and target how they can provide for those in need and not a blanket VAT increment.
With regards to surcharge on luxury goods, Nze Duru lauded the initiate but noted that the federal ministry of finance was not in tune with realities on ground.
According to him, “there is a disconnect between the flat rate of N10.56 billion that the federal government is targeting from surcharges on luxury goods and the fact that Nigeria ranks amongst the highest consumer of champaign, red wine and spirits valued at over N400 billion annually so there is no data available to government to come up with a flat surcharge of N10.5 billion on the selected array of luxury goods. Government is only basing its projections on a rule of thumb.”
Nze Duru noted that by targeting only N10.56 billion from surcharges on luxury goods it has shown that the government “does not know how much champaign, wine and spirits come into the country.”
He implored the federal government to emulate the example of the Lagos state government by first gathering data, capturing most if not all taxable entities and individuals before fixing tax rates.
In his words the federal government’s new revenue drive “is a lazy way of raising money with no hard work involved.”
On the surcharge on first and business class tickets, retired Captain Paul Nwachukwu termed the move “a way of curtailing foreign travels especially for Directors, Deputy Directors and Assistant Directors who usually fly business class and Permanent Secretaries who officially fly first class.
However, he said the overall policy of surcharging airline tickets “does not make sense” as the airlines will jerk up their fares and in a situation where that does not work will adopt what some American Airlines have done by converting the entire cabin to economy only by removing first and business classes.
He praised the imposition of surcharges on mansions in Abuja where there are billion Naira mansions and nothing in the form of property tax or surcharge is generated from such edifices.
In his contribution, the Managing Director, Morgan Capital Securities Limited, Mr Ayoleke Adu, though the budget breakdown and analyses have not been presented, the glimpse of the budget still shows that recurrent expenditure is still higher than capital expenditure. There is no way any economy, especially a developing economy like ours, can develop with such a skewed budget in favour of recurrent. There is still much to be done to reduce recurrent expenditure and free more funds for capital projects.
Adu noted that given the election period, there is strong probability that the implementation of the budget may fall below expectation. One thing is to put something down, another thing is to implement it and whichever way we look at it, election will influence the implementation of the budget.
Adu, whose investment firm had earlier written a thought-provoking analysis on the pioneer status, said the review of the pioneer status granted to some oil companies is in order as this will enable government to claw back tax waivers and free more funds to boost its revenue.
He pointed out that the budget will also be moderated by extraneous influence given Nigeria’s dependence on oil revenue and the current global crude oil situation. He added that the impact of the budget on the capital market would also be moderated by the market’s dependence on foreign portfolio investors noting that the current market situation has exposed the need to develop and encourage the local investors’ base.
In their opinion, Aviation stakeholders described as unacceptable the proposed sole charge on First class and business class tickets for both domestic and international flights.
They said such charge would increase the burden on passengers who are already suffocating under a heavily taxed regime .
Speaking in a telephone interview, former President of the Air Transport Services Senior Association of Nigeria ( ATSSSAN), Solomon Ohiomah said the sole charge would serve as a disincentive to travelers, arguing that passengers are already heavily taxed by airlines which introduce different charges , which is factored into the air fare .
He said this new move by government to beef up its revenue base is unacceptable to the aviation sector .
He said the sole charge should be restricted to owners and users of private and chartered jets , which many industry players already classify as luxury .
Ohiomah said :” This is unacceptable, government could consider other ways of making money . If it goes ahead to impose a sole charge on first class and economy tickets, it would be too much burden on the passengers .
Passengers are already complaining of multiple taxes and charges factored into their air fare.
An airline manager , who pleaded not to be named said such proposal would discourage some category of people from flying, describing it as ill- timed .
He said passengers were already experiencing multiple taxes factored into their airfare , describing the proposal as an over kill .
A passenger who identified himself as Emmanuel Ola hailed the proposal describing it as one of the ways to generate additional revenue for government .
He said :” Anybody who wants to enjoy luxury must be ready to pay the price .”
Coordinating minister of the economy , Dr Ngozi Okonjo – Iweala while presenting the 2015 budget proposal to the National Assembly said : “Government is going to implement a sole charge on luxury goods; a 10 per cent import sole charge will be imposed on new private jets which are being brought into the country.
Mrs. Okonjo Iweala said that a sole charge was also proposed on business and first class flight tickets and non on the economy tickets..”
•Additional reports by Lucas Ajanaku, Taofik Salako, Okwy Iroegbu-Chikezie, Collins Nweze and Kelvin Osa-Okunbor
