Tag: Drainpipes

For three consecutive years, the Federal Government has failed to meet its revenue projections, a trend that may continue in the current fiscal year. This is believed to be the consequence of the leakages in the revenue collection and remittance of about 60 revenue generating agencies, writes Assistant Editor MUYIWA LUCAS

Minister of Finance and Coordinating Minister of the Economy Dr. Ngozi Okonjo-Iweala sits atop the second biggest but yet highly volatile economy on the African continent. There is huge Transformation Agenda plans, which require that she monitors with an eagle eye, developments both locally and internationally, to enable her pilot the economy aright. And when the need arises, the minister, a former Managing Director of the World Bank, has shouted to the roof tops about the phenomenal vistas her economic team is bringing in to reposition the economy. Similarly, she has not failed to indicate her fears for the economy as the situation demands. Last year, Mrs Okonjo-Iweala expressed fears that the revenue projection may not be achieved following competition from emerging oil-producing countries in Africa, listing other factors that may pose a threat to the country’s revenue to include oil theft, and pipeline vandalism.

The Director-General of Budget Office, Dr. Bright Okogu, equally shared this fear, affirming that the threat to oil earnings in 2013 was enormous. He warned that the oil supply-demand gap for crude oil in Nigeria has unpalatable implications on sales. To avert such negative implications, Okogu pressed for an increase in the Internally Generated Revenue in the 2013 budget. Therefore, revenue generating agencies, such as the Nigerian National Petroleum Corporation (NNPC), the Nigeria Customs Service (NCS) and the Federal Inland Revenue Service (FIRS), were to ensure proper remittance of all revenues collected on behalf of the government to the last kobo. His position is understandable. The 2014 budget envisaged a Gross Federally Collectible Revenue of N10.88 trillion from which N3.73 trillion of the expected collectible revenue will be used to fund the budget. Total expenditure for the year is N4.64 trillion. This figure is underpinned by the parameter of oil benchmark of 2.39 million barrels per day at a price benchmark of $77.5 per barrel, using an exchange rate of N160 to a dollar. It projects a Gross Domestic Product (GDP) of 6.75 per cent.

Mrs Okonjo-Iweala’s and Okogu’s fears on the threat to oil are, however, not the only factor that may affect the 2014 revenue. Going by the antecedents of the government’s revenue generating agencies, beneath financing the 2014 budget lies deafening worries. This is because, from 2011 to 2013, the government has failed to meet its revenue projections, a trend that has cast doubt on government’s ability to meet the N4.64 trillion budget proposal for this fiscal year. This is blamed on the revenue generating agencies of government, said not to have been meeting their target for revenue collection, and in some instances, touted not to be forthright with regards to the full disclosure of their earnings. Recent events have shown that some revenue-generating agencies have turned out to be drainpipes on the much needed revenue. There are about 36 of these agencies, prominent amongst which are the NCS, FIRS, Nigerian Maritime Administration and Safety Agency (NIMASA), Nigerian Ports Authority (NPA), Bureau of public Enterprise (BPE), NNPC and Department of Petroleum Resources (DPR), amongst others. Initially, agencies such as the Federal Road Safety Commission (FRSC), were not established to generate revenue into the government coffers, but their activities, such as issuance of vehicle number plates, have changed the setting; hence, they are now mandated by law to remit 20 per cent of their operating profit to the government.

The revenue earned by these agencies shows that much more is desired. Last year, of its N1.3 trillion revenue target, the NCS could only collect N833.4 billion, representing 59. 52 per cent of its target for the year, or a revenue shortfall of N480.7 billion between January and November 2013. In 2012, the Service recorded N850.9 billion as revenue, falling short of the N872 billion set target by the government; in 2011, the NCS ended the year on a N741. 836 billion revenue earning, surpassing the set target of N596 billion, after falling short of its 2010 set revenue target of N561 billion when it struggled to rake in N546.64 billion

Going by its strategic position as the major contributor to the nation’s revenue, and the wheel on which the economy revolves, the expectations from the NNPC, is understandably high. This is because a distortion in the earnings from the Corporation will naturally translate to a distortion in the economic survival of the country; presupposing that when the NNPC sneezes, the economy catches cold. Annually, the country’s budget proposal is tied to the performance of the oil sector and NNPC’s ability, alongside some other agencies like NCS and FIRS, to rake in huge revenue. In the 2014 budget, government projects that gross federally collectible oil and gas revenue to hit N7.16 trillion. But setting such targets has become a hollow ritual. For instance, in the 2012 budget, based on a $75 oil price benchmark, the government projected gross federally collectible revenue to hit N9.406trillion. Of this figure, proceeds from oil and gas, were expected to hit about N6.4 trillion. In 2013, the NNPC had a revenue shortfall of N1.93 trillion.

While the NNPC and the NCS has had fluctuations in their revenue collections over the years, the FIRS has on the other hand has been able to sustain its revenue, surpassing its targets yearly, thus, faring better than other government revenue collection agencies. Consistently, the agency’s revenue has been on a steady increase over the years. In 2008, the agency earned N2.97 trillion; 2009 it was N2.197 trillion; 2010, N2.83 trillion surpassing government’s set target of N2.5 trillion; in 2011, in spite of the N2.7 trillion target set for the agency, going by the record from the Federal Ministry of Finance, the FIRS generated N4.62 trillion revenue exceeding that year’s budget by about N140 billion. In 2012, N5.007 trillion was generated by FIRS, surpassing its N3.6 trillion federal government set target for the year. As at November 2013, the FIRS had a surplus of N3.48 billion collected. Under the 2014 budget, N2.2 trillion was set as target for the highflying agency.

But, the concerned agencies have not failed to shout themselves hoarse in trying to defend their inability to meet their set revenue targets. For instance, the NNPC easily blames the shortfall on increased crude oil theft, and a drop in crude oil production as a result of force majeure declared at the Brass and Bonny Terminals, and an increase in pipeline vandalism. Similarly, the NCS blames its below par performance on reduction in imports as a result of government policies, and also due to revenues forfeited from various concessions and waivers. Comptroller General of Customs, Dikko Inde Abdullahi, while admitting that the current fiscal year will be full of challenges for the Service, especially with the N1.2 trillion revenue target set for it this year, fingered the by the Federal Government’s new policy on rice, fish and the automotive industry as reasons for the substantial drop in volume of cargoes from where the NCS realizes a huge chunk of its revenue from duty and levies payable. He explained that with the imposition of a 10 per cent import duty on rice and increased rice levy from 50 per cent to 100 per cent in 2013, the Apapa Area One Command, which is the highest revenue collector for the Service, has progressively lost 70 percent of its annual revenue. Rice imports, most times, constitute up to 70 to 96 percent of its monthly revenue generation between 2011 and 2012. Figures of import waivers over a three- year period of 2011, 2012 and 2013 were put N55.9 billion, N55.3 billion and N59.4 billion respectively.

The NNPC, which has come under public scrutiny, especially with the revelation by the suspended Central Bank of Nigeria (CBN) Governor Sanusi Lamido Sanusi that the Corporation did not remit $10.8 billion to the federation account, has severally been criticised for lack of transparency in recent years. The NNPC was said to have lost $720 million in potential revenue to crude oil theft and production disruption during in January 2013, and incurred $1.22 billion in the repair and maintenance of its 5,000 kilometers of oil pipelines. But if the words of Okonjo-Iweala is anything to go by, then the days of accountability for the State oil Corporation may just be around the corner. “We need to see the justification, with receipts, where the money has been spent. Where this is not so, NNPC will need to account for the money. We need all the money due to the Federation Account and reconciliation with NNPC on the money is under way,” she insisted. Okogu has also expressed concern over the leakages in revenue from collecting agencies, disclosing that revenue generating agencies were in the habit of spending a large percentage of their earnings to match their revenue. For instance, he said that in 2009, a certain agency generated N85 billion but spent N83.2 billion, while in 2010, another agency which generated N1.7 billion increased its spending to N1 billion. To curb this, revenue-generating agencies must now remit at least 25 percent of their gross revenue, and tie their budget on the balance after remittance.

But from Chief Anthony Ani’s disclosure, the leakage of revenue through these agencies predate the democratic dispensation. As a former minister of finance under the late General Sani Abacha’s administration, Ani obviously has his facts. He revealed that in 1997, of the federally collected revenue of N452 billion, only N208 billion was paid into the Federation Account, while in 1998, of the N424 billion collected, only N189 billion was remitted to government purse.

Speaker, House of Representatives Aminu Tambuwal, while presiding over a meeting of revenue generation and remittances with revenue generating agencies and the House Committee on Finance in December 2012, decried frequent revenue leakages from government coffers, saying it was unlawful for any government agency to spend monies not appropriated by the National Assembly. Represented at the meeting by his deputy, Emeka Ihedioha, he revealed that 50 per cent of Federal Government revenue is illegally spent outside the annual budget. “A situation where actual government revenue and expenditure is unknown because revenue earning agencies of government spend the funds as they deem fit can no longer be tolerated. A situation where over 50 per cent of actual government revenue is spent outside the national annual budget has put Nigeria in a fiscal crisis,” he said.

Buttressing the Speaker’s position, Chairman of the committee, Abdulmumin Jibrin, alleged that two of the revenue agencies-the Nigerian Ports Authority (NPA0 and the National Airspace Management Agency (NAMA)- jointly generated N210 billion in 2012 and spent all the money without remitting a dime to the Federation Accounts.

Similarly, members of the National Assembly Joint Committee on Interior were stunned when the former Comptroller-General of Immigration, Mrs. Rose Uzoma, disclosed that in 2011, the Nigeria Immigration Service generated N10.3 billion, but N3.4 billion was remitted to the federation account. These revelations were made when Mrs. Uzoma appeared before the committee to defend the 2012 fiscal budget. Her defence was that the revenue generated comprises of N8,192,717,842.77 and off-shore earnings of $13,378,206 (N2,140,512,320). Last year, the House of Representatives also revealed that 60 revenue generating agencies of the Federal Government generated but failed to remit over N9.4tn to the coffers of the government between 2009 and 2012. The House listed some of the agencies to include the Bank of Industry, Central Bank of Nigeria, Nigerian Port Authority and Power Holding Company of Nigeria. The House report of an investigation it conducted revealed that the agencies either spent the money on their operations or simply failed to remit it to the Consolidated Revenue Fund of the Federal Government. This figure is separate from the N6.132tn, which it said the NNPC and its subsidiaries generated internally from 2009 to 2011 and did not remit to government. It furthered made it known that the figure for the NNPC did not include crude oil sales expected to have been paid into the Federation Account.

Jibrin, while giving a breakdown of the unremitted funds, said of the N3.06 trillion the agencies generated in 2009, only N46.8 billion, representing 1.53 per cent was remitted to the government; in 2010, the sum of N3.07 trillion was generated, but N54.1 billion or 1.76 per cent was remitted; and in 2011, the generated figure stood at N3.17 trillion, out of which N73.8 billion or 2.33 per cent was remitted; while as at October 2012, out of the N189 billion expected to have been remitted, only N80 billion was remitted, leaving a shortfall of N109 billion.

“In all, the committee found out that the total remittance to government for the three years was a “paltry” N254.7 billion, out of the total revenue of N9.4 trillion generated. The agencies are simply bleeding this country dry. Not until we take drastic steps to stop them, huge funds that we would have used to execute capital projects will continue to go down the drain,” a bitter and shocked Jubrin exclaimed.

The NNPC, still battling to wriggle out of the Sanusi expose of its $10.8 billion scandal, appears to have more mud rubbed on her. Last week, the Nigeria Extractive Industries Transparency Initiative (NEITI) stunned the country’s legislators, nay, Nigerians, when it revealed that $22.8 billion oil proceeds did not reflect in the Corporation’s books. This disclosure was made at the Muraina Ajibola led House of Representatives Joint Committees of Petroleum (Upstream), Petroleum (Downstream) and Justice, investigating the allegation by a Swiss-based Non-Governmental and Advocacy Organisation, Berne Declaration, that two Swiss oil trading companies-Vitol and Trafigura- in connivance with the NNPC, skimmed the country of about $6.8 billion in two years. Shamsuna Ahmed, NEITI Executive Secretary, explained that these transactions, which sum up to $22.8 billion, are off balance sheet items, that is, not disclosed in NNPC’s audited financial statements. “The implication is that there may be significant contingent liabilities to the Federation that are not being disclosed,” Ahmed warned. NEITI also said $1.73 meant for Joint Venture cash calls had been diverted by the NNPC.

Experts warn that except urgent steps are taken the country may be heading for bankruptcy considering the extent of underhand dealings in these agencies. The Ministry of Finance has secured the services of McKinsey & Co. to help it plug tax leakages in the country, at least to shore up the country’s tax revenue to Gross Domestic Product (GDP) ratio of seven per cent, which is considered low when compared with other middle-income African countries like South Africa and Angola, estimated at about 22 percent. Mrs Okonjo-Iweala also disclosed that over 75 per cent of small scale business operators have consistently been evading tax, in spite of the laudable efforts of the FIRS.

“One of the areas of weakness has always been in our tax policy. The new move will see the non-oil sector contribute more to the economy through payment of appropriate taxes by relevant organisations. FIRS has really worked hard but we feel that there is still room to do better,” she said.

But for the generality of Nigerians, the target set for these agencies are far too small compared to their earning capacity. This, it is said, accounts for why there is an under declaration of revenue. These targets are said to be peanuts when compared to the actual earning capacity of these agencies. For instance, a clearing agent at the Tin Can Island Port, TCIP, Lagos, is concerned, targets given to the NCS is far too small considering the volume of business carried out at the ports. Based on his own calculations, the TCIP alone is capable of generating the annual target of the NCS if there is no corruption in the system. “Clearing consignments of multinationals like NNPC, Nigerian Breweries, Guinness, etc, run into billions of naira yearly; and yet there are several other importers. So, I am convinced the NCS targets are peanuts and are realised conveniently,” he said.

This view is expressly supported by Boniface Aniebonam, founder, National Association of Government Approved Freight Forwarders (NAGAFF), when he said that 95 per cent of imports and exports in Nigeria do not comply with regulations, leading to revenue loss to government. He warned that unless the NCS plugs the loopholes in the system, the achievement of the 2014 revenue target may be a charade.

But, Olayiwola Shittu, National President of the Association of Nigerian Licensed Customs Agents (ANLCA), added a different twist to blocking of the leakages when he suggested the payment of 0.5 per cent commission on all duties that importers help NCS to generate. He is convinced that if this is put in place, revenue leakages would be blocked as agents would insist on accurate duty payment to government in order to improve the commission accruable. This, he said, would make the federal government realize more than N3 trillion through the Customs annually. He blames some officials of the NCS for aiding some clearing agents to circumvent import rules in order to line their pockets, thereby depriving government of huge revenue.

Large scale fraud in revenue calculation, collection and remittance has become a cankerworm that has eaten deeply into the fabrics of revenue generating and collecting agencies.

This is better captured in the “Yearly report of the Auditor General for the Federation on the Accounts of the Federation of Nigeria for the year ended December 31, 2009.” The report, sent to the National Assembly, detailed the discrepancies in the figures of revenue remitted to the Federation Account by the NCS obtained from the CBN components. These were observed in the figures for nine months – January, February, April, May, June, July, August, September, and December, which indicated that the NCS remitted less than the revenue collected during the period to the government. While the figures for the three months – March, October and November indicated that the NCS remitted more than the revenues collected during the period to the Federation Account, which gave rise to a total net difference of N11.122 billion.

In the report, Auditor-General of the Federation (AGF) Samuel Ukura unearthed the depth of under declaration and remittance of revenue in the oil sector. It revealed that oil companies in the country owed government huge sums of money in local and foreign currencies. For instance, it was revealed that the sum of N1.148 billion was owed government on penalty from gas flared and $795.309 million on royalties on crude oil were owed by various oil companies as at December 2009. Furthermore, the Ukura report further revealed during the audit examination of accounting and other records at the Department of Petroleum Resources (DPR) for the Federation Account, the computation of royalties payable by oil companies was based on actual crude oil lifted by them and not calculated on actual production figures; this contravenes the provisions of the Memorandum of Understanding, MoU, with the oil companies involved. The MoU provide that payment of royalties should be based on production volume multiplied by the prescribed royalty rates. The AGF was of the view that the DPR had shirked its responsibility of raising the assessments on royalties and sending the demand notices to the oil firms for prompt settlement. “Rather, the oil companies are allowed to engage in the self-assessment of royalties payable by them. This action is obviously detrimental to the interest of the country,” Ukura noted.

That is not all. In 2010, a House of Representatives Committee on Customs and Excise chaired by Yakubu Dogara, submitted a report which exposes the rot in the system. It also unravels the pressure on the NCS by top government officials to subvert due process. The report indicated that established rules on imports, exports, waivers, pre-releases, among others are breached with impunity, resulting in the loss of billions of naira by the Federal Government.

For example, the House Committee said it uncovered that in 2006 to 2007, the nation lost N38 billion to illegal granting of Temporary Importations and Pre-Releases. But this amount is dwarfed by the N45.9billion which the NNPC was said to have failed to remit to the NCS as duty payable on imported petroleum products. The House Committee found out that the practice of “Mid-Stream Discharge of Cargoes”, later diverted to private jetties, is a major source of revenue loss. It said the practice was encouraged by importers with the connivance of Customs officials who deliberately hire the services of ships that Nigerian ports have no capacity to berth. The ships are said to stop mid-stream, where the cargoes are discharged to small vessels and taken to private jetties. By regulation, officials of the NCS should be available to assess such goods as they are being discharged for appropriate revenue collection. The committee report listed 27 firms which officials of the NCS reportedly connive with regularly to defraud the country.

But what has happened to these reports remains unknown. Mayowa Sodipo, a public analyst, says it is appalling that most of these, especially the NNPC and NCS, have become a cartel that is untouchable. He blames politicisation and the desire to continuously oil the machineries of political office holders for the seeming helplessness to revamp the agencies.

“Because of these interests that these agencies serve, the recommendations of several panels and enquiries into the books of the agencies by successive governments never see the light of day and, by implication, the agencies which are statutorily supposed to rake in huge revenues to government have become drain pipes because of corruption,” Sodipo said.

Continuing, he said bigger sleaze occurs in lesser popular revenue generating agencies, which go almost unnoticed because they are obscure. Sodipo therefore canvassed for an effective anti- corruption fight to ensure that such loopholes are blocked.

“Let us have anti corruption fight as it was in the days of Nuhu Ribadu,” he suggested.

Abdullahi obviously knows the task ahead of him, especially as it affects the integrity of the Service.

“I think from today, we will start the arithmetic of how we are going to achieve that figure. It is very easy. How? It is when we ensure integrity and recognise compliance that is how we are going to achieve it,” he said of the revenue projection.

The CGC also assured that this year would be different because efforts would be intensified in prosecuting revenue offenders so as to serve as deterrent to others and meet the set target. The Customs board during its maiden meeting for 2014 presided over by Mrs Okonjo-Iweala approved new measures aimed at boosting the country’s revenue profile.

This initiative gives Abdullah the confidence to say that “today, the modern Customs is about trade facilitation and want to prove to federal government that we have come of age and we have built the technological competence that can stand the test of time.”

Certainly, the nation awaits the translation of Abdulahi’s talks and promises into improved revenue. For now, the agencies are baskets leaking away precious revenues.