As Improved Non-oil Revenue Offers Hope for Budget Financing…

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Textile market on Lagos Island… can govt fully capture the informal sector in the tax net?

In this report, James Emejo examines the rebound of tax yields against oil revenue and concludes that with further broadening of the nation’s tax base and proper enforcement of tax laws, as well as economic diversification, the current concerns over the ability to fund the 2016 budget could subside

One of the major dilemma of the Buhari administration had been the difficulty in funding the 2016 budget which implementation had since its passage been below expectation.

The N6.07 trillion expenditure plan-tagged “the budget of change” was signed into law by President Muhammadu Buhari based on a crude oil benchmark price of $38 per barrel and a production estimate of 2.2 million barrels per day. The capital component was put at 30 per cent of the fiscal plan, with the remaining 70 per cent set aside for recurrent spending.

The passage of the budget was a great relief to the economy which had suffered severely over an avoidable delay in its passage, a situation which has almost confined the economy to a recession.

Nonetheless, since signing the budget into law, implementation which is a critical aspect of the document has remained slow, a condition which had on several occasions been blamed on paucity of funds, largely caused by the falling price of oil which has more than halved government’s earnings from oil sale.

In an economy, which depends heavily on oil revenue to meet government financial obligations, the fall in oil price had caused serious challenges to public treasury as most states of the federation are currently unable to pay workers’ salaries, and had been surviving a bailout funds from the federal government.

Only recently, the Minister of Finance, Mrs. Kemi Adeosun, said the government will not be able to completely fund what was appropriated in the 2016 budget due to paucity of funds, adding that fund would only be released based on necessity.

It is on this note that the statement by Executive Chairman, Federal Inland Revenue Service (FIRS), Mr. Babatunde Fowler, that the Federal Government was able to raise over N500 billion, which was allocated at the Federal Accounts Allocation Committee (FAAC) in the month of June offers hope that the economy could successfully wade through the present fiscal crisis by relying on non-oil receipts.

According to him, 70 per cent of the entire sum came from non-oil sources while 30 per cent accounted for oil revenue. This is a significant departure from an era where oil revenues often accounted for 80 per cent of monthly receipts.

He further expressed confidence that the country could actually fund its budget through non-oil sources. The June FAAC allocation was significant given that it was the first time since the beginning of the current fiscal crisis that the three tiers of government had shared over N500 billion.

Speaking when he led a delegation of Chairmen of State Boards of Internal Revenue, (SBIR) from the 36 states of the federation to the office of the Executive Governor of Ogun State, Mr. Ibikunle Amosun, on a courtesy, Fowler also said the FIRS had added over 700,000 new corporate accounts into the tax net, cumulatively bringing total registered taxpayers to 10 million including those of SBIRs.

He added that the JTB had further set a target to include no fewer than 10 million additional taxpayers by December 31, 2016.

The development offered much expectation from the non-oil revenue generating agencies whose roles are critical in government’s effort to look away from oil through broadening of the tax base and pursuing massive diversification of the economy.

However, the fact that a substantial portion of the non-oil receipt for June allocation came from backlog of proceeds especially from company income tax, which are seasonal and other arrears, which are unlikely to be reflected in next month’s allocation still leaves much to be done as there’s every need to urgently expand the tax base and enforce compliance whenever necessary.

Several companies and wealthy individuals are believed to default in tax obligations.

Interestingly, Fowler had further assured on the commencement tax enforcement.

Coupled with the increasing efforts by the present administration to sufficiently diversify the economy into agriculture through various interventions in other key sectors of the economy, it is certain that if well implemented, non-oil revenue sources could help bridge the domestic component of borrowing to fund the 2016 budget deficit.

The situation further demand that states doubled efforts to improve their internally generated revenue stream which had unfortunate dropped in 2015.

Although all the 36 states of the federation altogether raked in a total of N682.67 billion in Internally Generated Revenue (IGR) in 2015, according to the National Bureau of Statistics (NBS), the amount represented a decline of 3.69 per cent or N25.18 billion when compared with the N707.85 billion they recorded 2014, requiring more efforts as government looks to relegate oil and its attendant consequences and embrace a more predictable non-oil sources to drive the economy.