Obinna Chima writes that increasing domestic revenue is central to improving economic growth as well as the quality of public utilities
It is a common knowledge that Nigeria’s revenue to gross domestic product (GDP) ratio, at about eight per cent is the lowest in the world.
For instance, Algeria presently has 33 per cent revenue-to-GDP ratio; South Africa – 29 per cent; Morocco – 26 per cent; Tunisia – 24 per cent; Angola – 22 per cent and Egypt – 21 per cent.
Some other countries whose revenue-to-GDP are also far above that of Nigeria include Cote d’Ivoire – 20 per cent; Zambia – 19 per cent; Kenya – 18 per cent; Cameroun and Uganda – 16 per cent; Ghana – 14 per cent and Ethiopia – 13 per cent.
This has seen the federal government take steps to shore up its revenue, especially from the non-oil sector.
One of such moves was the federal government’s last week’s announcement of plan to reintroduce toll collections on designated dual carriageways across the country.
Minister of Works and Housing, Babatunde Fashola, disclosed this after a Federal Executive Council (FEC) meeting in Abuja. The planned reintroduction of tollgates comes 18 years after the administration of former President Olusegun Obasanjo dismantled all toll plazas on federal roads throughout the country in 2003.
But analysts have stressed the need for transparency and accountability in the process leading to the return of the toll gates.
Fashola said only 5, 005 kilometres of dual carriageways out of the 35,000 kilometres of federal roads in the country– that is 14.3 per cent – would be eligible for tolling.
According to him, vehicles would pay between N200 and N500 per trip, depending on their make.
However, diplomatic, military, para-military vehicles, and as well as tricycles and motorcycles would be exempted from toll payment, the minister stated.
He explained, “The total network of roads today, assuming we wanted to start today, which will be eligible for tolling on federal network will be 14.3 per cent of the total network.
“So 85.27 per cent will not be eligible for tolling. We have seen that most of those dual carriageways also have alternative roads, but they are single carriageway. That was why we left them.
“The only exception to single carriageway are some bridges and they are listed in the regulation.”
The former Lagos State governor said with the council’s approval, modalities were being worked out to determine when the tolling system would take off.
He explained, “The Ministry of Works and Housing presented a policy memorandum for the approval of federal roads, bridges, tolling policy, and also a regulation that will provide legal framework for the tolling policy.
The federal government spent 98 per cent of its revenue to service debt between January and May 2021, up from the 83 per cent recorded in 2020.
“We have taken another step. So let me be clear, tolls are not going to start tomorrow. Let us be clear about that.
“But the big step to actual tolling was taken today by presenting for approval the broad policy that will guide the tolling so that local people, states, local governments, all those who manage roads, investors who want to come in, will know what our tolling policy is. And that will form the basis of their financial modelling, their investment decision.”
Fashola emphasised that the open tolling system to be introduced would not commence until the affected roads were motorable, while agreements as to the erection of the plazas would be negotiated with relevant government agencies.
He said, “First of all, toll will not start until roads are motorable. So let’s be clear about this.
“There will be agreements that have to be negotiated with government through the Ministry of Works and the Infrastructure Concession Regulatory Commission.
“Some of the highlights are that we will adopt an open tolling policy, as distinct from a closed tolling policy. The difference is that only open tolling policy, which is what we were used to, you pay at a barrier over a fixed or predetermined distance.
“The closed toll system means that you will pay tolls over the distance you travel and the size of your vehicle. We haven’t operated that before. So we are going back to what we know. We also approved that consultations must be done. Willingness to pay surveys must be done before specific roads are tolled.”
Enhancing Revenue
Last year, the federal government spent N3.10 trillion on debt service for the 11 months (January- November) 2020, out of N3.48 trillion retained revenue for the same period. This represented 89 percent of its revenue.
In its 2022-2024 medium-term expenditure framework and fiscal strategy paper (MTEF & FSP), the budget office of the federation also projected to spend N48 out of every N100 revenue to repay debt in the next four years.
That is why experts have continued to stress the need to diversify its revenue source away from oil as oil, which has been a resource curse for the country in multiple dimensions.
Clearly, this was one of the reasons why the federal government launched its Strategic Revenue Growth Initiative (SRGI), whose key elements includes sustainability in revenue generation; enhancing existing and creating new revenue streams; cohesion in the revenue ecosystem; and cost optimisation and liquidity enhancement.
The overarching goal of the initiative is to raise the revenue-to-GDP ratio to 15 per cent by 2025.
The Nigerian economy continued to recover in the first quarter of 2021 after exiting a recession in the fourth quarter of 2020.
Data from the National Bureau of Statistics (NBS) had shown that real Gross Domestic Product (GDP) grew by 0.51 per cent in the first quarter of 2021, compared with 0.11 per cent in the fourth quarter of 2020.
Therefore, in order to shore up its non-oil revenue, the World Bank has advised the federal government to focus on low-hanging and revenue-yielding fruits.
These, the bank stated would help the government achieve substantial gains, grow Nigeria’s tax-to-GDP ratio to about seven per cent and rake in about N10 trillion revenue in the next three years.
Specifically, the bank advised the government to increase ‘sin taxes,’ charging fees for electronic money transfers, rationalising tax expenditures, removing loopholes in tax laws, and improve tax compliance with more disciplined revenue administration.
It also noted that tax revenues were necessary to run essential services, provide security to citizens, help tackle hunger and poverty, and deliver critical health and education services.
Furthermore, the Washington-based institution stated that the COVID-related economic slowdown and the steep fall in oil prices in 2020, brought into clear focus the need to increase non-oil revenue in Nigeria, even when investment, jobs, and growth also needed to increase.
“This calls for a carefully calibrated set of policy and administrative measures that can grow revenues without discouraging investment.
“That rules out any increases in traditional ad valorem taxes like the value-added tax but it does afford an opportunity to fully apply tax policies already adopted and reform tax administration to seal compliance gaps.
“In the longer term, fundamental reforms of the tax system will be necessary to stimulate post-pandemic investment and economic growth. As Nigeria tries to “build back better” after the COVID crisis, a more strategic approach to revenue mobilisation will also be necessary: not just taxing more, but taxing better; not just how much to collect, but how to collect, what to collect, and from whom,” the bank added.
On its part, the Deputy Governor, Corporate Services Directorate, Central Bank of Nigeria, Mr. Edward Adamu, noted that to spur all-round economic recovery and brighten the outlook for overall growth, fiscal actions must be aimed at supporting a wide range of activities including contact-intensive activities that have been heavily impacted by the COVID-19 pandemic.
This, he said was important because the overall output horizon continues to be uncertain due largely to concerns about the pandemic.
“As I have argued previously, monetary policy at this time must be anchored on a balanced view of the diverse pressures on the economy. While remaining committed to the primacy of price stability, the choice of instrument must be carefully judged to avoid undermining the fragile economic recovery gains,” Adamu added.
On his part, a member of the Monetary Policy Committee (MPC), Prof. Adeola Adenikinju, pointed out that there was need to diversify the economic and revenue base of the economy so as to reduce exposure to external shocks as well as prepare the economy for the global shift from fossil fuel to green economy.
“It should not be business as usual for our economic managers. The economy also needs a strong buffer to mitigate external volatility,” Adenikinju added.
Also, another MPC Member, Ahmed Aliyu, stressed the need to promote non-oil exports as well as to build critical infrastructure in the energy/power and transport sectors.
“I am not oblivious of the tight fiscal space, which calls for the need to broaden the revenue base to meet government’s expenditure profile. The recent efforts by the fiscal authorities to strengthen revenue collection channels is commendable and should be supported by all stakeholders,” he said.
Similarly, the Deputy Governor, Operations Directorate, CBN, Mr. Mr. Folashodun Shonubi, said the increasing need to refocus the economy and look beyond oil stares us in the face.
According to him, many jurisdictions have scaled down further investments involving use of fossil fuel.
“We must therefore take more steps to enhance domestic investment and productivity, as well as, reinforce the internal stabilizers of the economy,” he added.
On his part, the Director-General, West African Institute of Financial and Economic Management (WAIFEM), Dr. Baba Musa, said the biggest opportunity for both policymakers in the country and operators of business is to look inwards.
According to Musa, over the years, the mantra has been to diversify the economy, but despite that, there has been heavy reliance on oil as a major source of revenue.
“But if you look at most of the developed economies, most of them are driven by the taxes they collect. So, in our tax system, there is still a lot of room for improvement.
“Nigeria’s tax to GDP is far below Africa and even West African average. So, what is required is that now all those loopholes in terms of revenue collection, we need to block them,” he added.
He said the pandemic has also brought to the fore the need to increase investment in the health sector.
“Already, the government has an agriculture agenda and there is also the Anchor Borrowers’ Programme; we need to ramp them up in such a way that the country becomes a net exporter.
“Then, after that, in the medium term, the Dangote Refineries, the modular refineries would also be encouraged to come on stream, because this is the right time for them to be operational. But what is important is that we need to look inwards,” he added.
The Founder, Foundation for Economic Research, Prof. Akpan Ekpo, advised that going forward, the federal government should always prepare what he termed a non-oil budget, in order to be able to avoid external shocks.
“What I have been saying for years is that anytime we have high crude oil price, we should always see it as a windfall, save a lot of the revenue and target it for spending on infrastructure. I worked with Anthony Ani when he was Minister of Finance and we planned to do a non-oil budget.
“If you look at the Nigerian economy, oil contributes only 10 per cent to GDP, while the non-oil sector contributes 90 per cent. So, we can actually do a non-oil budget. If we had been doing it for years, we would have gotten used to it, so that if the oil price does well, it becomes like a windfall. Let us demystify the oil sector because oil may finish one day,” he said.
Therefore, it is expected that strengthening domestic revenue mobilisation would provide enough resources for the government to invest in critical sectors such as security, health education and also engender inclusive and sustainable growth. In addition, it would help to improve governance as well as the quality of life of citizens.
