Kogiflame
…Revenue from VAT, CIT, others plunge
The ability of Nigerian states and other tiers of government to meet their various obligations is under more risk as gross monthly distribution by the Federation Account Allocation Committee (FAAC) to the three tiers of government dropped by N68billion in November.
FAAC allocation to the three tiers of government and public agencies amounted to N671.9bn ($1.62bn) in November (from October revenue), a decrease of 9.2 percent from the previous payout.
Data by Coronation Merchant Bank shows that the 9.2 percent decline in November FAAC was due to the decrease in the revenue from companies’ income tax (CIT), petroleum profit tax (PPT), value-added tax (VAT), oil and gas royalties. Only excise duty recorded an increase over the previous month.
This means various state governments already impacted by low internal revenue may find it difficult to pay government workers or meet electorate promises without enough remittance from NNPC which form a large chunk of revenues shared at the FAAC meetings in Abuja.
Break down of the report by Coronation revealed that the FGN received a total of N284.3billion, state governments received N209.8billion, including N21.5billion representing the 13 percent derivation for the few oil-producing states and LGCs received N156.3billion.
The continuous decline in Nigeria’s FAAC allocation to the three tiers of government is also due to the subsidy payment, according to market analysts.
The Nigerian National Petroleum Corporation (NNPC) has been deducting from its remittance to FAAC, a threat to the ability of many Nigerian states and other tiers of government to meet their financial obligations.
“Since June ’21, the corporation has deducted a total of N939bn from its FAAC remittance. It disclosed that it would deduct its October ‘21 value shortfall of N199bn from its November ‘21 proceeds,” Chinwe Egwim, Chief Economist, Coronation, said.
The continuous payment of subsidy on petroleum products is likely to reduce the amount the government allocates to states and local governments as well as increase public debt, according to the Nigeria Economic Summit Group (NESG).
The private sector-led think-tank and policy advocacy group said if the federal government continues to pay the subsidy on refined petroleum products; it could push Nigeria into a debt extension by the end of 2021.
“Incessant payment of subsidy on refined petroleum products would narrow FAAC allocations and widen the country’s budget deficit. If this continues, the action could push Nigeria into a Debt Overhang” by the end of 2021,” the Lagos-based non-profit organization said.
While Nigeria continues to channel huge resources to funding petrol subsidies, the country largely depends on borrowing to finance its capital and recurrent expenditure annually.
Nigeria’s widening budget deficit has pushed the country’s debt profile to jump 81 percent in four years to N35.465 trillion as of June 2021 from N19.636 trillion in 2017.
As of June 30, 2021, the Debt Management Office (DMO) says Nigeria’s total public debt amounted to N35.47 trillion (about 86.5 million dollars).
While crude oil prices rose by nearly 45 percent from January’s price of $54.77 per barrel to $84.02 in November, Nigeria’s petrol subsidy costs have risen 10 times faster at 488 percent, wiping out the gains of higher oil prices.
The Federal Government spent an estimated N149.28 billion subsidizing petrol in August, an increase of 488 percent compared with the N25.37 billion spent in January.
“The federal government reluctant to regulate the downstream sector or even try to reduce the price of petrol has reflected market reality that has continued to be on the deficit on government revenue because the amount they need to subsidize PMS has continued to rise,” Ayorinde Akinloye, Associate Investment Research in United Capital, said.
According to Abdulazeez Kuranga, economist, Cordros Securities, the issue of subsidy payment was not in the budget when it was presented by the minister of finance, which means NNPC will continue to deduct the subsidy, and it will affect what NNPC will be remitting to FAAC, which in turn will limit what will be remitted to the government.
While Nigeria has, for years, depended on borrowing to fund its revenue shortage, the World Bank says implementation of tax reforms, rationalization of generous concessions, expenditure can help the cash-strapped country raise as much as N10 trillion.
“In the next three years, such measures can raise the tax-to-GDP ratio to about 7 percent and bring in as much as N10 trillion,” the Washington-based lender said.
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