Cheers as non-oil earnings rises
The significant and prolonged drop in oil prices since mid-2014 has changed the fortunes of Nigeria and other countries around the world heavily dependent on revenues from crude oil export. It has also created a challenge for these governments to fund their national budgets from other sources asides oil.
In Nigeria, the three tiers of government (federal, state and local government councils) in April this year received a net statutory allocation of N207.878 billion as federal allocation for the month of April, 2016. The gross revenue of N213.817 billion received for the month was lower than the N232.619 billion received the previous month, March, by N18.802 billion.
In May, the federal, state and local governments shared the sum of N305.128 billion. The amount was an improvement on the amount shared in the previous month. The Finance Minister, Kemi Adeosun attributed the rise in the revenue sharing to improvement in revenue collection at all levels, both in mineral and non-mineral avenues, despite the decrease in oil production.
For the first time in 2016, the sum of over N500 billion was shared among the three tiers of government in June. According to Tunde Fowler, Chairman, Joint Tax Board (JTB) and Executive Chairman, Federal Inland Revenue Service (FIRS), 70 percent of the revenue shared for the month of June came from non-oil sources while only 30 percent came from oil sources.
This is cheering news and one of the positive effects of the declining oil revenues. Of course, it is the beginning of better things to come, and with determination and singleness of purpose, the country could greatly expand on that and in a short time attain complete revenue diversification such that the economy and the federation will cease to depend almost exclusively on oil rents.
At the 135th Meeting of the JTB – the umbrella body for state and federal tax authorities in Nigeria and was established in 1961 to promote uniformity and harmonisation of Personal Income Tax Administration across the country – recently, Fowler noted that FIRS tax revenue collection is seasonal, but a combination of massive new taxpayer registration drive, tax education and engagement through the establishment of the Federal Engagement and Enlightenment Tax Teams, FEETT, audit of five key sectors: banks and the financial sector, aviation, power, telecoms and oil and gas is beginning to yield result. Also, the collaboration with revenue stakeholders across the country is highly commendable and should be sustained. However, it must be noted that the country’s low comparative tax revenue to the Gross Domestic Product (GDP) ratio, currently at about 7 per cent against the 18 per cent average in most developing countries, needs to be improved.
It is also noteworthy that FIRS has added over 700,000 new corporate accounts since last year bringing Nigeria’s cumulative registered taxpayers to 10 million if you add the number of taxpayers of States Boards of Internal Revenue and the FIRS. It is also cheering news that the JTB has given itself a target to register at least 10 million additional taxpayers by December 31st 2016. With aggressive tax laws and enforcement, there is no doubt that Nigeria can withstand the shocks of the uncertainties in the global crude oil market.
But beyond the need to raise additional revenues and diversify the nation’s revenue base, this renewed emphasis on payment of taxes has wider implications for good governance and the deepening of the social contract between the government and the people. Political economists have long posited that it is difficult, if not out rightly impossible, for governments in countries that depend on rents (technically referred to as unearned income) to be accountable to their citizens. This is because taxation forms the most concrete part of the social contract that binds the government to the people and once a government does not depend on the people for its revenue, it does not feel obliged to be accountable to the people.
Happily, the federal government, on June 20, applied to join the Open Government Partnership (OGP) – a global initiative through which member governments and their citizens hold each other to account for a set of voluntary but ambitious commitments (known as national action plans) towards more transparent, accountable, participatory and innovative governance processes. As the Attorney General and Minister of Justice said in the letter, “By joining the OGP, the government of Nigeria commits to transparency and accountability in the management of public office.”
We commend these bold steps of the government and we encourage it go further than just diversifying the revenue base and seeking for openness and transparency by improving on its economic management so that Nigeria can reap the full fruits of the reforms the government is initiating.