2015 budget proposal… Neither here nor there

Varied reactions have trailed the 2015 national budget unveiled by the
Finance Minister and Coordinating Minister of the Economy, Dr. Ngozi
Okonjo-Iweala. Notwithstanding the diversity of opinions, they agreed
on the need to diversify the economy, but expressed misgiving about
the government's determination to carry through its new tax drive,
The falling crude price has brought to the fore the transient nature
of oil as a sustainable source of driving the nation's economy. In the
2015 budget before the National Assembly, the Minister of Finance and
Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, said
the bulk of the budget would be driven by proceeds from the non-oil
sector.
Ever before the reality of revenue volatility from oil comes home to
roost, the government, and indeed a section of the society, especially
the Organised Private Sector (OPS), have warned on the dangers of
relying solely on oil to run an economy. They have often warned that
as a wasting asset, it was dangerous for Nigeria to stickipso factoto
oil for over 85 per cent of its federally collectable revenue.
While reactions to Mrs. Okonjo-Iweala's budget outing are varied,
there is a convergence of views on the need for the government to move
the revenue base of the economy away from oil. A Senior Bank
Executive, toldThe Nationthat it was heart warming that the Minister
admitted for the first time the necessity to refocus the economy from
its monolithic nature, to a diversified one, by opening it up to other
sectors.
He said laudable though the budget may appear, "the assumptions upon
which the document is premised, are unrealistic."
He cited the $65 per barrel oil benchmark upon which the document is
fashioned, as an example. He argued that at the moment, the prevailing
spot market price for oil is well under $60, wondering how realistic
it is to assume that the price would have appreciated in the next few
months left for the budget to be passed and implemented.
He said given the nature of our society, the expectation that much
revenue will be realised from taxation, is equally a futile hope,
stating that the dynamics on ground do not support that provision. He
said if it was that easy for government to raise taxes, they would
have been doing that over the years, adding that the chances of
realizing the projected revenue from this sub-head are slim.
The banker pointed out that there was need for re-orientation of our
tax administrators, arguing that as it stands, there is no clear
assurance that our tax officials will stand firm with government to
collect, or realise the requisite taxes from every taxable income.
He explained that the problem of administering the tax does not lie
solely with the tax administrators, but more importantly with the net
target tax payers, most of whom, he stated, "are the powers that be."
Nonetheless, the banker foresees greater ease in realizing the
expected proceeds from luxury fliers and private jet owners. As he put
it, "those who will fly will do so," but noted that the government
will have to agree with the airlines for the smooth administration of
the service.
He said the budget is contingent upon a lot of ifs, wondering what
else the nation can really hold on to outside the oil.
"Outside oil, what do we have? he queried, saying there is no
assurance, or guarantee that oil will rise When these revenues are not
made up, then the deficit will become so large," he stated.
However, the former Group Managing Director, Nigerian National
Petroleum Corporation (NNPC), Dr. Chamberlain Oyibo, said the fresh
measures would give the economy some lease of life.
He said with crude oil price, the mainstay of the national economy,
going down by as much as 40 per cent in so short a time, the wise
thing would be for "us to cut our coat according to our sizes", adding
that cutting down on frivolous expenditure, especially by government
and its officials, will reduce waste in the system.
Oyibo lamented the non-passage of the Petroleum Industry Bill (PIB),
which he said is designed to grow the oil sector and the economy. He
regretted that the Bill has become a big problem for the economy as
its non-passage has scared investors and denied the nation huge
foreign exchange, lamenting adding, that it would have been better if
the bill was not introduced at all.
Council member, Chartered Institute of Taxation of Nigeria (CITN),
Chukwuemeka Ezeh, said the government's step is only a partial
solution to the problem.
He explained that the action would lead to slight increase in the
revenue, but would not be enough to sustain an economy which currency
has recently been devalued, an economy with high interest rate, high
recurrent expenditure, and high corruption index.
Taxation, he said, no doubt, is an instrument of economic
sustainability but Nigeria lacks the requisite tax culture that can
raise the revenue that can easily complement our mono-product source
of foreign exchange.
"My advice is that there is need to take serious the taxation of high
net-worth individuals and politically exposed persons. For instance,
politicians spend billions of naira and dollars without commensurate
impact on their tax worth. Some of these politicians pay income tax as
low as N100,000 per annum. The tax authorities concentrate on levying
taxes on businesses leaving politicians who run no businesses to live
in opulence," he said.
The obvious implication, he said, is that tax authorities are being
driven hard by government to meet revenue targets and this is leading
to desperation and abuse of Best-of-Judgment principle of taxation.
"More taxes or aggressive recovery may lead to investment flight. Poor
governance will reduce voluntary tax compliance. Recurrent expenditure
will become a recurring decimal in our budgets. Revenue from taxation
will be insufficient to sustain the level of corruption in the system
and this will lead to reduction in capital expenditure and promotion
of spiraling inflation. The stock market will become bearish leading
to poor return on investments. At the fiscal level, the Medium Term
Expenditure Framework will be difficult to adhere hence budget
implementation will be academic," he said.
The Director General, Lagos Chamber of Commerce and Industry (LCCI),
Mr. Muda Yusuf, said there is need to diversify the nation's sources
of revenue to shore up the economy in view of current realities, but
he however cautioned that it is not the best of time to impose new
taxes on investors and the citizens.
He said: "They are already burdened with the cost of providing their
own infrastructure, security, logistics and port charges. Other
limitations are the high costs of funds, interest rates, depreciation
and current devaluation of the currency."
Yusuf advised the Federal Government to look in the direction of
cutting the cost of governance, curb corruption and block all
leakages, while improving efficiency in tax administration.
He also urged on the need to ensure better compliance with tax laws
and reduction on importation of petroleum products.
The LCCI boss further called attention to the burden and pressure
that fuel importation is imposing on the national treasury which is
an abnormity for an oil producing nation unlike other countries in
our position.
He also called for the quick passage of the Petroleum Industry Bill
(PIB), stressing that it is the only way the sector can add maximum
benefit to the growth of the economy.
Also, other stakeholders urged the Federal Government to ensure
strict implementation of all measures being put in place in the 2015
budget proposal to stabilise the economy.
They said if the government could cut down allocation to payment of
subsidy on kerosene, it would go a long way to saving money for other
critical areas of the economy.
Mr Dayo Adeshina, President, Nigeria Liquefied Gas Association, said
that money saved from the payment of subsidy on kerosene should be
used to develop the gas industry to replace kerosene infrastructure.
He said that government should encourage manufacturers by reducing the
interest rates for the small and medium scale enterprises, warning
that with the continuing fall of oil prices, Nigerians would face
tougher challenges in 2105.
"The way oil prices have gone down, it is going to be a tougher year
in 2015; the revenue will have gone down significantly,." Pointing
out that government must come up with some incentives to encourage
local investors.
He maintained that until power is stable in the country, the cost of
manufacturing would remain very high.
Adeshina stressed that government should have enough fund to cushion
the 65-dollar oil benchmark even when it fell below the proposed
benchmark.
"I hope they have made efforts to cushion that forecast if the price
falls lower than what they are predicating the benchmark on.
He said there was a need for government to cut down on its expenditure.
Uche Okoro, Personal Assistant to the Chairman, Nigerian Electricity
Regulatory Commission (NERC) on Research and Strategy, said that the
2015 budget estimates would encourage local manufacturing as
government was shifting from oil revenue to non-oil revenue.
He said that the measures adopted by government would encourage local
manufacturing as more energy would be produced and
targeted at industrial base of the country.
"We are very optimistic about the 2015 budget proposal as it is geared
towards economic growth of the country,"he said.
The aggregate budget revenue for 2015 is N3.6 trillion, comprising oil
revenues of N1.918 and non-oil revenues of N1.684 trillion to fund an
aggregate budget of N4.3 trillion proposed for 2105.(NAN)
The federal government's efforts to generate revenue aside from the
sale of crude oil has been described as a lazy way of raising money
with accountability to the people.
On his part,, Nze Chidi Duru Chief Executive Officer (CEO) Grand
Towers Nigeria Limited described as a tragic mistake the federal
government's contemplation of increasing Value Added Tax (VAT) to be
paid on goods and services.
Such increase in VAT he said, "will place a lot of burden on
businesses without capturing every business person.
To increase revenue, Nze Duru advised the federal government to
"inaugurate a proper tax regime to capture everybody into tax net and
generate appropriate data, demographics and target how they can
provide for those in need and not a blanket VAT increment.
With regards to surcharge on luxury goods, Nze Duru lauded the
initiate but noted that the federal ministry of finance was not in
tune with realities on ground.
According to him, "there is a disconnect between the flat rate of
N10.56 billion that the federal government is targeting from
surcharges on luxury goods and the fact that Nigeria ranks amongst the
highest consumer of champaign, red wine and spirits valued at over
N400 billion annually so there is no data available to government to
come up with a flat surcharge of N10.5 billion on the selected array
of luxury goods. Government is only basing its projections on a rule
of thumb."
Nze Duru noted that by targeting only N10.56 billion from surcharges
on luxury goods it has shown that the government "does not know how
much champaign, wine and spirits come into the country."
He implored the federal government to emulate the example of the
Lagos state government by first gathering data, capturing most if not
all taxable entities and individuals before fixing tax rates.
In his words the federal government's new revenue drive "is a lazy way
of raising money with no hard work involved."
On the surcharge on first and business class tickets, retired Captain
Paul Nwachukwu termed the move "a way of curtailing foreign travels
especially for Directors, Deputy Directors and Assistant Directors who
usually fly business class and Permanent Secretaries who officially
fly first class.
However, he said the overall policy of surcharging airline tickets
"does not make sense" as the airlines will jerk up their fares and in
a situation where that does not work will adopt what some American
Airlines have done by converting the entire cabin to economy only by
removing first and business classes.
He praised the imposition of surcharges on mansions in Abuja where
there are billion Naira mansions and nothing in the form of property
tax or surcharge is generated from such edifices.
In his contribution, the Managing Director, Morgan Capital Securities
Limited, Mr Ayoleke Adu, though the budget breakdown and analyses have
not been presented, the glimpse of the budget still shows that
recurrent expenditure is still higher than capital expenditure. There
is no way any economy, especially a developing economy like ours, can
develop with such a skewed budget in favour of recurrent. There is
still much to be done to reduce recurrent expenditure and free more
funds for capital projects.
Adu noted that given the election period, there is strong probability
that the implementation of the budget may fall below expectation. One
thing is to put something down, another thing is to implement it and
whichever way we look at it, election will influence the
implementation of the budget.
Adu, whose investment firm had earlier written a thought-provoking
analysis on the pioneer status, said the review of the pioneer status
granted to some oil companies is in order as this will enable
government to claw back tax waivers and free more funds to boost its
revenue.
He pointed out that the budget will also be moderated by extraneous
influence given Nigeria's dependence on oil revenue and the current
global crude oil situation. He added that the impact of the budget on
the capital market would also be moderated by the market's dependence
on foreign portfolio investors noting that the current market
situation has exposed the need to develop and encourage the local
investors' base.
In their opinion, Aviation stakeholders described as unacceptable the
proposed sole charge on First class and business class tickets for
both domestic and international flights.
They said such charge would increase the burden on passengers who are
already suffocating under a heavily taxed regime .
Speaking in a telephone interview, former President of the Air
Transport Services Senior Association of Nigeria ( ATSSSAN), Solomon
Ohiomah said the sole charge would serve as a disincentive to
travelers, arguing that passengers are already heavily taxed by
airlines which introduce different charges , which is factored into
the air fare .
He said this new move by government to beef up its revenue base is
unacceptable to the aviation sector .
He said the sole charge should be restricted to owners and users of
private and chartered jets , which many industry players already
classify as luxury .
Ohiomah said :" This is unacceptable, government could consider other
ways of making money . If it goes ahead to impose a sole charge on
first class and economy tickets, it would be too much burden on the
passengers .
Passengers are already complaining of multiple taxes and charges
factored into their air fare.
An airline manager , who pleaded not to be named said such proposal
would discourage some category of people from flying, describing it as
ill- timed .
He said passengers were already experiencing multiple taxes factored
into their airfare , describing the proposal as an over kill .
A passenger who identified himself as Emmanuel Ola hailed the proposal
describing it as one of the ways to generate additional revenue for
government .
He said :" Anybody who wants to enjoy luxury must be ready to pay the price ."
Coordinating minister of the economy , Dr Ngozi Okonjo – Iweala while
presenting the 2015 budget proposal to the National Assembly said :
"Government is going to implement a sole charge on luxury goods; a 10
per cent import sole charge will be imposed on new private jets which
are being brought into the country.
Mrs. Okonjo Iweala said that a sole charge was also proposed on
business and first class flight tickets and non on the economy
tickets.."