AACS Fortnightly
(Mondays)
24th April 2023

From the Chairman’s Desk,

Setting The Economic Agenda Series – REVENUE

At AACS, we set six key issues to deal with in setting the economic agenda, which are Revenue, Oil Subsidy, Alignment of the Exchange Rate, Oil Theft, Infrastructure and Security. Across the next six editions of our fortnightly nugget, we would deal with each of it in some detail.

The Nigerian GDP is estimated at $500b, and driving that economy size should generate between 20% to 25% revenue. This assumes a minimum of about $100b to $125b in the economy as revenue yearly. The projected 2022 budget was N17.1t ($36.7b), with N10.7t ($23b) as revenue, and N6.4t ($13.7b) projected to be financed through borrowing. In an ideal situation against the backdrop of the nation’s GDP, the budget could be financed without borrowings.

According to the Federal Inland Revenue Service (FIRS), the agency collected $22b in tax revenue (a massive 56% increase year on year) in 2022. However, there could still be a capacity for another $53b (projecting a tax-to-gdp collection ratio of 15%) if the tax process is reviewed, with a deeper dive into waivers and concessions. According to OECD, Nigeria’s tax-to-GDP ratio of 5.5% in 2020 was lower than over 31 African countries, including Uganda (11%), Ghana (13.4%) and South Africa (25.2%). In the United States, it is 25.8%, and 33.6% in the UK. There are a lot of improvements that can be achieved in collections without an increase in tax rates. Further, Nigerian National Petroleum Corporation (NNPC) reported that subsidies gulped almost $9.7b, and an estimated $4b was lost to oil theft in 2022. The National Bureau of Statistics (NBS) data puts oil sale receipts at $45.6b (N21t) for the same year.

An addition and adjustment of these possible generated revenue gives a total of $134.3b ($22b, $53b, $9.7b, $4b and $45.6b – tax collections, differential of possible 15% tax-to-gdp revenue, subsidy savings, oil theft and oil sale receipts). This is outside of revenue lost to multiple exchange rate regime. This figure run as an assumption against the 2023 budget of N21.8t ($46b) would mean that the entire budget of the year can be fully funded without borrowing. This size of revenue opens an avenue for healthy borrowing, which could provide a needed increase in the spending-to-GDP ratio of the nation from 9.1% to about 35% or $175b. It would allow the nation to pay attention to its huge spending needs, and the consequent multiplier effect on possible double digit economic growth yearly, and further increase revenue generation. The US and UK spending-to-GDP ratio is put at about 34% and 40%.

AACS believes that paying attention to revenue generation and tackling these issues would help. There is more revenue in the economy, based on the size of the current GDP, as reiterated over the last few years in our publications and fortnightly nuggets.

Falil Ayo Abina

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