BusinessDay 25 Oct 2017

BUSINESS DAY
Why it Matters
NEWS YOU CAN TRUST I WEDNESDAY 25 OCTOBER 2017
Why government should boost tax
revenue as Nigeria’s debt deteriorates?
Nigerian government
is
under pressure
to boost
non-oil revenue
as it continues to use
the large chunk of generated
oil revenue to service
debt, raising concerns
about the deteriorating
debt position.
Some experts are of the
view that government has
exceeded its borrowing
limit while its N7.4 trillion
budget is a drop of water
in an ocean given a copious
infrastructure deficit
undermining economic
growth.
Between January and
June, over 90 percent of
government revenues
were channelled toward
debt serving, according
to available data from the
National Bureau of Statistics
(NBS).
The country’s interest
payments-to-revenue
ratio doubled last year
to 66 percent of revenue,
according to the International
Monetary Fund IMF.
According to a September
19 report by the NBS,
Nigeria’s overall foreign
debt, stood at $15.1 billion
as of June 30, while domestic
debt was N14.1 trillion.
The recently-issued
N100 billion sovereign
Sukuk bond by government
and plans to further
issue another $5.20 billion
of Europe bond in
the next three months to
fund capital expenditure
potentially adds to debtservicing
cost.
While the good news is
that the country is in an
advantageous position to
borrow from the international
market because of
recent improved fundamentals,
another round
of militant attack on oil facilities
and sudden drop in
the price of oil could deal
a great blow on revenue.
This means government
has to boost tax
revenue in order to fund
capital projects. A robust
tax base will help diversify
the economy away from
over reliance on oil.
Finance Minister Kemi
Adeosun recently bemoaned
the country’s very
low tax to GDP ratio of 19
percent, which is one of
the lowest in the world.
However the government
plan to improve tax
revenue through voluntary
compliance while increasing
the number of people
in the tax net is a right step
in the right direction.
The chairman Federal
Inland Revenue Services
(FIRS) Babatunde Fowler,
also said that the government
is putting in place
plans to track tax defaulters
using phone bill records
and Bank Verification
Numbers (BVN).
“Individuals, who
spend above a certain
threshold on their phone
bills, would be examined
to ascertain their tax bills.
The same method would
also apply to individuals
with BVN,” Fowler stated.
Already, the Federal
Inland Revenue Service,
through tax collection,
generated the sum of
N2.11 trillion as revenue
from January to July this
(MGI) in 2014, an estimated
$1.5 trillion needs to be
invested in infrastructure
through 2030 to allow Nigeria’s
economy reach its
full potential, with much
of the investments going
to power, transportation,
and real estate. This would
mean annual infrastructure
investments in excess
of $50 billion.
“At around 25% to 40%
of GDP, Nigeria’s stock of
infrastructure is significantly
lower than the global
average of about 70%,”
said analysts at (MGI).
Stakeholders opined
that a robust and transparent
concession policy
through an organized Public
Private Partnership
could help bridge infra-
At around 25% to 40% of
GDP, Nigeria’s stock of
infrastructure is
significantly lower than
the global average of
about 70%
year.
It is imperative for the
Nigerian government to
boost non-oil revenue
because it doesn’t have
the resources to fund huge
capital projects across the
country.
The Head of Energy
Research, Ecobank Plc,
Dolapo Oni, said that
Nigeria would require a
minimum of $30bn (about
N9.47tn) annual investments
to bridge the infrastructure
gap that exists in
the economy.
According to the Mc-
Kinsey Global Institute
structure deficit.
The most common
type of privatization
scheme has been the
concession or franchise
where a private operator
provides rail transport services
using publicly owned
infrastructure.
As at 2005, Nigerian
ports faced a myriad of
challenges that made it
one of the most inefficient
ports globally as it was
fraught with insecurity,
theft, and congestion.
However, In 2006, the
Federal Government concessioned
the 26 ports in
Nigeria to 25 Terminal
Operators over 25 years
license period in a land
lord system that reduced
financial liabilities on the
part of government.
According to a report
by global accounting firm,
Deloitte, “as a result of
copious investment by
Terminal Operators (N200
billion), the ports witnessed
increased ship traffic
and throughput which
led to a 400 percent rise in
container throughput from
400,000 TEU in 2006 to
1.60 million TEUs in 2014,”
The concession of the
ports has resulted in job
creation along the value
chain such as freight forwarding
and insurance
while saving the Nigerian
economy an estimated
$800 million annually in
congested fees alone.
Recently, the Federal
Executive Council (FEC)
Okayed the planned concession
of Lagos and Abuja
Airports as it believes the
privatization of these assets
will result in better
management.
Nigerian Airports are
rated as one of the worst in
Africa, as an insalubrious
environment coupled with
extortion from immigration
and custom officers
of passengers and lack of
space validates the negative
ratings.
Adeosun has allays the
fears of some Nigerians
that government is not
heaping debt on the next
generation. She said its a
usual thing for government
to borrow when expenditure
exceeds revenue.
However, the country’s
debt was paid through a
debt payback by former
minister for Finance Ngozi
Okonjo Iweala, as Nigeria
exist the Paris club group
of creditors.
fivethings
about innovation
C002D5556
Nigeria Plans to Sell $5.5 Billion of
Eurobonds by Year-End
Nigeria plans to sell as much as $5.5 billion
of Eurobonds in the next three months to
fund capital projects and replace local-currency
debt in order to fund capital budget.
N330 billion
The Debt Management office (DMO) released
its bond issuance calendar for the
fourth quarter of 2017 which points to
lighter borrowing pattern with FG intending
to borrow all-out N330 billion, split across
the 5-year (2021) and the 10-year (2027) at
N165 billion apiece. The calendar also saw
the removal of the 20-year bond (April
2037).
7.1 percent
According to a 2014 report McKinsey Global Institute
(MGI), for Nigeria to achieve its full economic
potential by 2030, GDP growth needs
to average a minimum of 7.1% annually. This
would see GDP grow to an estimated $1.6 trillion,
with the potential for an estimated 70
million people to move out of poverty.
$30 billion
Nigeria would require a minimum of $30bn
(about N9.47tn) annual investments to bridge
the infrastructure gap that exists in the economy.
N200 billion
According to a report by global accounting firm,
Deloitte, “as a result of copious investment by
Terminal Operators (N200 billion), the ports
witnessed increased ship traffic and throughput
which led to a 400 percent rise in container
throughput from 400,000 TEU in 2006 to 1.60
million TEUs in 2014,”
The concession of the ports has resulted in job
creation along the value chain such as freight
forwarding and insurance while saving the
Nigerian economy an estimated $800 million
annually in congested fees alone.
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