“Improving human capital development especially education, and providing more opportunities for earning a living, will reduce the numbers of young persons available for recruitment into the ranks of the Boko Haram and ISWAP terrorists in the North East, and the bandits and other criminals around the country.”


“The poor are especially vulnerable to jeopardizing national security and that is why it is important for government to make adequate provision for that class of people”.


“Man is central to the economy, if anything makes it difficult or impossible for him to function, the economy is weak and the whole progress of the community is stalled.”

The reason government revenues are important is first of all because of infrastructural investment, but also in other to satisfy the secondary premise of our economy which is the provision of a social investment programme. So, government revenues are crucial for two of those reasons. It is a well-known fact that Nigeria’s debt to GDP ratio has also been very low, indeed one of the lowest in the world. This has by itself seriously hampered economic growth and limited the delivery of public amenities and these are essential preconditions for attracting investment.

The Organisation for Economic Cooperation and Development’s revenue statistics in their recent 2019 report puts Nigeria’s tax to GDP somewhere in the other of about 6%, which, considering the level of economic activities in Nigeria, is so low as to constitute a negative factor and serious drawback for the entire system. This is more so, considering that the average Tax to GDP ratio across 26 other African countries is still 17.2%, which is 11.5% basis points higher than Nigeria’s. So, Nigeria has very poor tax to GDP ratio.

Another area of revenue improvement is the Value Added Tax (VAT) rate, this has been notoriously low. Our VAT rates is one of the lowest, in fact it is the lowest in Africa until this recent change. Ghana for example, has a VAT rate currently of 12.5%. They recently reduced their VAT from 15% to 12.5%. Cameroon has a VAT rate of 19.25%, Egypt has a VAT rate of 14%, South Africa about 15% and Mexico somewhere in the order of about 16%.

Our VAT rate stood at 5% despite increased activities in our midst. That has been moved up to 7.5%, we expect to see an up take in revenues. But the Finance Act has also ensured that the increase in VAT rate does not impact the poor or so become a disincentive for small businesses in particular. So, there is a whole exempted class of basic food items and that is very comprehensively defined in the Act. All food necessities are not taxable and the new Act also has 16 very clearly articulated classes of food, all are exempted from tax.

Similarly, exempted services like; drugs, locally manufactured sanitary towels, pads, and tuition fees in all tiers of the educational system from nursery to primary. So, there is no VAT on fees, no VAT on drugs and a wide range of medical products.

Also, as a palliative measure for micro and small enterprises, the VAT compliance threshold is now set at a turnover of N25million. So, if your company is recording a lower turnover than N25million, you are not expected to register for VAT. So, for small companies, they are not obliged to register for VAT or render monthly returns for VAT. Also, services rendered by microfinance banks are exempted from VAT. And the reason why that is so is because the microfinance banks were trying to push between the BOI and Micro-finance banks for greater lending to the trading sectors and also to small businesses and so we need to remove VAT to enable that to happen.

An upside of the VAT rate increase, which we must not fail to note is that it will give additional much needed revenue to State Governments as well. And this is a very important point because of course, we have raised the minimum wage to N30,000. Many States complained that they cannot pay that easily, so with the increase in VAT rate, we expect that the States capacity to pay will be enhanced.

And just to explain how the VAT tax is shared; 50% of tax goes to State Governments, 35% goes to Local Governments, and 15% comes to the Federal Government. So, States obviously have the lion share of that proceeds. The rate will increase when you look at their own IGR as well.

Now, government needs to keep their focus on Internally Generated Revenue and there is absolutely no excuse. Sometimes, you hear people talk about non-viable States. The reason why States are not generating as much as they should, is because there is something coming from the Federal Government every month. If there is nothing coming from the Federal government, States will pull their weights. If the Federal Government itself did not have oil revenue, we will pull our weight.

If you look at what happened with the old regions; the Northern region, the Eastern region, the Western region, all of these regions in that period, paid all of their bills from internally generated revenues, tax and agriculture mostly.

In Western region for example, they had free education with over a million people at one point in time, they built roads all over the place and they were spending only 50% of what they generated and paying 50% to the Federal Government and all they were relying on was essentially just income tax from individuals and agriculture.

Today, that is no longer the case; very few States, including the Federal Government are not as aggressive in revenue generation. We are not as aggressive because whether we work or not, something will come from federal allocation and that is why there is need to ensure that we hold ourselves to account for revenue generation. A country of this size certainly can do far more than we are generating at the moment.

Let me also briefly mention the new provisions on Taxation of Digital Economy and Non-Resident Companies. This is a very important aspect of our taxation policy. Before the Finance Act, only companies that had a physical presence or a fixed base in Nigeria could be taxed. So, most digital companies, I mean any of the big technology companies, or multi-national digital companies, that did not have physical offices in Nigeria, made significant income from Nigeria from online activities, such as advertising, movie streaming, online gaming and e-commerce from subscribers in Nigeria, but paid no taxes whatsoever because they did not have a physical base in Nigeria. So now we are no longer relying on the fixed base or physical address criterion.

Under the Finance Act, once you have a Significant Economic Presence (SEP) in Nigeria, you are liable to tax. Whether you are a resident here or you are not resident as a company, as long as your economic presence is significant, you are liable to tax. If you are streaming online, advertising using Google adverts, whether you are resident here or not, you are now subject to tax.

So, non-residents who previously had no fixed base and no Nigerian tax liability will now be liable to tax based on the SEP criterion. The Minister of Finance is empowered to issue a regulation defining what Significant Economic Presence means. So, she just defines the scope of what we will be looking out for in terms of Significant Economic Presence.

I think it is also important to note what CBN is doing to improve credit flow to the private sector. Now, it is very important to understand also the monetary policy issues. The monetary policy issues determine what credit goes to the private sector, and as I mentioned earlier, the private sector is the focus of the economy. They are the job creators. So, how do they get credit? A major complaint of the private sector is that inability to access credit, cheap credit in particular.

The only way business can grow is as I pointed out, is loans to the real sector. But now, on account of the reform of the OMO operations, that is the Open Market Operations of the Central Bank, we now have a situation where interest rates have become much lower and also Loan-to-Deposit Rate is now at 65%, but interest rates have become lower and the interest rates especially for fixed bills, treasury bills, are now lower. So, you are looking at something in the order of between 3% and 6% for treasury bills while it used to be 14%.

Now, because of the lowering of interest rates and the ban on Nigerian companies, banks and individuals investing in treasury bills, it is now apparent that they must now lend to the real sector.

In the past, banks and individuals simply invested in treasury bills because treasury bills you could get 14%, 15% even higher just by investing in treasury bills. So, banks had no motivation whatsoever to lend to the private sector, because without any risk at all, they could earn anywhere from 14% upwards. But today, because they can no longer do so, they have the deposits, Cash Reserve Requirement, CRR, is now at about 27.5 and because of that, they have enough resources to lend to the private sector.

They have cheaper funds with them, and it is very obvious from what we are seeing today, that interest rates have dropped very sharply and we are not going to have the rather excessive rates we used to have. But the target of course, is to be able to bring interest rates to single digit. At the moment, only our development finance institutions such as the BOI are able to offer such types of loans.

So, net domestic credit has increased by a little over 30% and a further attempt to reduce the cost of doing business is as I have said before, reduction in fixed income yields, treasury bill rate.

Government itself has an advantage, if you look at our debt burden today, most of our debt burden comes from servicing our debt, most of that debt is domestic debts. That means most of it is on paying back treasury bills. But when treasury bills were reduced to 5% - 6% from about 14%, it means that the government pays far less to service its debt. So, we are paying considerably less.

The upshot is that government will no longer be paying double digits interest on treasury bills, thus reducing the debt service burden while at the same time it means that the rates payable on commercial paper will also not be so high as to discourage investment. But I want to point out also the downside.

The downside is that at the moment current account balance is negative and there is a need to improve Foreign Portfolio Investment Flows. But with low exchange rates, there is a low FPI flow. One of the things we want to achieve is to get FPI especially foreign investments in other to be able to boost our reserves, but if the interest rates are low, it of course means that we are less attractive as a destination for portfolio investment. That has its good and bad sides, but I choose to describe it as a downside because it means we are going to see some reduction in FPI at least in a short time.

With the signing also of the Deep Offshore Bill into law, we also expect enhanced revenues from the oil sector. This is another way of generating income.

Nigerians both individual, private sectors and cooperate bodies should make it an essential and most to do in faithful to their tax as this will definitely have a great impact in our economy because the government uses this to provide us the infrastructural facilities, boost our education,and as this will increase our well being ,let us make it a deal to support this government to make it work.

Mere commissioner

BlackfireX:
Mere commissioner

You are calling him mere commissioner and I believe no one has ever become ordinary PA to the local government councillor in your entire family, you just open your dirty mouth and no wonder your life remain in a spot

Beef kill you there. I don't think any of your family will get to VP's post with your shameless attitude unless you repent

BlackfireX:
Mere commissioner

One of the major ways to reduce the rate insecurity in the land is by engaging the youth legally. Many able youths are been recruited into terrorism because of money.

On several occasions, we try to compare America with Nigeria, but we don't take time to compare how they tax there to survive. Nigeria pay least tax. God bless Nigeria

Take away poverty insecurity will greatly reduce.

BlackfireX:
[/s]Mere commissioner[s]

When will you get sense bro? Remember this is 2020

I am sure Osinbajo will end up being the best vice president ever in the history of our democracy, always on point.

okefrancis:

You are calling him mere commissioner and I believe no one has ever become ordinary PA to the local government councillor in your entire family, you just open your dirty mouth and no wonder your life remain in a spot

My uncle was a govnor some years ago,
Also one of my maternal brother contested for presidential post during the last election,


Should I go on?
Osinbande is a mere commissioner

Zeesugar:
Take away poverty insecurity will greatly reduce.

How do you take away poverty?