Robust Growth in Non-oil Revenue, Outperformed Benchmark by 16%


Tuesday, October 12, 2021 / 10:55 AM / by FBNQuest Research / Header Image Credit: Arabian Business/Ecographics


We see from the Finance minister's public presentation of the FY '22 budget proposal that the non-oil revenue of NGN1.1trn for the Jan-Aug '21 period outperformed the benchmark by 16%, in stark contrast to the -32% underperformance delivered by the oil sector. The main drivers of the non-oil revenue outperformance were companies' income tax (CIT) and value-added tax (VAT), both of which outpaced their pro-rata benchmarks by 21% and 48% respectively. Customs and excise duties also performed well, hitting almost 100% of the pro-rata target. We have previously linked the solid performance of non-oil revenue to the recovery in private consumption as firms resume normal operations after the initial pandemic-induced slowdown, and an increase in the VAT rate by 250bps to 7.5%  last year February.


An often-cited criticism of the FGN's fiscal operations is that Nigeria's non-oil revenue is running far below its true potential. On our estimate, Nigeria's tax-to-GDP ratio (including petroleum profit tax) was c.4.3% in FY '20, much lower than comparable ratios for peers like South Africa, Kenya, and Ghana, at 26.7%, 15.9%, and 12% respectively.


The head of the Federal Inland Revenue Service (FIRS) rightly pointed out that despite the country's huge tax base of 41 million taxpayers, Nigeria generated less than NGN1trn in tax revenue in FY '21. He contrasted this to South Africa, which has a tax base of around 4 million people, yet produced NGN13trn in revenue last year. That latter appears understated: newswire reports indicate that South Africa actually earned c.USD85bn (cNGN35trn) in the fiscal year ending Mar '21.


According to finance minister, several measures are being instituted by the administration to improve revenue growth under its "strategic revenue growth initiatives".


Examples of such measures include improvements in the tax administration framework such as tax filing and payments, and the evaluation of fiscal incentives such as tax waivers/ concessions, and pioneer tax holidays. The FG also wants to strengthen its collection of independent revenue.


The World Bank, in its most recent update report on Nigeria, noted that the rationalisation of generous concessions, waivers and subsidies, as well as the implementation of other tax reforms, may bring in up to NGN10trn in extra revenue.


Our chart below which shows the trend in the FGN's independent revenue is drawn directly from the public presentation. According to the minister, collection of independent revenue has improved steadily, as seen in the chart, and is expected to cross the NGN1trn mark this year.


FG Independent Revenues (NGN 'bn)                  

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Sources: Federal ministry of finance; FBNQuest Capital Research;*reflects revenue for Jan-Aug '21

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