An Improved Revenue Outturn in July 2021

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Monday, November 29, 2021 / 1:04 PM / by FBNQuest Research / Header Image Credit: FBNQuest

 

The CBN's latest monthly economic report for July '21 shows that the federation's gross revenue improved 36% y/y and 39% m/m to almost NGN1.1trn. The gross amount collected was also around 4% higher than the pro-rata monthly budget benchmark. After deductions, the total amount distributed to the three tiers of government was NGN733bn, up 29% y/y, and a marked improvement over the NGN606bn distributed the previous month. Of the amount, the federal government's (FG) share amounted to NGN305bn, up from NGN242bn a month before, but about -12% below its monthly budget benchmark. However, the shortfall relative to the benchmark should be regarded in the context of the FG's ambitious revenue target.

 

The improved revenue outturn was driven by stronger performance of both oil and non-oil revenue. Non-oil revenue which contributed about 61% of the total revenue advanced 26% y/y to almost NGN652bn. It also outperformed the benchmark by c.26%.

 

Within the broad group, all the major segments grew by double-digits relative to the prior year. Companies' income tax (CIT) and value-added tax (VAT) were both up by c.20% y/y. We note that the CIT benefited from greater tax collecting efficiency because of increasing automation. In addition, customs and excise duties increased by almost 32% y/y. 

 

Although oil revenue of NGN412bn came in below the pro-rata budget benchmark of NGN506bn, it was up 57% y/y and 44% m/m respectively.

 

The performance was its strongest since May '20 and was underpinned by a 147% y/y increase in petroleum profit tax and royalties. That said, the NNPC made no remittances for crude oil and gas export sales, as the sales proceeds were completely absorbed by fuel subsidy costs.

 

We have argued in past notes about how fuel subsidies are unsustainable and have a detrimental impact, resulting in a monthly revenue loss of around NGN150bn. The non-remittance of proceeds from crude oil and gas sales supports this view. We see that the FG has not made provision for fuel subsidy in the FY '22 budget.   

 

In its place, government is contemplating making direct transfer payments of NGN5,000 monthly to c.40 million vulnerable Nigerians on its social register. Given the labour unions' opposition to subsidy elimination, we believe the FG will face a major confrontation in the months ahead. The FG's decision is made more difficult by political considerations in the run-up to the 2023 elections. However, given the state of the FG's finances, the issue must be addressed as quickly as possible.

 

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