The Hit to FGN Revenue from COVID-19


Wednesday, February 03, 2021 / 09:50 AM / by FBNQuest Research / Header Image Credit: FBNQuest

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Federal revenue collection continues to underperform according to the CBN's monthly reports. Gross total non-oil collection (i.e before distribution to the three tiers of government) did not once reach the monthly benchmark of NGN551bn through to October. We assume that the benchmarks underpin the FGN's approved 2020 budget. The underperformance has painful macroeconomic consequences. It pushes up the FGN deficit (the budgets of this administration are always expansionary), feeding into borrowing costs: limits the capital spending aspirations of the FGN: and raises the total debt service/total FGN revenue ratio to worrying levels. The underperformance extends to oil revenue, which is also below its benchmarks although less than non-oil revenue.


Collection of companies' income tax (CIT) twice exceeded the benchmark of NGN150bn. It peaks in the third quarter, when the amount gathered in 2020 declined by 10.0% y/y to NGN586bn. We might have anticipated a greater fall. However, because of the timing of CIT payment dates and of the period of selective lockdown in Nigeria last year, we should also expect to see the impact of the Covid-19 virus in this year's collection data.


The rise in VAT collection is reassuring when we allow for the squeezing of household spending. The hike in the standard rate in February from 5.0% to 7.5% has clearly contributed, and coverage would appear to have improved, too (Good Morning Nigeria, 26 January '21). Collection in October was running 52.7% ahead of the year-earlier period.


The FGN's approved 2021 budget is again expansionary and has total revenue at NGN7.99trn. The 70/30 split cited in local media coverage of the federal finance minister's virtual presentation would imply non-oil revenue of NGN5.60trn this year. This is ambitious when we recall that this is the FGN's share of the federally collected revenue highlighted above for the benchmarks.


The projection is also highly ambitious in the context of the figures from the Budget Office of the Federation for the FGN's actual total inflows less oil revenue: NGN1.53trn in 2017, NGN1.91trn in 2018, NGN2.75trn in 2019 and just NGN830bn in H1 '20. We have an upward trend off a low base until the emergence of Covid. 


We are not aware of any planned increases for any of the main taxes. Looking further ahead, Nigeria, as a signatory to the treaties underpinning the African Continental Free Trade Area,  should be removing the tariffs on up to 90% of its import lines. 


Federally collected non-oil revenue (gross; NGN 'bn)

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Source: CBN;  FBNQuest Capital Research

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