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Wednesday,
January 15, 2020 /03:57 PM / By CSL Research / Header Image
Credit: Pulse NG
Following
the Presidential assent to the finance bill, the Minister of Finance, Zainab
Ahmed, disclosed that the new tax reforms as contained in the finance bill will
help the Federal Government (FG) achieve its 2020 revenue estimate of N8.16tn.
She further noted that although the Finance Law proposes an increase of VAT
rate from 5% to 7.5%, a large sum of money (50% and 34%) realised from the
taxation would go to states and local governments respectively while the
balance of 15% will go to the FG.
Over the years, the federal government has struggled to meet up with its
revenue target owing to persistent shortfalls in its two major sources of
revenue; oil and non-oil revenues. On one hand, the underperformance in oil
revenue has often been attributed to volatilities in oil prices, disruptions to
crude oil production caused by militant activites, shut-ins and shut-downs at
NNPC terminals, due to pipeline leakages and maintenance activities.
On the other hand, the sub-optimal performance in non-oil revenue has
been alluded to the decline in revenue from VAT, Education Tax and Federal
Government Independent Revenue (funds generated by agencies). Based on data obtained from the CBN's monthly and quarterly economic
report, total revenue came to N3.4tn for the first eleven months in 2019
compared with prorated budgeted revenue of N6.4tn, translating to a performance
of 53%.
Considering the changes made to the nation's tax laws particularly in
Value Added Tax (VAT), Customs and Excise Tariff, Stamp Duties Acts, we ask;
How far can the various tax reforms go in supporting government revenues in
2020? In our opinion, we think the amendments to the tax laws will bear some
fruits and improve government revenue, however we believe revenue will continue
to lag budgetary estimates owing to OPEC+ production cuts which limits the
nation's ability to reach the budget assumption of 2.18mbd.
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