Taxes & Tariffs | |
Taxes & Tariffs | |
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Thursday, March 12, 2020 / 09:55 AM / FBNQuest Research / Header Image Credit: Twitter; @dabiodunMFR
The
quarterly reports for 2019 from FIRS offer some crumbs of comfort for the
federal finance ministry as it reworks the approved 2020 budget for the FGN in
the light of the sharp fall in the crude price. The service collected N5.26trn
in total last year, equivalent to 59.8% of the target of N8.80trn. The
consolation is that non-oil collection amounted to N3.15trn in 2019 or 70.0% of
the target. For petroleum profit tax, the ratio was just 49.1%. These figures
are all gross (ie before distribution to the three tiers of government from the
federation account).
In Q2 and Q3 2019 receipts from companies' income tax (CIT) exceeded the
pro rata quarterly target of N427bn, reaching N507bn and N513bn
respectively. This reflects the seasonality of CIT payments.
From last month the standard rate of VAT was raised from 5.0% to
7.5%. Also, legislation approved by the National Assembly has increased the
tax burden of energy companies operating under production-sharing contracts.
Industry sources have put the additional take at about US$500m in a year.
These are welcome increases but we note that total FIRS collection in
2019 was just 5% higher than in 2012. Its efforts are hampered by: the size of
the informal or unbanked economy; the poor culture of paying tax; and the fact
that for many years the FGN took its collective eye off the ball in non-oil
collection. If it depends just on boosting coverage, rather than adding
selective rises in tax rates to the mix, then the FGN will have to be very
patient.
Tax collection by FIRS (N trn) |
|
Sources:
Federal Inland Revenue Service (FIRS); FBNQuest Capital Research |
Our chart also shows that FIRS has consistently fallen short of its
annual targets since 2015, which highlights the aggressive fiscal stance of
this administration. The same is true of the other, smaller collection
agencies. The FGN would make a greater contribution to the economy by pushing
up spending substantially but cannot do so because revenue is pitifully low.
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