We return today to the paucity of non-oil revenue collection. CBN data show flows into the federation account in February of N252bn, which were 49% below the projection in the 2017 budget proposals. (In stark contrast, inflows from oil of N293bn were less than 1% below the provisional target.)
Our understanding is that this underperformance was extended through to April. If this trend was to continue until year-end, there would be obvious implications for capital spending since recurrent items, notably salaries, cannot easily be cut.
We highlight VAT separately in the chart because it has generated steady revenue in the recession. A doubling of the standard rate of 5% would generate an additional N800bn, assuming that ability and willingness to pay did not suffer.
The FGN is very reluctant to increase the rate other than perhaps for luxury goods. Its preference is to strengthen administration and compliance, and make better use of IT in collection. This requires MDAs to become more “joined-up” and share data between themselves.
A rise in customs and excise duty would be less sensitive. A rigorous look at exemptions would help. The lifting of the list of 41 banned import items and its replacement with high import levies has been debated officially.
The FGN has announced a tax amnesty and hopes to raise US$1bn equivalent this year. On the surface the target seems modest, given the weak culture of paying tax. However, amnesties must convey the message that non-payers will only have the one chance of forgiveness.
The evidence from Turkey and elsewhere is that receipts fall well short of expectation and that governments then repeat the exercise. Each amnesty generates less revenue than the last.