Nigerian consumers of goods and services may be asked to pay more for value added tax (VAT) amid growing uncertainties on government revenues in the face of declining crude oil prices.
Prices of crude oil, the mainstay of the country’s economy, has declined in the last five months by more than 40 per cent from an average of over $100 per barrel in May to below $60 on Tuesday.
The new low price is below the revised benchmark price of $65 per barrel proposed in the Medium Term Expenditure Framework (MTEF) submitted to the National Assembly for approval of the 2015 budget.
The revised price benchmark was the second since the initial proposal of $78 per barrel was lowered to $73 in the wake of oil prices crashing sharply below the $80 threshold in September 2014.
Concerned by the increasingly worrisome prospect of further fall in crude oil price and the possible impact on the country’s fiscal situation, the Federal Government is considering a number of options to salvage the situation.
At the monthly Federation Accounts Allocation Committee (FAAC) meeting on Tuesday, representatives of the Federal Government met with their counterparts from the states to share ideas on a common solution to the fiscal crisis.
The Minister of Finance, Ngozi Okonjo-Iweala, who met with the state commissioners of finance shortly before the meeting, said the parley was necessary to help the three tiers of government fully appreciate the country’s revenue challenges and the need to adopt appropriate strategies to boost non-oil revenue at state level based on their economic peculiarities.
The minister noted that since the 2015 budget would be formally presented on Wednesday, the meeting with the commissioners would help in reviewing the fiscal policy thrusts, particularly the revenue generation imperatives.
One of the fiscal options being considered, the minister said, was the possibility of raising the rate of VAT to be imposed on goods and services in line with the position of the various state governments.
She, however, explained that raising the VAT rate would not be immediate, since the government still has to send an amendment to the existing law to the National Assembly for approval before the new rate could become effective.
“You know, naturally with the states, just like we did at the federal level short term and long term, we will be looking at the short term those who have the capacity to raise more internally generated revenue. But in the medium term, we will also look at the review of the tax policy issues, like the VAT,” she said.
She said that during the last national economic council meeting, the state governors had already proposed the need to review VAT upwards.
According to the minister, she was optimistic that the proposal would be approved by the National Assembly, to the benefit of the states, which at the moment were enjoying the bulk of the VAT revenues.
“The federal government only gets 15 per cent of the VAT, while the states get the rest,” the minister said, “We are desirous to see that they have a better time of it. So, these are some of the issues that we put on the table and discussed.”
Mrs. Okonjo-Iweala said the emphasis now was more on boosting internally generated revenues (IGRs) at national and sub-national levels as well as high taxes on luxury items in order to sustain the nation’s macro-economic stability.
Meanwhile, during the FAAC meeting, the tiers of government agreed to share a total of N628.77 billion from all revenue sources for the month of November.
The amount was about N60.16 billion higher than the allocation in the preceding month, the Accountant General of the Federation (AGF), Jonah Otunla, said.
The figure comprised N427.65 billion from statutory sources; N60.63 billion from VAT; N55.6 billion from additional revenue from NNPC; N36.87 billion from the excess crude revenue account (ECA); N35.55 billion from the Subsidy Reinvestment and Empowerment Programme (SURE-P) and N6.33 billion refund by NNPC to the federal government.
On the planned VAT rate review, the Chairman of State Commissioners of Finance, Timothy Odaah, said the exercise would, however, not necessarily involve the upward review, but more a way of improving its accruals through improved economic activities.
Mr. Odaah, who also said the states were not aware of how the S1 billion difference in the ECA in October and November came about, said the issue would be discussed at the next FAAC meeting.
At the last FAAC meeting, total ECA’s savings stood at $4.1 billion. But, the Minister of State for Finance, Bashir Yuguda, told reporters that the current savings in the account now stood at about $3.1 billion.