Sunday, 27 December 2015


President Muhammadu Buhari
Concerns over borrowing to finance the over N2.22 trillion budget deficit and worries on achieving the non-oil revenue target of N1.45 trillion are some of the thoughts that dominated reactions to the budget proposal of President Muhammadu Buhari last Tuesday when he presented the document to the joint session of the National Assembly in Abuja. These issues are coming in the midst of calls by Nigerians for him to access the capital market for government to meet most of its funding needs.

The Buhari administration says it plans to finance the N2.22 trillion budget deficit by a combination of domestic and foreign borrowing totaling N1.84 trillion as well as the provision of N1.36 trillion for debt service. But Mr. Taiwo Oyedele, Partner/Head of Tax & Regulatory Services at PriceWaterhouseCoopers (PwC), considered this too high. He also wondered why the Federal Government should allocate that chunk, the size of the non-oil revenue, to debt servicing only.

He said: “Effectively, we are still borrowing to fund non-capital expenditure. But it can only be possible with increase in the level of sustainable tax revenue.”

As the tax revenues, expected to contribute N1.45 trillion, Mr. Chukwuemeka Eze, a tax expert, saw it as a tall order. He reasoned that the major focus of the government for achieving the tax target is too narrow as they are coming strictly from Companies Income Tax (CIT), Value Added Tax (VAT), Withholding Tax (WHT), import duties, export duties and excise duties. Mr. Eze, however, cautioned on placing too much tax burden on the few operating companies in the country, with a view to meeting the budget target, since the population of active companies in the country is dwindling.

In his own words: “The budget estimate of non-oil revenue is theoretically realisable. The sum of N1.45 trillion is quite huge considering that the targets are companies’ income tax, value added tax, withholding tax, import duties, export duties and excise duties. The population of companies in Nigeria that are actively engaged in business is growing less. It will be an error to regard all the companies registered at the Corporate Affairs Commission (CAC) as existing. In fact, many of them are portfolio companies with doubtful registered addresses.

“We may end up placing excessive tax burden on the few operating companies in order to meet the budget target. This is really a big burden on Tunde Fowler, the FIRS Chairman. As for the Customs duties, the amount realisable will be dependent on sanitisation of port operations in Nigeria. With a reduction in corruption at the ports and a maritime-friendly environment, the Nigeria Customs Service (NCS), under Col. (rtd.) Hameed Ali, may deliver on his mandate. Notwithstanding, my optimism is cautious as only time will tell.”

Like Eze, Mr. Taiwo Oyedele still believes that the tax target is not only possible, it is even inadequate, saying, “the non-oil revenue target of N1.45 trillion is not ambitious enough in my view, given the low level of tax compliance and significant scope to generate more revenue especially from VAT. There should be focus on blocking loopholes in the tax system and curbing abuse of incentives.”

As regards the amount allocated to capital projects, a capital market analyst, Mr. Sola Oni, advised the Buhari administration to raise long term fund through the capital market. He opined that mobilisation of funds through the capital market for capital projects has multiplier effects just as he describes government bonds as gilt edge whose risk profile is almost zero. He added that the capital market option should be exploited as a veritable strategy to finance the budget, rather than resorting to external borrowing.

Apart from the fact that going cap in hand to the offshore creditors, rather than the Nigerian capital market, may pump up the volume of the nation’s foreign debt put at $64 billion recently by the Debt Management Office (DMO), it may rob the bourse of reviving its dream of attaining $1 trillion market capitalisation.

Giving reason for suspending the plan last year, the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, blamed the bearish sentiments in the capital market, as foreign investors withdrew due to currency risk.

In his own words: “Foreign investors steadily withdrew from the Nigerian market due to currency risk, the recovery of developed economies and the effects of the US Federal Reserve tapering of its quantitative easing (QE) policy. Several macroeconomic developments also contributed to the decline in market performance. These were fall in crude oil prices and related pressure on the naira; the impact of CBN’s monetary policy changes introduced at various points throughout the year; Nigeria’s declining foreign reserves; festering insurgency in the nation and weak corporate earnings. The air of uncertainty that hovered over the Nigerian capital market throughout 2014 caused investors to increasingly adopt a ‘flight to quality’ strategy.”

However, this notwithstanding, Mr. Onyema promised that the Exchange would focus on increasing local investors’ participation through strategic campaign, adding that the NSE would equally support reforms in the power, oil and gas sectors, support the diversification of government revenue from oil as well as implementing the 10- year capital market master plan.

Diversification of government revenue from oil is the main reason behind Oni’s advice that the Federal Government fund the budget through the capital market.

He said: “Mobilisation of fund through the capital market for capital projects has multiplier effects of cheap long term fund for the government and deepening of our capital market for global competitiveness. There is no doubt that government bonds are gilt edge whose risk profile is almost zero. The good thing is that our capital market, which now include Over-the-Counter platforms of NASD Plc and FMDQ Plc have capacity to enable the government raise any amount of money. I think the capital market option should be exploited as a veritable strategy to finance the budget and the market is ready.

“The N 6.3 trillion 2016 fiscal budget is apparently proposed to revive the soul of Nigeria’s crumbling economy. The key issue is, ‘how do we finance the budget so that it does not end up as a mere political gimmick?’ I believe that one fundamental approach is how the Federal Government can leverage on the robust platform provided by the capital market in Nigeria to bridge infrastructural gaps. If we are moving away from over-dependent on income from crude oil whose budgetary base price of $38 per barrel has slumped to $36 even before the approval by the National Assembly, it stands to reason that there are many rivers to cross in order to realise the potential benefits embedded in the budget.” (Sun)