The federal government has generated additional N30.46 billion in the first quarter of the year (Q1 2020) based on the hike in Value Added Tax (VAT) from five per cent to 7.5 per cent that became effective from February 1, according to data released yesterday by the National Bureau of Statistics (NBS).
The NBS figures were released just as the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, met with the National Assembly leadership in Abuja yesterday to discuss the proposed cut in the 2020 Budget.
The cut, which amounted to N71.5 billion, was subject of economic analysts’ conversation with THISDAY last night as many of them saying the reduction should reflect the country’s economic realities.
With the extra cash, VAT receipts closed at N338.94 billion in the first quarter of the year, from N308.48 billion in Q4 2019.
The improved performance represented a 9.87 per cent increase in value quarter-on-quarter.
It also represented a 15.66 per cent rise (year-on-year), when compared to the N293.04 billion realised in Q1 2019.
According to the sectoral distribution of VAT data for Q1 2020, which was published by the statistical agency, professional services generated the highest amount of VAT with N38.30 billion and closely followed by manufacturing that generated N37.37 billion.
Commercial and trading generated N17.19 billion while mining recorded the least amount of N61.83 million.
Textile and garment industry and local government councils recorded N306.05 million and N319.04 million respectively.
Of the total amount generated in Q1 2020, Non-Import VAT locally accounted for N172.67 billion while the foreign component stood at N93.67 billion.
The balance of N72.59 billion was generated as NCS-Import VAT, the NBS added.
Agriculture and plantations generated N973.26 million while automobile and assemblies contributed N751. 56 million to VAT within the review period.
Banks and other financial institutions contributed N5.42 billion while breweries, bottling and beverages accounted for N14.33 billion VAT in Q1.
Commercial and trading, conglomerates, and federal ministries and parastatals contributed N17.18 billion, N1.10 billion and N6.55 billion respectively to the total collections.
Oil-producing and oil marketing accounted for N9.35 billion and N2.38 billion respectively.
Budget Cut Should Reflect Economic Reality, Analysts
Urge FG Economic analysts have called on the federal government to ensure that its trimming of the 2020 budget and the MTEF reflects the nation’s economic realities.
They spoke in separate interviews with THISDAY while reacting to Wednesday’s resolve by the FEC to revise the MTEF and the 2020 budget that was slashed from N10.594 trillion to N10.523 trillion, translating to a difference of N71.5 billion.
The analysts said with the 56.1 per cent reduction in the crude oil benchmark price from the initial budget estimate of $57 per barrel to $25 and an 11 per cent cut in the expected crude oil production, it was evident that the oil revenues in 2020 would drop by nearly half.
They noted that the other revenue sources would come under pressure owing to the lockdown and looming recession, saying a corporate organisation in such a situation should react by reducing the costs of operations proportionately.
A former Director-General, Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu, expressed disappointment at the marginal level of reduction.
He noted that the budget adjustment was “completely disproportionate to the amount of drop in oil price compared to the budget benchmark and also disproportionate to the size of decline of the economy and the size of revenue generated and to be generated until the end of the fiscal year.”
He said: “I was surprised when I heard the Finance, Budget and Planning Minister mentioned that the budget was to be reduced by a paltry N71.5 billion. What occurred to me was that there was no need to call a press conference for this.
“The figure was completely disproportionate to the amount of drop in oil price compared to the budget benchmark. It is also disproportionate to the size of the decline of the economy and the size of revenue generated and to be generated until the end of the fiscal year. We, therefore, need to be more decisive on the budget adjustment to suit the economic realities of today.”
However, Prof. Uche Uwaleke of the Nasarawa State University said the government should be mindful of the country’s debt burden and utilise the foreign loans appropriately.
He added that the decision by the government not to have made significant cuts in the budget may have been prompted by recent successes recorded in the arrangements to source loans to finance the fiscal gap.
According to the former Imo State Commissioner for Finance, “The health and economic crisis occasioned by COVID-19 is such that it requires huge spending to tackle. So, in this regard, it makes sense. “However, the government should not lose sight of the country’s huge debt burden and should ensure the domestic and foreign loans being contracted are well utilised.”
Also, the Head of Research, Afrinvest West Africa, Mr. Abiodun Keripe, described the N71.5 billion reduction as negligible.
He said: “There was a 56.1 per cent reduction in the crude oil benchmark price from the initial budget estimate of $57 per barrel and an 11 per cent cut in the expected crude oil production. I believe these fairly capture the choppy outlook for the crude oil market in 2020 with lower oil prices as a result of sluggish demand and lower production due to the OPEC cuts.
“The scope for government to reduce expenditure proportionately with the drop in revenue is obviously limited without creating major pains. The bulk of government expenditures goes into recurrent, which are salaries and debt service. With the expected significant drop in revenue, N71.5 billion is clearly a negligible cut. The implication is that the government would have to raise local borrowing to cover the budgeted deficit, which has ballooned to N5.2 trillion.”
The Head of Research, United Capital, Mr. Wale Olusi, noted that the government did not cut the budget much because it was confident to fund it through borrowing.
“I feel that they must be really confident to be able to fund deficit via borrowing, so they were not really worried about cutting the budget too much despite the prediction. I think the fact that they got the soft funds from IMF, it has given the government a lot of comforts, especially because that can also boost the chances of the World Bank and the African Development Bank (AfDB) giving them more loans and they can always get the balance from the domestic market, which is very liquid anyway.
“I don’t think anything is wrong with the $25 per barrel because oil price can’t stay at $20 for too long. There is a cost implication for the oil price, so even if it drops occasionally to $20, it would always fight back. And with OPEC cut, and Saudi Arabia agreeing to cut down further, it is clear that prices would be in the region of $30 per barrel going forward. So, $25 is still fair and conservative,” Olusi added.
Ahmed Meets N’Assembly Leadership over 2020 Budget Cut
Ahmed met with the National Assembly leadership in Abuja yesterday over the proposed cut in the 2020 Budget and said the details of the reduction would be forwarded to the federal legislature next week.
She spoke on the plan by the federal government to amend the N10.59 trillion federal budget passed by the Assembly last December and said the amendment would include the N500 billion Intervention Fund voted for COVID-19.
She told the President of the Senate, Dr. Ahmad Lawan, and the Speaker of the House of Representatives, Hon. Femi Gbajabiamila, and other principal officers of the Assembly that the proposed adjustments in the budget would be before the National Assembly next week, adding that the US$57 crude oil price benchmark approved in the 2020 budget was no longer sustainable.
According to her, “It is necessary to reallocate resources in the 2020 budget, to ensure the effective implementation of required emergency measures, and mitigate the negative socio-economic effects of the COVID-19 pandemic.”
Ahmed stated that in line with the global economic outlook and relevant domestic considerations, the assumptions underpinning the 2020-2022 Medium Term Expenditure Framework (MTEF) and the 2020 Budget was revised to slash crude oil benchmark price from US$57 per barrel to US$25 per barrel; reduce crude oil production benchmark from 2.18 million barrels per day to 1.9 mbpd.
She added that the federal government also adjusted the budget exchange rate to N360/US$1; and reduced the upfront fiscal deductions by the Nigerian National Petroleum Corporation (NNPC) for mandated Oil and Gas sector expenditures by 65 percent from N1.223 trillion to N424 billion.
Her words: “The amount available for funding the 2020 Budget is now estimated at N5.548 trillion, down from N8.419 trillion, a revised revenue estimate which is 34 percent (N2.87 trillion) lower than what was initially approved.
“Federal Government’s aggregate expenditure budget was slashed by N88.412 billion; Statutory Transfer from N560.47 billion to N397.87 billion; and Overhead costs of Ministries, Departments and Agencies of Government from N302.43 billion to N240.91 billion”.
She, however, disclosed that debt service provision was increased from N2.453 trillion to N2.678 trillion.
On provision of N500 billion for COVID-19 Intervention Fund, Ahmed explained that N263.63 billion will be sourced from Federal Government Special Accounts, N186.37 billion from Federation Special Accounts and the balance of N50 billion expected as grants and donations.
According to her, “The sum of N186.37 billion will be applied toward COVID-19 interventions across the federation, while an additional N213.60 billion was provided in the Service Wide Votes for COVID-19 Crisis Intervention recurrent expenditures.”
She disclosed that while a total of N100.03 billion was provisioned in the Intervention Fund for new capital spending, the Federal Government carried out a cut in capital expenditures for Ministries, Departments and Agencies of Government (MDAs) from N1.564 trillion to N1.262 trillion.
Earlier in his welcome address, the Senate president told the executive arm of government to ensure that the interest of Nigerians remain protected in the proposed cut to the 2020 national budget.
Lawan also expressed the willingness of the federal lawmakers to expeditiously consider the proposed amendment to the 2020 budget.
He said: “The budget amendment is very important, but I believe that when we are faced with this kind of challenge (COVID-19 pandemic), it is an emergency and we should do everything and anything possible to fast track the passage and implementation of the government intervention that is so critical and crucial at this stage.
“One thing is that the net public expenditure must be targeted at net maximum performance for the benefit of the people of this country. In other words, we must come up with an amended budget that is operable and favourable to Nigerians,” Lawan said.
The House speaker called on the Federal Government to adopt a feasible benchmark in the proposed amendment to the 2020 budget.
His words: “The benchmark is so critical and so important, because once you passed the law, it becomes difficult to adjust that benchmark, and then what happens to the excess?
“We have always had problems with the Excess Crude Account, potentially an account which has no backing of the law. So, let’s even assume that the price remains static at $35, that means we have $10 going to the Excess Crude Account, which we have no control over in terms of spending, that is why we guard that benchmark price very jealously.
“Is there a possibility of having a proviso built-in in the budget…So that there can be an automatic kick in if the benchmark price goes beyond $26 or $27. We want you to explore that possibility.
“So, I think you should study the market and see what happens next week by the time you present the adjusted budget.”