This week, we picked interest on key issues around the 2020 Appropriation Bill which was on Tuesday 5th October 2019 presented to a joint session of the national assembly by President Muhammadu Buhari. A total expenditure of N10.33 trillion (N1.4tn higher than N8.92tn of 2019) was proposed for the 2020 fiscal year, while revenue projection was put at N8.2 trillion (Oil-N2.6 trillion, Non-oil – N1.8 trillion and N3.7 trillion from other revenue) – leaving a deficit of N2.18 trillion to be covered with domestic and external borrowings.
The revenue targets were based on the assumptions of; a crude oil price benchmark of $57 per barrel, daily oil production estimate of 2.18mbpd and an exchange rate of N305/$1. This was as against estimates of $60 per barrel, 2.30mbpd and N305/$1 for 2019.
Oil Revenue
The country in the first half of 2019 according to Draft 2020-2022 MTFF Report, recorded an actual average production volume of 1.84mbpd. This is lower than the 2.18mbpd 2020 crude oil production estimate. Although Nigeria was granted a higher output allotment by OPEC to 1.77mbpd from 1.69mbpd following efforts by Nigeria to tweak the agreement to accommodate its oil industry expansion, this is still about 300,000bpd short of the production volume captured in the budget estimate. As such, questions have been raised as to if the oil revenue target of N2.64 trillion for 2020 will even be achievable.
Non-Oil & Other Revenue
The optimistic projection for Non-oil revenue and Other revenue by the federal government also caught our attention. For the 2020 fiscal year, the federal government projected an increase of 30.2% and 49.7% in Non-oil revenue and Other revenue to N1.81trn and N3.7trn respectively. This development raised the question on where the federal government intends to generate these revenue increases without inflicting more hardship on the citizenry gave that the economy currently blighted by stunted growth in Agriculture, Manufacturing, and Services sector.
However, we are not insensitive to fact that the federal government might have priced-in the expected benefit from the AfCTDA agreement, earnings from the closure of land borders with Benin republic, and new investment promises from some advanced economies. Nonetheless, we believe the 30.2% and 49.7% upticks in Non-oil revenue and Other revenue is too ambitious at a time like this.
VAT Exemption
It is commendable that the government is taking a bold step to reduce the focus of revenue generation away from oil by taking attention to the non-oil (tax revenue) sector to compensate for the reduction in oil revenue. Coming with the appropriation bill, the FG proposed to increase the Value Added Tax (VAT) rate from 5% to 7.5% starting from January 2020. The additional revenue on the new vat rate will be spent to fund health, education and infrastructural programme as the states and local governments will be allocated 85% of all VAT revenues.
However, the FG has exempted firms with a turnover of below N25 million from VAT
registration. The purpose of the exemption as stated is to bring relief to micro, small and
medium-size businesses as revenue authorities can focus their compliance effort on large
businesses.
The exemption in VAT according to section 46 of the Finance Bill 2019, already includes;
educational and pharmaceutical items, as well as basic commodities, amongst which are
brown and white bread, cereals (including maize, rice, wheat, millet, barley and
sorghum), all kind of fish, flour and starch meal, fruits and vegetables, tubers (yam,
cocoyam and potatoes), Meat and poultry products, milk, salt and herbs of various kinds
and natural and table water.
