EIU Expects FG To Raise VAT To 15%, Sees Limited Impact Of PIB On Government Revenue

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In the just concluded week, the Economist Intelligence Unit (EIU), stated that the Federal Government of Nigeria may raise Value Added Tax (VAT), again, from the current rate of 7.5% to 15.0% by 2025.

According to the report, titled “Country Report Nigeria”, the expected increase in VAT was amid rising public debt, which has become worrisome, and the possibility that the Petroleum Industry Bill (PIB), recently passed by the federal lawmakers but waiting to be assented to by the President, may not affect considerable boost to government revenue in the short to medium term.

Hence, the need for FG to shore up its insufficient revenue by increasing VAT, three times, to 15% within the space of four years. Despite the even installment increments which are expected to be implemented in 2021, 2022, 2024, and 2025, the research arm of the Economic magazine still predicted that Nigeria’s fiscal revenue would peak at 5% of its Gross Domestic Products (GDP).

Data from the National Bureau of Statistical (NBS) showed that Nigeria generated N496.39 billion revenue from VAT in Q1 2021, a surge of 52.93% year-on-year (y-o-y) from N324.58 billion printed in Q1 2020.

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EIU stated that the country’s public finance would be in deficit till 2025, as its predicted that crude oil sales, which constitute a large chunk of Nigeria’s revenue, would hover around USD63.80 per barrel from 2021 to 2025, and this would be insufficient to balance the budget.

Apparently, FG is looking to borrow more given its recent move to increasing its debt limit to 40 percent of the GDP and also accommodate securitization of CBN’s deficit- financing as long-term debt. Already the country’s debt to GDP ratio as of FY 2020 was 47.02%, given the total debt of N32.92 trillion and GDP of N70.14 trillion.

Cowry Research notes that FG’s budget performance as of January to May 2021 speaks to the low revenue generation, and the direct negative impact it has on the funding gap. FG’s actual revenue generated in the above-mentioned period was N1.85 trillion (32.97% lower than the N2.76 trillion budgeted for the same period).

The actual total expenditure for the first five months was N4.85 trillion (14.22% lower than the budget of N5.66 trillion). Given the expenses which were 162.16% larger than the generated revenue, FG’s actual deficit ballooned to N3.01 trillion, up from the N2.89 trillion budgeted for the period under review.

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In another development, the Monetary Policy Committee (MPC) would, in the new week, decide on the direction of the benchmark rate, having considered the macroeconomic variables affecting its preferred expansionary stance.

In the last meeting in May 2021, the Committee was optimistic on the positive development around vaccination against COVID-19 virus in most advanced economies and Nigeria specifically; albeit, the recent development as regards Delta variant of COVID-19 appears to raise new risks, especially for African countries.

Also, the MPC expressed its willingness to arrest the current challenge of stagflation the country is faced with – growing inflation combined with little or no growth in output – hence, voting unanimously to hold the Monetary Policy Rate at 11.50%.

 

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