Friday, September 24, 2021

    EIU Expects Nigeria to Raise VAT to 15%, Sees Limited Impact of PIB on Government Revenue…

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    Naija247news Editorial Team
    Naija247news is an investigative news platform that tracks news on Nigerian Economy, Business, Politics, Financial and Africa and Global Economy.

    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 effect 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 instalmental 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 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.

    EIU stated that the country’s public finance would be in deficit till 2025, as its predicted that crude oil sales, which constitutes large chunk of Nigeria’s revenue, would hover around USD63.80 per barrel in 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 per cent 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 at 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 at January to May 2021 speaks to the low revenue generation, and the direct negative impact it has on 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 was 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.

    In another development, the Monetary Policy Committee (MPC) would, in the new week, decide on the direction of the benchmark rate, having considered the macro economic 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%.

    We note that further increase in VAT this year, given the possible instalmental increase projected by EIU, would reverse the marginally declining trend in inflation rate as prices of food and services become more expensive for the final consumers.

    This, will also negate the efforts of the Monetary Committee who are committed to lower interest rates needed to boost output and subsequently increase government revenue.

    Hence, we expect fiscal authority to address its deficit budget from the cost side by reducing frivolous expenditures in its budget even as the monatary authority continues to create an environment for cheap funding for private sectors.

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