The reality of dwindling revenue from crude oil sales has forced the government to look in the direction of taxes while also putting in place measures to egg Nigerian into embracing manufacturing. SULAIMON OLANREWAJU reports.Although experts have lauded the Federal Government for reducing its reliance on oil revenue as stated in the 2015 budget proposal presented to the National Assembly last week, they disagree with the government on its choice of $65 per barrel as the benchmark.Finance Minister, Ngozi Okonjo-Iweala, during the budget presentation, had said, 'We are going to stick to the benchmark in spite of the declining price of crude because we feel that the average price next year would be about $65 to $70.'She also said the government expected to earn N1.92 trillion from oil transactions and N1.68 trillion from non-oil, which is a ratio of 53 per cent oil revenue to 47 per cent non-oil revenue, adding that 'This is the first time ever that the government would strive to realize this level of revenue from non-oil sector of the economy.'But as observed by Dr Chidozie Onyekalu, the $65 benchmark showed the government as being unrealistically optimistic.Onyekalu, CEO of TXP Nigeria Limited, said, 'All the major international agencies have projected that the price of crude is likely to fall further in 2015. So, the basis for choosing $65 is unclear. The government should have worked on $50 per barrel.'Similarly, Mr. Mark Anthony Dike, President, Chartered Institute of Taxation of Nigeria (CITN), said the government should have lowered the benchmark as a result of the current realities.He said, 'Even while the minister was making the presentation the price of crude oil kept falling. So, I don't understand why the government decided to go for a $65 benchmark.'Speaking on the implication of this, he said, 'If the price of crude should go lower than $65 per barrel, it would put the government under serious pressure because what it means is that it would have to borrow to finance the difference. If you know that we already have a deficit in the proposal, you will realize that this is not a joke.'He said what the government should have done was to set the benchmark lower than it is and, in the event of a rebound in crude oil price, channel the excess into the excess crude account.'That way, the government will not put too much pressure on the economy,' he said.'Premising the budget on a $65 benchmark is exposing the economy to shocks in the light of current happenings in the crude oil market,' said Mr. Stephen Agbabiaka, an energy economist. 'Everything points to a further slip in oil prices and here we are with the government basing its assumptions on an unrealistic benchmark. What this means is that the government intends to rely on borrowing to finance the budget. This will have a telling effect on the economy.'Commenting on the efforts of government to raise revenue from non-oil sector, especially through taxes, Dike said it was a good development.'This is a welcome development. Governments all over the world rely more on taxes. So, it is good that the government is looking in that direction. We have the structure, we have the laws, and we have the instruments. But I am not sure we have the political will. Our problem is primordial; we are not generally honest,' he said.The CITN president said for the government to realise its objective of raising revenue from taxes, both political office holders as well as tax officials have to demonstrate seriousness.'But are we ready for this'', he asked. 'Will the government not shield defaulters' If the government is serious about making this work, it should spare nobody and ensure that it does everything to bring everybody into the tax net.'Dike lauded the government's plan to impose luxury tax on the rich, saying the affluent should be encouraged to pay taxes.'The rich do not pay commensurate taxes in Nigeria,' the CITN president said. 'Here you have multi-billionaires paying N200,000, N100,000 or even sometimes something as ridiculous as N50,000 as income tax. I believe they should pay the appropriate taxes as their own way of contributing to the development of the country. The good thing about these taxes is that those affected can afford to pay and will pay if the right measures are adopted. But as I noted earlier, it depends on the political will of the government because many of those who fall into this category are either in government or close to the government. So, it will only happen if the government is determined to make it happen.'So putting a levy on private jets, yachts, luxury cars as well as first class tickets is a way of increasing revenue,' Dike said.He also commended the government's plan to impose property tax on some categories of buildings in Abuja, adding that the decision of the government that the receipt of such would be for the FCT was a step in the right direction.Dike also agreed with the government on the need to increase the value added tax (VAT). According to him, since Nigeria started imposing VAT on goods in 1993, the percentage charged has remained 5 per cent, while most countries have gone beyond 5 per cent.'Many countries now charge between 15 and 18 per cent on VAT. So, it is about time that the rate paid is reviewed upwardly. The government should also work on reviewing the percentage paid as VAT in the country. This is because VAT is more efficient in collection than income tax. People don't see the tax; they see the goods or service they are enjoying. Whereas with income tax, you feel it because you know exactly how much you are paying as tax. With income tax, people will always play hide and seek. That is why in most countries, there is a shift from direct to indirect tax.'However, while acknowledging the need for government to look in the direction of tax to augment its revenue from other sources, Honourable Kunle Abiodun, a former local government councilor, is of the view that earnings from tax would be meager because of the failure of the government to deploy earnings from crude oil over the years into building the proper infrastructure that would attract investment into the country.'We would not have been in the strait that we currently find ourselves had the government made very good use of revenues from oil over the years. The government should have used the revenue from oil to develop infrastructure that would make doing business in Nigeria attractive to investors from all over the world. If we had used the resources to build uninterrupted power supply, the companies that have had to relocate to other countries would have stayed in Nigeria and they would have constituted a revenue generating cluster to the government. If we had used the resources to build good roads, these would have boosted commerce and the government would have benefitted immensely from the taxes these will pay. If we had used our revenue to develop our tourist centres, the government would have been in a position to reap huge benefits from this,' Abiodun said.His view tallied with that of Professor Adeola Adenikinju, Director, Centre for Petroleum, Energy Economics and Law, University of Ibadan, who said the current situation would make Nigeria pay for its past profligacy.He added, 'This is a lesson for us to diversify our economy and reduce our vulnerability to oil price shocks. We must start developing other sectors. Non-oil sector has overtaken oil in terms of contribution to the GDP (Gross Domestic Product) but it has not performed well in terms of contributing to the economy. We have to work on this to make the non-oil sector contribute in real terms to the economy.'Speaking on the government's effort to raise revenue through tax, he said, 'We also have to improve our tax revenue and block loopholes in the economy. We have to devise a means of making every taxable Nigerian pay regularly and accurately. If we do all of these, we shall develop an immunity to oil price shocks.'Speaking about the effect of the budget on the average Nigerian, Mr. Dike, CITN president, said it would impact negatively on the disposable income of families.According to him, 'There is the likelihood of prices going up because of the high cost of dollars. Nigeria, being largely an import-dependent country, reacts to changes in the exchange rate of dollar. Now that our currency has been officially devalued, it means the prices of imported commodities will go up.'To compound the woes of the common man, banks' interest rates have also gone up. This also translates to an increase in the cost of production. This means the prices of locally produced goods will go up.'Now, without a corresponding increase in wages, the disposable income of most families has been reduced and this will affect their lifestyle.'While agreeing with Dike that the budget would make life a bit difficult for the average Nigerian, Honourable Abiodun said, some measures the government plans to take in the ensuing year could cushion the effect.Going into specifics, he mentioned the planned establishment of the Development Bank of Nigeria (DBN), a financial institution that will support the private sector especially Small and Medium Enterprises (SMEs) to access more affordable financing with longer tenure.He said, 'Recall that the Minister of Finance said that the government would partner the World Bank, the Africa Development Bank, the BNDES Bank in Brazil, and KfW in Germany to set up the DBN. Also recall that she said the government has set aside N4 billion in addition to the N16 billion provision in the 2014 Budget for the project and that the essence of the bank is to help SMEs and entrepreneurs. Again, recall that she said the Bank of Agriculture and Bank of Industry will be re-structured as specialized institutions to retail financing. This, in my opinion, is the silver lining because it will promote manufacturing and facilitate employment opportunities. More than any other thing, these are what we need in this country; we need to resuscitate manufacturing and create employment opportunities for our teeming youths.'If the government does all in its power to birth the DBN and removes all encumbrances to accessing finance by SMEs and budding entrepreneurs and also goes ahead to ensure that power generation and distribution continues to improve, Nigeria shall be on the path to growth in spite of the current challenges because what we really need to change the tide in our economy is to encourage as many people as possible to go into local production of as many of those things we import as possible.
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