New Minister of Finance, Kemi Adeosun, says that the focus of the Federal Government will henceforth be on raising non-oil revenues and buffering existing revenue lines.
“Forget about oil, we don’t control the price of oil. That’s not where our problems lie,” Adeosun said in an FT interview.
According to Adeosun, a mindset that the country had oil, meant that the government gave up on collecting the right amount of revenues from other state bodies, and federal agencies had habitually underreported their revenues and shortchanged the government in the process.
“Because of oil, we’ve ignored everything else”.
She told the Financial Times (as reported by Punch) that stricter enforcement of earnings collection from federal agencies and more diligent bookkeeping were the types of “micro” issues her ministry would focus on to mitigate the effects of crude prices that have remained below $50 a barrel.
This stance by the new minister away from oil is encouraging. Economists have for long explained that Nigeria faces a graver problem in the form of accountability, leakages, tax collection inefficiency (collecting, but losing tax revenues along the way) and wastages, rather than from not having sufficient revenue heads.
They are of the opinion that while the government doesn’t do too badly in the area of revenue generation; the gravest problem has always been in accountability and leakages.
According to Temitope Osunkoya, CEO of Nextnomics, an economic consultancy, some analysts have estimated that out of $100/bbl in revenue during the period of high oil prices, only about $50 a barrel was being utilized by the government. The rest wasn’t accounted for.
Ayo Teriba, the CEO of Economic Associates says “we are not dealing with a government that isn’t collecting sufficient revenues, but we are dealing with a situation where the government was collecting as much revenues as its African peers”.
“We are dealing with leakages, and the first and most sensible thing to do is not to touch the tax structure or raise any new tax but to plug the leakages”, he said.
Non-oil African economies that are smaller than Nigeria (Morocco, South Africa), raise as much 25% of their GDP in government revenue. Oil economies such as Angola, Algeria raise as much as 33% – 40% in government revenues as percentage of GDP.
But Nigeria raises just 12%.
According to Osunkoya CEO of Nextnomics, Nigeria has lost about N3 trillion to issues such as the usual corruption and oil theft, the abuse of import and tax waivers, the subsidy fraud and efficiency gains (tax that was due but not yet collected, and tax that was collected but was lost along the way).
He says (quoting the IMF), that increasing VAT from 5% to 10%, while closing all tax exemptions and diversifying the revenue base could fetch the government an almost 400 percent increase in taxes from $5Billion to $18 billion.