Article Summary
- KPMG Nigeria wants the government to increase oil revenues instead of raising taxes.
- The federal government recently implemented new taxes on beer, imported vehicles, single-use plastics, mobile telephone services, fixed telephone, and internet services.
- Crude oil theft hampered Nigeria’s oil production in 2022, leading to revenue loss from the oil sector.
Tax advisory, KPMG Nigeria has asked the federal government to increase oil revenues to increase the country’s earnings. The company stated this in a May 2023 report on the Assessment of the 2023 Fiscal Policy Measures.
In the report, KPMG noted that the federal government had recently implemented new taxes on beer, imported vehicles, single-use plastics, mobile telephone services, fixed telephone, and internet services.
KPMG advised the government to look beyond creating an additional burden on business margins and work to increase oil revenues. A part of the report stated:
- “With inflation already over 21%, consumers have already been rationalizing expenditures and this is showing up in the earnings of various Nigerian consumer product companies.
- “It is our view, therefore, that the timing for this increase may therefore not be effective. Further price rises may squeeze consumer demand and worsen already declining business margins such that the revenue expected by the government from the new duty may be unrealized. So, the government loses three times.
- “Rather than place added burden on struggling consumer demand, business margins and profitability, and greater competition hurdles with other African countries in particular, our recommendation would be to increase oil revenue and non-oil revenue via other measures that don’t create added challenges for consumers and businesses and to adopt more efficient government expenditure.”
How FG can work to increase oil revenues
According to KPMG Nigeria, the federal government can work to increase oil revenues in the following ways:
- Renegotiating or reconsidering Nigeria’s relationship with the Organization of Petroleum Exporting Countries (OPEC) like Indonesia, and Qatar did, to avoid being capped to a limit when and if the output exceeds the quota, given the country’s need for urgent revenues for development.
- Developing joint ventures between the Nigerian National Petroleum Company Limited (NNPCL) and companies building modular refineries to process crude oil into derivatives as a means of increasing the revenues generated from selling extracts like premium motor spirit, low-pour fuel oil, and kerosene. aviation fuel, diesel, pet coke, bitumen binders, and marine fuel. These could multiply revenues generated from selling crude oil as a raw commodity.
- The Government needs to consider an independent Joint Venture model for its production-sharing contract and encourage NNPCL to raise cash calls independently. This will help to raise Nigeria’s revenue-to-GDP ratio to the emerging markets average of 18%, as a tool to reduce deficit financing that comes from unsustainable debt cycles without sacrificing the country’s urgent need for huge development expenditure.
- The KPMG report also advises NNPCL to secure oil output by installing high-pressure sensors on all feeder lines that take crude oil through flow stations from well-heads to terminals to be able to track and detect spikes, pulsations, surges that might occur from vandalization, and pressure tapping.
- The NNPCL also needs to mobilize the office of the National Security Adviser, the Nigerian Army, the Marine Police, and the Nigerian Navy to arrest culprits and their back-end sponsors and accomplices. Meanwhile, all the security personnel responsible for detecting and acting on oil theft detections should be replaced every 3 months to avoid being compromised.
- The NNPC also needs to install modern metering technology at all 33 export terminals to avoid siphoning off crude oil inventories and reduce the difference between inventory delivered by feeder lines through flow stations from well-head to terminals.
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Oil revenue this, oil revenue that…blah, blah, blah.
Yes, Nigeria does not necessarily need to raise taxes to increase government revenue, but it does need to collect more taxes by widening the tax base – which means that more Nigerian CITIZENS need to fulfill their most basic civic responsibility by timely and fully meeting their tax obligations.
Nigeria is arguably the only place where the concept of citizenship is seemingly defined only by rights but no responsibilities. Oil income is essentially a windfall (that is also being phased out). Time for Nigerians to quit the addiction to its revenues and the delusion that it will fully finance development.