Nigeria’s Revenue Drive and the Task Ahead

Raheeem Akingbolu x-rays the challenges facing various revenue generating agencies in Nigeria as espoused at the 2023 retreat organised for members of the Federation Account Allocation Committee held in Asaba, Delta State and the efforts being made by the federal government to improve fiscal reforms at sub-national level

The just concluded retreat organised for the members of the Federation Account Allocation Committee (FAAC) held in Asaba, Delta State achieved among other things the need for synergies between the federal and state governments on one hand and cooperation among various revenue generation agencies for the current administration to be able to put the country’s economy on a good footing as soon as possible, despite the current challenges.

Among others; the Federal Inland Revenue Service (FIRS), the Nigeria Custom Service (NCS) and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) identified corruption, insecurity, economic crime, unstable government policies and terrorism as some of the challenges facing effective revenue generation in the country. The retreat, which was declared open by Delta State Governor, Sheriff Oborevwori, was themed, “Creating Resilient Economy through Diversification of the Nation’s Revenue.” 

The FAAC is a statutory Committee Chaired by the Minister of Finance and Coordinating Minister of the Economy with the Accountant-General of the Federation (AuGF), Commissioners of Finance of the 36 States of the Federation, representatives of the Revenue Mobilization, Allocation and Fiscal Commission (FMAFC) and revenue generating agencies amongst others as members.

Government Collaboration

At the retreat, the federal government assured that it is collaborating with states to enhance capacity in the mobilisation of domestic revenue to support the development of vital sectors of the economy.

Such sectors include health, agriculture, and SMEs to further stimulate economic growth, create job opportunities for the teeming youth population, and alleviate poverty.

The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, said the federal government is collaborating with the World Bank on a programme aimed at enhancing the ease of doing business by providing an enabling environment through the removal of existing bottlenecks.

The programme, tagged, “States Action on Business Enabling Reforms,” (SABER), is expected to run from 2024 to 2025.

Edun, represented by the Permanent Secretary (Special Duties) at the Federal Ministry of Finance, Okokon Ekanem Udo, said other intervention programmes from the World Bank and other international organisations would continue unabated.

On the economic reforms embarked upon by the President Bola Tinubu-led administration, Edun noted that the government was not oblivious to the untold hardship being experienced by Nigerians.

“It always acknowledges with deep concern the challenges encountered by Nigerians in coping with not only the high cost of petrol but also the general increase in the prices of goods and services.

“I am happy to reaffirm that all the sacrifices made by people will never be in vain, as the government is bent on ensuring that the economy bounces back to normal as we continue to consolidate the recovery efforts with a focus on achieving inclusive economic growth and development,” he said.

Edun said the administration has also put in place palliative measures to cushion “the unintended economic consequences of the ongoing reforms.”

Declaring the retreat open, Gov Oborevwori, represented by his deputy, Monday Onyeme, noted that past efforts to diversify the economy did not yield the best results.

“Dating back to 1962, when the first National Development Plan was launched, Nigeria has struggled to rise to the challenge of economic diversification.

“Since the turn of the century, we have had the National Economic Empowerment and Development Strategy (NEEDS), Vision 20:2020, and Economic Recovery and Growth Plan, all of which were aimed at achieving economic self-reliance, developing non-oil exports, and building a globally competitive economy. Sadly, diversification has remained largely elusive.

“The COVID-19 pandemic, persistent inflation, which currently stands at 30 per cent, worsening macroeconomic instability, foreign exchange rate volatility, and a rapidly growing population, highlight the need for Nigeria to urgently diversify its economy.

“With the global transition from fossil fuels to renewable energy in the foreseeable future, the outlook for Nigeria is bleak. The implication of this is that diversification is no longer an ideal but an imperative for sustainable economic growth. What we do now will have significant implications for current and future generations of Nigerians,” he said.

While commending members of FAAC for their commitment and dedication to duty and for the correction of wrong computations and refunds to oil-producing states of the federation, the governor added that much work still needs to be done on the payments of 13 per cent derivation, since the coming into force of the Petroleum Industry Act (PIA).

“Since the implementation of the PIA, a lot of concerns have been raised by stakeholders of this sector in respect of the new roles of the Nigeria National Petroleum Company Limited (NNPCL) as it affects inflows of revenue into the Federation Account. It is my hope that this retreat will address these concerns and lay them to rest permanently.

“Tax is the dividend of a thriving private sector. For us to reap the benefits, we need to, as a matter of exigency, remove the institutional bottlenecks that make the cost of doing business in Nigeria unbearably high. It is only after we have done this that we can realistically expect to widen the tax base and diversify the economy. It is inevitable that where the cost of doing business is frustratingly high, tax evasion and tax avoidance will be pervasive, “he said.

Fiscal Reforms

Meanwhile, the retreat also provided opportunity for the federal government to reaffirm its commitment to improve fiscal reforms at the subnational level by working assiduously to sustain collaboration with the states and international development partners through programs such as the World Bank-assisted States Fiscal Transparency, Accountability and Sustainability (SFTAS), which has brought a great deal of reforms that helped to strengthen state governments’ approach to governance and public finance management.

Edun, observed that the $1.5 billion SFTAS Program-for-Results, which ends in December 2023 has come of age with remarkable achievements recorded by all the 36 States in key result areas namely: Fiscal transparency and accountability; domestic revenue mobilization; efficiency of public expenditures and Debt sustainability.

He said, “We hope and encourage the Sub-nationals to continue with these laudable reforms beyond the SFTAS period.”

To this end, he stressed that the federal government as always, remains committed to the fiscal and monetary reforms that the administration has started, which aimed to provide an enabling business environment, diversify the revenue base of the economy, create fiscal space for investment in critical infrastructure and ensure macroeconomic stability.

Edun revealed that following the success story of SFTAS, the federal government in collaboration with the World Bank has come up with another programme called, “State Action on Business Enabling Reforms (SABER),” which will effectively run from the year 2023 to 2025. “This program aims at improving the business enabling environment of Nigeria’s states. Other intervention programmes from the World Bank and other International Organisations would continue unabated, ”he said.

According to him, the $750million SABER Program, which is currently awaiting the approval of an abridged External Borrowing Plan by the National Assembly, seeks to incentivize and strengthen the implementation of business enabling reforms covering land administration, the regulatory framework for private investment in fiber optic infrastructure, public private partnership and investment promotion frameworks, tax administration and the business enabling regulatory environment. 

Speaking in the same vein, Senior Economist, World Bank, Mr. Samer Matta, congratulated the federal and state governments for the important fiscal reforms initiated under the States Fiscal Transparency, Accountability and Sustainability (SFTAS) Program calling for the sustainability of results especially by new administrations in the States through adhering to the SFTAS Charter signed by Governors in August 2022, committing to continued achievement.

Matta attributed the success of the SFTAS program to the following: deployment of simple but substantive eligibility criteria annually to open the Program to all States for participation in any year but ensure that there is a minimum performance standard for receiving grants; Making Technical Assistance available irrespective of meeting eligibility criteria and level of achievement of disbursement linked results; robust and credible results verification process; use of performance- based criteria that is non-negotiable and consistently applied; transparency of results encouraging virtuous peer competition; active peer learning among States facilitated by the NGF; and utilization of state-level platforms for engagement at multiple political and technical levels.

He further highlighted that the implementation of SFTAS reforms has enhanced the perception of states as having sound fiscal practices, a key factor for capital markets. This improvement is bolstered by the availability of more comprehensive and improved fiscal data, facilitating a more informed, evidence-based dialogue.

World Bank, Task Team Leader for SABER, Ms. Bertine Kamphuis, also expressed optimism that the SFTAS ideals will be sustained even in the absence of further incentives given the fact that SABER is a natural component of the sustainability strategy as it will continue to use two SFTAS Eligibility Criteria: the timely publication of National Chart of Account compliant budgets, and the timely publication of IPSAS-compliant audited financial statements, as well as elevate the SFTAS result on the timely publication of a debt sustainability report to an eligibility criteria.

Review of VRAF

On his part, the Chairman of RMAFC, Muhammad Shehu, stated that it is a constitutional requirement that Vertical Revenue Allocation Formula (VRAF) be reviewed to ensure conformity with changing realities after a minimum of five years as the last review was done 31 years (1992) ago.

He pointed out structural changes, which led to an increase in the number of states from 19 to 21 to 30 and 36 across the period of time as a major consideration for review.  He also made reference to the fact that the number of local governments too have increased correspondingly over the period of time.