The Central Bank of Nigeria (CBN) on Friday published its economic report for the third quarter of 2019 and we have highlighted key economic developments in that period.
Nigeria’s non-oil revenue outperforms oil for the first time since 2016.
For the first time since the economic recession in 2016, Nigeria generated more revenue from non-oil sources than it did from oil.
The CBN’s economic report showed that revenue generated from non-oil sources not only jumped by 28 percent to N1.36 trillion in the third quarter of 2019 from N1.06 trillion generated in the previous quarter, but edged the N1.34 trillion got from the sales of crude oil in the same period.
The last time non-oil revenue outpaced oil revenue was in 2016, when lower crude oil prices and militant attacks that crimped output saw petrodollars fall behind non-oil revenue from corporate tax to Value Added Tax (VAT) and Customs and Excise duties.
At the time, oil prices traded as low as $28 per barrel at some point but would go on to average $38 per barrel for the year, while production touched a record-low of 1.2 million barrels daily.
So when non-oil revenue topped its oil counterpart in the fourth quarter of 2016, it owed more to the decline in oil revenue than the stellar performance of non-oil revenue.
This time, however, is different. Oil prices averaged $65 per barrel in the third quarter, according to the CBN’s estimate, while daily production averaged 1.9 million barrels.
Yet, non-oil revenue was the star performer thanks to a strong surge in corporate taxes which must have come as a relief to the Federal Inland Revenue Service (FIRS), the body charged with tax collection.
Corporate Income Tax outperforms budget
According to CBN data, the Federal Government earned N358 billion in Corporate Income Tax (CIT) in the third quarter of 2019, the highest for the year and almost double the average CIT (N169.5 billion) collected in the first and second quarters.
Given the harsh economic realities currently, analysts assume that the driver of the significant uptick in CIT is a wider tax net which means there are more companies paying tax.
Babatunde Fowler, the country’s chief tax collector, said in October that the taxpayers’ net widened 11 percent to 20 million in 2018 from 18 million the prior year.
Fowler said N5.32 trillion ($17.39 billion) was collected in taxes in 2018 and his office was targeting N8.9 trillion this year.
He said the increase was possible because the number of taxpayers was expected to jump to around 45 million this year from 20 million in 2018. That was largely due to the inclusion of people identified in a tax amnesty that ended this year. For a country struggling with weak revenues, the uptick in corporate taxes comes as a big boost for the cash-strapped government.
The government has turned its attention to the taxman to prop up underperforming revenues.
A low tax-to-GDP ratio of 6 percent always leaves room for growth in tax receipts.
A raft of schemes targeted at boosting taxes has since been unveiled by the government but with subdued impact.
The Voluntary Assets and Income Declaration Scheme (VAIDS) is one of such schemes aimed at capturing more taxpayers. The scheme was billed to fetch some N360 billion but has only raised less than 10 percent – N30 billion – since its 2017 launch.
FG’s retained revenue hits 2019 high but stuck below budget
The Federal Government’s revenue hit a new high in the third quarter.
CBN data showed the Federal Government’s retained revenue for the third quarter of 2019 amounted to N1.03 trillion, an increase of 8.7 percent from the preceding quarter but a decline of 0.8 percent compared to the third quarter of 2018.
The FG’s retained revenue was, however, below the quarterly budget by 51.5 percent.
The trend of lower-than-budgeted revenue is becoming a mainstay of the Nigerian government for some time now.
Despite failing to meet the target in each of the past four attempts, the Federal Government has continued to raise revenue targets to the bewilderment of some analysts.
In 2019, for example, the government expected to earn N7 trillion in revenues, but in the first half of the year has only managed N2.9 trillion which is 30 percent less than the prorate estimate for the period.
A long history of failed revenue projections hasn’t deterred the government from raising its revenue target each year. For 2020, the government targets N8.15 trillion in revenues.
CBN records net fx outflows for only 3rd time since 2016
The CBN saw less foreign exchange inflows than outflows in the third quarter of 2019, in what is only the third such occurrence since the fx crisis of 2016 and the first time this year.
Net fx outflow in the third quarter was $3.6 billion, being the difference between inflows of $11.7 billion and outflows of $15.3 billion.
Aggregate foreign exchange inflow into the economy amounted to $25.76 billion, which implies that only 45 percent of total fx inflows into the country went through the CBN while 55 percent was routed through autonomous sources.
The implication of net fx outflows is that it may invite pressure on the exchange rate which the CBN has protected at all costs for more than two years.
Lower dollar inflows reduce the CBN’s firepower in defending the naira against any depreciation and leave the apex bank with no choice but to blow through its external reserves.
The CBN’s gross external reserves are already on the decline, after shrinking to $40.5 billion as of October 30, 2019, according to CBN data. That’s an 11 percent decline from $45 billion at the start of the year.
Foreign exchange sales by the CBN to authorised dealers amounted to $10.11 billion in the third quarter of 2019.
Meanwhile, the average naira/dollar exchange rate appreciated by 0.01 percent and 0.12 percent to N306.93/US$ and N359.557/US$ at the inter-bank and the BDC segments, respectively. It, however, depreciated by 0.4 percent to N362.20/US$ at the “Investors and “Exporters” (I&E) Window.
Source: businessday
