- Urges FG To Increase VAT Rate To Boost Non-Oil Revenue
- Reiterates Need For CBN To Tighten Monetary Policy
- Calls For More Transparency From NNPCL
As Nigeria continues to battle a myriad of economic challenges, the World Bank has called on the Nigerian government to embark on a series of changes that will boost the economy of the country.
Some of the measures proposed by the World Bank include the increase in Value-Added Tax VAT rate as a measure to boost non-oil revenue into the FG’s coffers, ensuring full Foreign Exchange (FX) liberalization by continuing to build market confidence around free pricing and evaluating, and implementing policy measures to channel FX supply into the Nigeria Autonomous Foreign Exchange Market NAFEM, and tighten monetary policy further and phase out ways and means – which the National Assembly raised to a record 15 per cent of the previous year’s revenue at the twilight of exit of President Buhari’s administration.
Others include the need for the Nigerian National Petroleum Corporation Limited to be more transparent by regularly publishing detailed financial statements and revenue flows of NNPC to safeguard the fiscal savings from the subsidy reform and ensure that oil revenues flow to the Federation Account and to start lowering import tariffs and non-tariff barriers on food and pharmaceuticals to lower prices and reduce poverty.
The advice from the Bretton Wood Institution was contained in the latest Nigeria Development Update (NDU) themed “Turning The Corner, From Reforms and Renewed Hope to Results” launched in Abuja on Wednesday.
In the report, the World Bank reiterated the urgent need to raise non-oil revenues by increasing Value Added Tax (VAT) rate while allowing for input tax credits, improving tax administration, adopting a data-driven approach to tax audit, as well as introduce a simpler turnover tax on Small and Medium scale Enterprises (SMEs) at state level rather than various existing fees and levies.
In the report, the bank recommended hiking the current VAT rate of 7.5% as a measure towards creating more fiscal space and increasing non-oil revenue.
However, the bank noted that such an increase should allow for input tax credits while exemptions on petrol should be removed as some of the measures recommended to raise non-oil revenues.
“Increase VAT rate while allowing for input tax credit; remove exemptions for petrol products” the report stated.
Other recommendations from the bank geared towards increasing non-oil revenue include; the use of data towards tax auditing and the introduction of simple turnover tax for SMEs at the state level rather than the multiple levies and fees.
Similarly, World Bank projected that the removal of the subsidy on fuel which came into effect on June 1, 2023, is expected to save the government around N2 trillion in 2023, which is about 0.9% of the country’s total economic output. But, going forward, between 2023 and 2025, the anticipated savings could exceed N11 trillion compared to a scenario where the subsidy continued.
“The removal of the subsidy was announced on May 29 and pump prices were adjusted on June 1. This results in expected fiscal savings of around N2 trillion in 2023, or 0.9 percent of GDP. Between 2023 and 2025, the expected gains are over N11 trillion, against a scenario in which the subsidy had continued” the report stated.
According to the World Bank report, Nigeria’s oil production has slightly improved, showing a growth of 4.6% year-on-year during the initial nine months of 2023.
However, it’s important to note that this growth is still below the average monthly production before the pandemic, which was at 1.7 million barrels per day (mbpd).
Additionally, it falls short of Nigeria’s OPEC quota of 1.7 mbpd and the Federal Government’s estimated production level for the 2023 budget, set at 1.69 mbpd.
However, in 2024, Nigeria’s OPEC quota is 1.5 million barrels per day and the 2024 budget benchmark is 1.7 mbpd. In November 2023, the country produced 1.4 mbpd, inclusive of condensates production, after recording over 1.5 mbpd in September and October 2023.
According to the World Bank report, although oil production is expected to rise, exports might shrink due to oil prices anticipated to be about 20% lower than in 2022.
As measures to curb inflation and stabilize the FX market, the World Bank advised the Central Bank of Nigeria (CBN) to tighten monetary policy further and phase out ways and means – which the National Assembly even raised to a record 15 per cent of the previous year’s revenue at the twilight of exit of President Buhari’s administration. The new rate is against 5 percent legally allowed by law before the adjustment.
On the need for transparency from NNPCL, It said such transparency should help ensure accuracy in the profits and oil revenues to be remitted to the federation account.
“NNPCL must reaffirm the commitment to not subsidize gasoline and ensure retail gasoline prices are consistent with this.
Regularly publish information that explains prices at the pump, publish detailed financial statements and revenue flows of NNPC to safeguard the fiscal savings from the subsidy reform and ensure that oil revenues flow to the Federation Account”.
