Don't Miss

RMB urges FG to amend tax structure

By on July 18, 2015

In view of the decline in crude oil prices, which has led to significant drop in Nigeria’s revenue, an analyst at Rand Merchant Bank (RMB), has advised the federal government to restructure its tax process.

Speaking at the RMB Nigeria’s annual economic breakfast session in Lagos, the bank’s Africa Analyst, Nema Ramkhelawan-Bhana, explained that the oil price must move to about $64 before the country’s targeted revenues could be met.

“But I feel corporate Nigeria is going to take the brunch of this. Obviously, you (Nigeria) need to amend your tax structures, and make everything uniform, specifically around your telecommunications companies, around your power sector, around oil and gas,” she added.

Also, the Central Bank can no longer provide credit funding to those sectors readily. So I do believe that those are the sectors that are going to take the brunch of it, as well as the retail sector, having to squeeze out their operating margins, in order to accommodate higher costs,” she explained.

She argued that the federal government may be unable to meet its revenue targets for the 2015 fiscal year at the current price of oil.

She said: “I think initially when the oil price did collapse in November/December last year, a lot of the questions were around the break-even price. But the break-even price doesn’t answer the question of what government actually needs to accrue in order to meet its expected revenue.

“So, in order to do that we used all the government inputs, in terms of what the expected exchange rate is, which is at N190 to a dollar; we used what the expected production level is going to be (Which is 1.9 million barrels per day, lesser than the government’s expectation of 2.27 million), and worked that back to  the government revenue; and we found that, in fact, the oil price needs to be around $64 per barrel, in order for the government, at the end of this year, to meet its expected revenues. So, it’s going to mean a greater fiscal deficit than was expected.”

Continuing, Ramkhelawan-Bhana said: “We’ve seen state governments asking for a bailout, which means there was no internally generated revenue to cover the costs of expenditure. I think even before we get to a sectoral level, we have to see what the impact will be on state governments; because that’s what ideally drives bankable projects in the states, and drives the support for private sector.”

Speaking on how to minimise the effects of the revenue decline on the economy, she said it would depend on those to be appointed into President Muhammadu Buhari’s cabinet and how the country is able  to manage its scarce resources.

She said: “I honestly think it depends on what the outcome of the cabinet approval is going to be. I think it’s been a very difficult period because we’ve had a political transition and it’s taking far longer than anticipated to actually provide clarity over specific key portfolios. I think when we have clarity over the finance ministry, the oil ministry and also power, then they can start to put regulations in place to bring about some type of change.

“At the moment, the short term measures will be to consolidate and rein in expenditure. I am not talking about capital expenditure, but recurrent expenditure. Also, be far stricter on state governments in dispensing funds. So, I think it’s a lot more about being strict around the specific funding that is accruing from the oil and gas industry.”