Friday, January 6, 2012

So how much revenue is the Nigerian government really making and how much of it comes from you?

It is common to hear Nigerians often argue that the Nigerian government is rich and so should take on more responsibilities. This myth has taken hold of the populace as we all engage in a highly emotional debate that have turned almost every Nigerian to an overnight economist. Many Nigerians who have never cared about economic theories are suddenly experts at faulting economic theories.
So is the Nigerian government rich and can it afford subsidizing fuel? As we say in journalism facts are sacred, opinions are trash. So what are the facts about the wealth of the Nigerian government?
Let us examine how rich the government is by looking at the 2012 budget which the National Assembly is yet to approve. The total revenue the Federation (including state and local governments) have to share in 2012 is N9.406 trillion. To get a better perspective of this amount, let us convert it to dollars. At a conservative exchange rate of N155, this total revenue comes down to US$ 61 billion.  This is all the money available for the Federation to provide all the infrastructure needs and pay its (un)civil servants and polit(rick)icians.
Now let us put this Nigerian government total revenue in perspective and compare it with the revenues available to say the government of South Africa. We are using South Africa because it is another African country and the country Nigeria will have to aspire to become in Africa to compete globally.
The South African budget circle runs from March of one year to March of another year, so the figures available are from the 2011/2012 budget of South Africa. The South African governments expected revenue for the 2011/2012 budget circle which ends in March this year is 824 billion rand or US$ 101 billion.  So while Nigerian federation is counting on revenues of US$ 61 billion for a population now estimated at 160 million people, the South African government’s revenue is for an estimated population of 40 million South Africans. The Nigerian government revenue is an average of US$381 per Nigerian, while that of South Africa is US$2,525 per person.
This clearly shows that even barring inefficiencies and corruption in governance in Nigeria, the South African will still end up with a higher standard of living than the Nigerian. If Nigeria were a company, it will rank somewhere in the region of 131 globally in terms of revenues among the top 500 companies in the US. It will have the same ranking as a company like Dell with total revenues of US$ 61 billion in 2011.
Dell which is into the manufacture of computer and computer related products globally, has 103, 300 employees worldwide. So a company with a population (employees in this case) of just about half of one per cent of Nigeria’s population makes as much revenue as Nigeria in a single year. Obviously, if the Nigerian government puts in more effort it could generate more revenues to take care of its vast population.
Let us take a look at where Nigeria’s revenue comes from. Once more the 2012 proposed budget will be a good template. Nigeria is one of the few countries in the world that has almost all its revenues coming from a single source, crude oil. A common feature in all budgets including the 2012 budget is oil price benchmark, the assumed production volume. In the 2012 budget, it is easy to see the government has assumed a benchmark oil price of US$ 75 and crude oil production of 2.38 million barrels per day.
 This comes to roughly about US$ 67 billion an indication that the government will get almost all its revenues from crude oil sales after deducting whatever is due to its joint venture partners. The federation revenue is usually shared almost equally between the Federal government and the States and Local Governments. In the 2012 budget, the Federal government share comes to about US$31 billion while the remaining US$ 30 billion is shared among the States and local governments.  
Unlike, the Nigerian government which earns almost all its revenues from rent seeking activities like crude oil sales, petroleum profit taxes and oil royalties, the South African government earns the bulk of its revenues from non-rent seeking taxes. Tax revenues for the South African government in its 2011/2012 fiscal year alone stood at about US$82 billion almost US$ 22 billion higher than Nigeria crude oil related revenues. A break down revenue sources by South Africa’s Minister of Finance shows that 27 per cent of SA’s tax revenues come from VAT collections (VAT rate is about 16% in SA compared to 5% in Nigeria), Personal Income Tax made up 34 per cent, corporate income tax 19.4 per cent, fuel Levy 5% and excise duties 3.4% with other sources contributing 7 per cent.
So the question is, are Nigerians under taxed? It is difficult to answer as most businesses complain of excessive tax. The question then is if we are really paying these so called excessive taxes, how come it does not end up on government revenue sheet? Corporate income tax and VAT collections are supposed to end up on the Federation balance sheet, but they make up less than 20% of government revenues yet the corporate affairs commission which has a register of all companies says it has over 800,000 registered companies. Are we paying or we bribing away the tax collectors? Who is corrupt, the bribe giver or the briber taker in this case?
The truth is that as long as our tax revenue does not show up on government revenue sheet, we have limited business asking the government what it is doing with the revenues. As old slogan saying goes, “No Taxation without representation.” In other words, taxation goes with representation. Right now the only people that have a right to ask for representation on how the oil revenues are spent are the people of the Niger Delta on whose grounds billions of oil dollars is being explored. They are paying tax in the form of the cost of environmental degradation they are being forced to bear over oil exploration. They have a right to ask how their revenues are being spent. All others should show their claim tag, otherwise no taxation, no representation. 

Below are links on the Nigerian and South African budget. It makes an interesting reading for those that may be interested in examining this issue further.[1].pdf

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