7.5 per cent VAT, others: How will NASS address grey areas in 2020 Budget proposal?
The 2020 budget proposal presented to a joint session of the National Assembly on Tuesday by President Muhammadu Buhari has been dogged by strident criticisms, particularly on the plan to increase Value Added Tax (VAT), borrowing more to close the funding gaps. OSARETIN OSADEBAMWEN and KEHINDE AKINTOLA, in this report, captured how the federal lawmakers tore the budget apart in their deliberations on it.
Before last Tuesday’s presentation of the 2020 budget proposals to the National Assembly by President Muhammadu Buhari, appointed officials of the Federal Government had told Nigerians that the 2020 budget proposal would be markedly different from past years’, including the expiring 2019 budget.
Many Nigerians had consequently invested hope in the budget, especially relying on the promise that job creation and poverty alleviation would be accorded priorities in the budget estimates.
But a few weeks to the presentation, news filtered through to the citizens that they should prepare for a raise of Value Added Tax (VAT) from the current five (5) to 7.5. Officials of government, including the tax chief and chairman, Federal Island Revenue Service (FIRS), Babatunde Fowler, expended a lot of energy explaining the increase to a largely dissatisfied citizenry.
The National Assembly, gauging the mood of the citizens to the proposed increase, cautioned against the raise in VAT. But instead of opposing it outright as Nigerians expected, the lawmakers are proposing what they called communication tax to be charge on telephone communication, data usage by Nigerians and cable television services, with a promise that the proposal would have only but a little impact on the poor.
Both the proposed VAT increase and National Assembly’s offering of a communication tax as an alternative are geared towards increasing revenue for the Federal Government to deliver on its promises in the area of infrastructure, job and wealth creation.
Over the years, the Federal Government has been borrowing heavily to plug funding gaps in national budget, but economic experts have always raised concerns against borrowing to fund overhead and recurrent items as against investing the borrowed funds to heavily fund critical capital projects.
Another area of concern to a large section of the citizenry has been the yearly ritual of increasing budget estimate figures without concomitant increase in the welfare of Nigerians or adequate relieve to the health of the economy.
“What are the performance figures of previous budgets, including the currently running 2019 budget,” queried Nigerians who are clamouring for a paradigm shift in budgets and how the fiscal documents are implemented when passed by the lawmakers.
These arguments for and against budget proposals as touching the prevailing economic realities in the country were resurrected as President Muhammadu Buhari laid the bulky budget document before a joint session of Senators and House of Representatives members on Tuesday, seeking expedited passage of same and a return of the country to the January-December budget circle.
Tagged “Budget of Sustaining Growth and Job Creation,” President Buhari said the 2020 budget would build on the gains on the 2019 budget, describing it as the “Next Level budget.”
The president, in his speech at the presentation, hinted that the desire to return the budget cycle to January to December placed a great deal of pressure on the executive arm of government. The statement was interpreted to mean but for the pressure from the legislature, the budget might not have been presented at the time it was presented.
The import of the statement was to come to the fore at the Second Reading of the 2020 Appropriation Bill. The hard work that President Buhari said went into the preparation of the budget did not meet the expectations of the lawmakers.
As senators interrogated the bill and subjected it to legislative scrutiny for improved performance in implementation, it was one condemnation after the other. They returned a damning verdict on the poor preparation of the budget. This, they believe, would work in reverse of its objectives create more unemployment than it would solve because of its “poorly articulated instruments.”
The concerns bordered on the parameters of the budget: sources of revenue, debt servicing and the new tax policy which according to, Vice Chairman, Senate Committee on Tertiary Institutions and TeTFund, Senator Sandy Onor, is dangerous for the economy. He said Buhari by his own admission stated that receipts from VAT were below expectations due to lower levels of activities in certain economic sectors in the aftermath of national elections. The Senator expressed doubt on the feasibility of increased performance of the 2020 budget.
According to the president, the 2020 appropriation is anchored on four areas to address issues of “fiscal consolidation, to strengthen macroeconomic environment; investing in critical infrastructure, human capital development and enabling institutions, especially in key job creating sectors; incentivising private sector investment essential to complement the governments development plans, policies and programmes; and enhancing our social investment programmes to further deepen their impact on those marginalised and most vulnerable Nigerians.
On these focus areas, Senator Christopher Ekpenyong, Vice Chairman, Senate Committee on Water Resources, described the aspiration as a good dream.
Although Senator Ekpenyoung saw the highlights of the budgets as exemplifying of good dream, he expressed reservation about the possibility of the dream being translated to reality, to the extent that it will positively impact on the economy and the lives of Nigerians. This reservation is shared by other senators across party lines. Their concern emanated from the parameters on which the budget will be funded.
Buhari, while presenting the budget to the lawmakers, had said “The 2020-2022 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) set out the parameters for the 2020 Budget. We have adopted a conservative oil price benchmark of US$57 per barrel, daily oil production estimate of 2.18 mbpd and an exchange rate of N305 per US Dollar for 2020.
“We expect enhanced real GDP growth of 2.93 per cent in 2020, driven largely by non-oil output, as economic diversification accelerates, and the enabling business environment improves. However, inflation is expected to remain slightly above single digits in 2020.
“Based on this, the revenue estimates expected from these parameters to fund the All Progressives Congress-led federal budget of Sustaining Growth and Job Creation. The sum of N8.155 trillion is estimated as the total Federal Government revenue in 2020 and comprises oil revenue N2.64 trillion, non-oil tax revenues of N1.81 trillion and other revenues of N3.7 trillion. This is 7 percent higher than the 2019 comparative estimate of N7.594 trillion inclusive of the Government Owned Enterprises.” The President stated
The president also presented the deficit in the budget projected to be N2.18 trillion in 2020. This includes drawdown on project-tied loans and the related capital expenditure, and argued that “this represents 1.52 percent of estimated GDP, well below the three per cent threshold set by the Fiscal Responsibility Act of 2007, and in line with the ERGP target of 1.96 per cent.
He told the lawmakers that the deficit would be financed by new foreign and domestic borrowings, privatisation proceeds, signature bonuses and draw-downs on the loans secured for specific development projects and for the country to meet its debt service obligations.
Buhari said “accordingly, we provided the sum of N2.45 trillion for debt service. Of this amount, 71 per cent is to service domestic debt which accounts for about 68 per cent of the total debt. The sum of N296 billion is provided for the sinking fund to retire maturing bonds issued to local contractors.
All this, for Senator Ekpenyoung, points to a good dream by the president, but the real issue, according to the lawmaker, are the interpreters of the dream or those who will implement the budget. In the Senator’s view, implementers of the budget may not follow the dream the way it was dreamt by the president. He viewed the introduction of increased taxation as one dangerous for the economy and describing it as anti-people.
While Senator Ekpenyoung saw the 2020 Appropriation Bill as a mere dream of the president lacking good interpreters, Betty Apiafi said the budget is a document that elicits worry because of the premise upon which it is based. More so that 2019 parameters which are closely related to that of the 2020 failed
The Senator representing Rivers West said: “I have some misgivings with the budget proposal of 2020. With a debt portfolio of N20 trillion, debt service of N2.4trn higher than our capital budget of N1.18 trillion. I submit that we are not going to find funds to implement our capital budget.
“I would like us to reflect on 2019 budget where only a paltry sum 294.6billion has been released for capital projects as of September 2019. Most worrisome is that fact as of June, 2019 budget expenditure was already in deficit of N1.35trn. This deficit is what is becoming a problem to the implementing the capital budget.
“Given the same indices that we were using in 2019 to make the same measurement of the 2020 appropriation, it is even more worrisome that we can’t meet our revenue targets. It is also important for us to know that in 2019, we spent N2.14 trillion and in 2020 we are going to spend N2.45 trillion for debt servicing. Debt servicing simply means absorbing the interests not paying to reduce the actual debt.
She continued that therefore “our loan portfolio as of today is about N24 trillion, we have not started paying, but just servicing this is actually becoming more worrisome because every year, if we do not do something drastic, we will keep increasing our debt portfolio and decreasing the debt service.
Her concern on the budget was reinforced in the caution of the leader of the Senate, Senator Abdullahi Yahaya, representing Kebbi North, who, in his lead debate on the first day of the general principles of the appropriation bill laid before the lawmakers for consideration, called for caution and urged his colleagues not to the leave the responsibility of producing a good budget for the country in the hands of the executive.
The Senate leader pointed out that the collapse of the economy will leave all Nigerians, legislators inclusive, with the brunt of such failure, hence the need to bond together and strengthen the budget to boost the productive sector.
Yahaya noted that the country has been tethering on the brink of economic collapse. “You could see the kind of programme that we have and the major problem that we have is that the economy is very short of revenue. We have an economy with a GDP of about N140 trillion out of which we can only get about 10 per cent or less. Now when you look at the budget and the GDP ratio, it is very low. The total Federal Government revenue is at N8.155 trillion. If you add the deficit, the budget comes to about N10.7 trillion.
“The capital budget to GDP ratio is too small. It is just two per cent of the GDP. This is a very low figure indeed. And when we look at it as an issue of investment, it is a mere drop in the ocean. Therefore, it is incapable of stimulating the economy to a higher growth trajectory. That has been the problem of the national economy for more than 30 years.
“We have been tethering on the edge, any small disturbance either in the domestic or international scene, will bring economic crash. When we realize the need to diversify the economy away from oil we also refused to accept the fact that we have to change our approach to revenue generation and even approach to budgeting.
For the leader, “the budget is not all about failings; some positives are there but are very low to provide the needed tonic for economic growth. Other economic parameters which we need to look at when we were in a recession 2016, we were at -2.34 per cent in 2016 and today, in the first quarter, we happen to grow by 1.94 per cent. We could see that the growth trajectory of the economy is very low.
“Of course, we have done well with inflation. We have brought it down to 18.72 per cent to around 11.22 per cent. Our balance of payments is positive. Exchange rate has been stable, foreign reserve has been raised from $25 to $44.2bn by March 2019. Capital importation has increased. Foreign direct investment has been returning. Confidence on the economy we can say high in the medium.”
In spite these, the Senate leader pointed out that there was still need for more work by all arms of government, especially for the legislature and the executive to be more innovative to close the gap between population growth and economic growth.
He noted that diversification of the budget must be a matter of necessity and be given serious attention to boost industries to support the economy and population growth. The borrowing programmes projected at 1.3 trillion could be good starting point, but there are a lot of foreign loan sources that could agree on a reasonable concessionary terms that government should explore to further weaken down the ratio.
“The major problem with our economy is that our economic growth rate is about 2.93 per cent and the population is growing at about 2.6 per cent. Therefore, you can see from this that we are only marginally above the growth rate of the population. This is a very low performance for an economy of this size.
The projections on oil production averaging on 2.18mbpd in the medium term are subject to very high risks that may have devastating consequences in recent times. Volatility in the oil market and Niger Delta is a factor that make these projections only tentative.
The Senate leader left the administration a counsel to make good the budget “Relating directly to this issue is the case of debt servicing burden, this is self evident. That sinking cheap funds abroad would reduce the burden of borrowing to pay huge domestic debts. This could undermine growth by denying the real sector access to cheap domestic growth.
“The 2020 capital expenditure of 2.46 trillion is very bulky the pace of fund releases to the MDA’s in the 2019 budget is a quantum leap effort, notwithstanding the full recoveries from the recent recession.
“Government particularly, the revenue agencies, must ensure that they improve their collection capacities and to do this there must be robust investments in the real sector to grow to taxable revenue. Debt service, as a percentage of capital expenditure, is very high. The percentage of revenue will be diminishing only if we dedicate ourselves to raising more revenue. First, I suggest, by investing in the real sector to grow the economy and create employment and productivity.
“Secondly by broadening the tax base in order to capture more revenue sources; improving our transparency reduce pilferage and leakage and intensify the drive against corruption and by ensuring there is security for economic actors both local and foreign. The issue of economic policy cannot be left to the people in the executive. We have to think out of the box from this chamber to make the relevant laws in order for this economy to generate revenue.
When the Minority Leader of the Senate, Senator Enyinnaya Abaribe, stood to speak, he simply commended the courage of the Senate Leader to have spoken the mind of the Nigerians, identifying the challenges in the budget and calling on the Senate to see the taxation budget.
He insisted that the budget that should have been speaking more about boosting investment to create the jobs to be taxed. Abaribe said “the biggest low that we have is the fact that, how would you talk about job creation when you do not invest in what would create jobs? Debt servicing as a component is higher than capital expenditure, N2trillion for capital expenditure, N2.4 trillion for debt servicing.
“The projected growth, as read by the president, is 1.9% less than the population growth of 2.6% so if you look at it globally we are still struggling that is why I was very happy when the senate leader said we may have to take over and redirect the economic policy of this government having seen that they have not done anything that they have failed.
Abaribe, like others, pointed out that the oil price assumption was too ambitious and exposed the Nigerian economy to dangerous path. He said it was more dangerous that the projection is based on the crisis in the Middle East would lead to spike in the oil revenue. He said that means “our projections for the oil price may also be off the mark, second one is our projections for the production levels daily. Last year, the average production level was 1.8m barrels per day. Why don’t we keep it there? Why must we go to 2.1m only to be disappointed at the end of the day?”
He maintained that the budget was not sustainable neither can it provide jobs and urged the senators to be very dispassionate in their assessment of the budget and tweak it to meet the public good and economic growth.
“I plead with my colleagues to look at the facts because you cannot run away from facts and the facts say this is not a sustainable budget. The fact says this is not a sustainable budget. The facts also tell us where we are going if we need a change we must be able to look at the critical fundamentals of this budget speech and make adjustments.
Reinforcing Abaribe’s view on the budget as that of taxation, Senator Sandy Onor pointed out that there have been serious criticisms by many companies and industries on the proposed VAT, wondering how the new tax regime being proposed will make for good governance and growth of the economy.
“Today, VAT is being moved to 7.5 per cent and this calls for concern. If you look at the president›s speech, item number 18 says “receipts from the VAT were below expectations due to lower activities in certain economic sectors in the aftermath of the national elections. I see the phrase ‘in the aftermath of the national elections,’ deployed just to colour the already articulated and very grim situation that speaks to the issue of certain economic sectors.
“If yesterday, when VAT was 5 per cent, we experienced this lower levels of economic activities, today that VAT is 7.5 per cent, we risk not having economic activities at all and the consequences are dangerous. Even the financial plan that is being proposed has made it clear that aspects of taxation, especially now that our economy is not doing too well, will not do any good to our economy.
“If you look at Item (a) in the proposed bill you will see and it reads in the president›s speech that ‘promoting fiscal equity by mitigating instances of progressive taxation.’ If you ask me, I think the plan to increase take is clearly an instance of recessive taxation. This situation of increasing VAT is a short cut economic recovery. It smacks of intellectual laziness and like all short cuts, I do not think it will drive this country in a proper direction.
“I believe that one of the intricate consequences of this VAT increase will be unemployment and a lot of our youths are caught in acute despondency. We need to expand our economy and economic handlers must look for original ways that will not do our economy further harm and spur productivity and ensure that our youths are employed,” he said.
Like their counterparts in the Red Chamber, members of the House of Representatives raised concerns over the ambitious proposals contained therein. In fact, the Representatives never minced words over the need to redistribute the proposed N10.33 trillion fiscal allocations to critical sectors of the economy.
The recurrent expenditure figure n the budget includes N3.6 trillion for personnel and pension costs, an increase of N620.28 billion over 2019. On the other hand, Federal Government›s revenue was pegged at N8.155 trillion, which comprises oil revenue worth N2.64 trillion, non-oil tax revenues of N1.81 trillion and other revenues of N3.7 trillion. This is 7 percent higher than the 2019 comparative estimate of N7.594 trillion inclusive of the Government Owned Enterprises.
Some of the experienced lawmakers mainly from Peoples Democratic Party (PDP) and a handful from the All Progressives Congress (APC) never minced words on some of the lacuna observed in the processes adopted so far.
Of great concern was the issue bothering on the inadequate capacity of MDAs to implement the capital component of the Appropriation Act which has over the years attained below 40 percent, and offered no commensurate results and values to the country›s infrastructural and socio-economic development and invariably the well-being of average Nigerians.
As alluded to by President Buhari, the “revenue performance is only 58 per cent of the 2019 budget’s target due to the underperformance of both oil and non-oil revenue sources. Specifically, oil revenues were below target by 49 per cent as at June 2019.”
The first flak came from Honourable Kingsley Chinda, immediate past chairman, House Committee on Public Accounts, who raised a point of order on the need to avail members with copy of the budget estimates to enable them make informed contributions in line with legislative practices. But his observation was short-lived as the Speaker, Femi Gbajabiamila, ruled him out of Order. Other lawmakers who spoke on the need to redirect expenditure for 2020 fiscal year include Honourable Olajide Obanikoro
Of course, as of Wednesday, the information before the lawmakers about the 2020 budget estimates was skeletal and couldn›t be suffice to enable them make meaningful contributions to the budget. Howbeit Speaker Gbajabiamila was of the opinion that further legislative inputs would be made at various engagements with the accounting officers, including supervising ministers, Permanent Secretaries and Heads of Departments and agencies who are expected to appear before the standing/sub-committees throughout the month of October 2019. Of course, it was explicitly declared that the budget defence will not exceed the October window period.
Afterwards, quite a number of the lawmakers, who spoke on the skeletal information, called for more funding for health and education sectors
With the president’s submission while addressing the joint session, that the “2020 budget is expected to accelerate the pace of our economic recovery, promote economic diversification, enhance competitiveness and ensure social inclusion, we are optimistic of attaining higher and more inclusive GDP growth in order to achieve our objective of massive job creation and lifting many of our citizens out of poverty.”
“There is no way such ambition can be achieved without studying and scrutinising the proposed allocations to various sectors and the templates adopted by the executive.
While venting his view, Honourable Obanikoro, who called for improved funding to the health sector, stated that this would give Nigeria a functioning health system and get people to come from other nations to the country for medical tourism like India enjoys today.
In his presentation, chairman, House Committee on Basic Education, Honourable Julius Ihonvbere, while commending the executive on the early presentation and attention to details in the budget proposal, however, called for a higher level of investments in the empowerment of women who have proven to be better economic managers, as well as better investments into technical and vocational training to make the workforce more productive and turn them to be employers of labour.
Also speaking, Minority Leader, Hon. Ndudi Elumelu called for a budget implementation that would succeed in practically lifting the economic affairs of Nigerians, and not just on paper.
On his part, Hon. Yusuf Gagdi who called for paradigm shift in the budgetary process, expressed optimism that the 9th Assembly can say things will be done differently as it relates to budgeting, just as he queried why debt servicing still takes a huge chunk of the budget.
“The poor allocation to relevant MDAs reflects why they also perform poorly compared to their counterparts from other African countries,” he lamented.
In his intervention, Deputy Minority Leader, Honourable Toby Okechukwu, decried the way capital expenditures have been reduced by 23 per cent while taxation on Nigerians was increased without the approval of parliament, a development, he said, does not represent progress.
Also speaking, the chairman, House Committee on Aviation, Honourable Nnolim Nnaji, called for the development of infrastructure, especially in the aviation sector which is the first port of call for prospective investors coming into Nigeria.
In the same vein, Honourable Kolawole Taiwo proposed the development of non-oil sectors such as mineral exploration, extraction and development to boost the nation›s revenue generation base. He also called for the completion of abandoned, but critical developmental projects that will directly impact the lives of Nigerians.
Similarly, Honourable Yusuf Sununu, called for the implementation of the 15 per cent budgetary allocation to healthcare as stipulated by the declaration to which Nigeria is a signatory.
He also called for better funding as investments for revenue-generating sectors such as agriculture, just as he harped on the need for proper oversight by committees of the House to ensure a better level of fund release and implementation.
Also speaking, chairman, House Committee on Media and Public Affairs, Honourable Benjamin Kalu who commended the early submission of the 2020 budget as one that raises the confidence of the private sector and gives a clear vision for the coming year, however, decried the inability of the nation to meet its tax revenue target which may have led to the increase in Value Added Tax (VAT). This, he stated, is an increase in the tax burden on the populace.
He also called for the encouragement of local businesses by increased local patronage for their products.
In his remarks, Honourable Yusuf Buba Yakub called on the government to start thinking outside the box as the annual budget cycle cannot take care of the human and infrastructural challenges of the nation, just as he enjoined the private sector to participate more in the national economic development drivem, especially in food security and sufficiency as well as industrial development.
In his brief remarks, Honourable Olanrewaju Kunle, while bemoaning the lip service paid to actual economic diversification, warned that unless investments are made in factories that can transform agricultural produce into finished products, no significant revenue can be generated from the agricultural drive, hence the need for agro-related industrial development.
As earlier agreed, the House eventually passed the 2020 Appropriations bill through Second Reading on Thursday and referred to the House Committee on Appropriations and all other Standing Committees to serve as sub-committees for further legislative inputs.
Now that the lawmakers are expected to deliberate on the details of the fiscal document throughout the rest of October, Nigerians wait on the National Assembly members to see how they will address the issue of VAT increase and the proposed communication tax, as well as the continued borrowing by the government to fund consumption against the background of the prevailing economic realities. They also want to see how the budget, not merely the big figures in it, will stimulate economic recovery and improve their living conditions.