FG targets $1.5bn revenue from new deep offshore contract
• Initiates 2 Petroleum Industry bills • Rolls out list of exempted consumable goods from 7.5% VAT • Partners Germany on generation of 25 Gigawatts of electricity
President Muhammdu Buhari on Tuesday unveiled plans to increase the nation’s revenue and generate a whopping sum of $1.5 billion from the oil sector in the next two years.
The President who disclosed this while addressing the joint session of the National Assembly where he formally laid the 2020 budget proposal for a legislative scrutiny, explained that the proposed revenue is expected to accrue from government’s share of the Deep Offshore and Inland Basin Production Sharing Contract.
He also informed the National Assembly of his plan to transmit an amendment bill for the proposed increase of the VAT rate from 5% to 7.5%, just as he reeled out list of consumable goods exempted from the new tax regime, including Brown and White Bread; Cereals including Maize, Rice, Wheat, Millet, Barley and Sorghum; Fish of all kinds; Flour and Starch Meals; Fruits, Nuts, Pulses and Vegetables of various kinds; Roots such as Yam, Cocoyam, Sweet and Irish Potatoes; Meat and Poultry Products including Eggs; Milk; Salt and Herbs of various kinds; and Natural Water and Table Water.
“Furthermore, completing the reforms to the governance and fiscal terms of the Petroleum Industry will provide certainty and attract further investments into the sector. A consequence of this will be an increase in jobs and in the government’s take. I, therefore, seek your support in passing into law two Petroleum Industry Executive Bills I will be forwarding to you shortly.
“In addition, we need to quickly review the fiscal terms for deep offshore oil fields to reflect the current realities and for more revenue to accrue to the government. The Deep Offshore and Inland Basin Production Sharing Contract (Amendment) Bill 2018, was submitted to the 8th National Assembly in June 2018 but was unfortunately not passed into law.
“I will be re-forwarding the Bill to this Assembly very shortly and therefore urge you to pass it. We estimate that this effort can generate at least $500 million in additional revenue for the Federal Government in 2020 and over $1 billion from 2021.
“Whilst the Budget is our principal fiscal tool to achieve these socio-economic development targets, we remain committed to prudently planning for our future economic prosperity. In this regard, I have directed the reconstituted Ministry of Finance, Budget and National Planning to commence preparations towards the development of successor medium – and long-term economic development plans, particularly as the Nigeria Vision 20-2020 and the ERGP expire next year.
While acknowledging that Government’s actual spending on capital projects has reduced, President Buhari also unveiled his administration’s plan to leverage private sector funding through our tax credit schemes will ensure our capital programmes are sustained.
“For example, we launched the Road Infrastructure Tax Credit Scheme, pursuant to which I have approved the construction and rehabilitation of 19 Nigerian roads and bridges of 794.4km across 11 States. Indeed, the Scheme has attracted private investment of over N205 billion and the first set of tax credits are being processed by the Federal Ministry of Finance, Budget and National Planning.
On the power sector, President Buhari unveiled the administration’s 3-year plans to “modernise the National Grid in 3 phases; starting from 5 Gigawatts to 7 Gigawatts, then to 11 Gigawatts by 2023, and finally 25 Gigawatts afterwards in collaboration with the German Government and Siemens.”
While speaking further on the proposed 2.5% hike in VAT, President Buhari disclosed that the “2020 Appropriation Bill is based on this new VAT rate. The additional revenues will be used to fund health, education and infrastructure programmes. As the States and Local Governments are allocated 85% of all VAT revenues, we expect to see greater quality and efficiency in their spending in these areas as well.
According to him, the VAT Act already exempts pharmaceuticals, educational items, and basic commodities, which exemptions we are expanding under the Finance Bill, 2019. Specifically, Section 46 of the Finance Bill, 2019 expands the exempt items to include: Brown and white bread; Cereals including maize, rice, wheat, millet, barley and sorghum; Fish of all kinds; Flour and starch meals; Fruits, nuts, pulses and vegetables of various kinds; Roots such as yam, cocoyam, sweet and Irish potatoes; Meat and poultry products including eggs; milk; salt and herbs of various kinds; and natural water and table water.
“Additionally, our proposals also raise the threshold for VAT registration to N25 million in turnover per annum, such that the revenue authorities can focus their compliance efforts on larger businesses thereby bringing relief for our Micro, Small and Medium-sized businesses.
“It is absolutely essential to intensify our revenue generation efforts. That said, this Administration remains committed to ensuring that the inconvenience associated with any fiscal policy adjustments, is moderated, such that the poor and the vulnerable, who are most at risk, do not bear the brunt of these reforms,” he told the federal lawmakers.
President Buhari also reiterated renewed commitment towards ensuring the efficiency of port operations which will also be enhanced by implementing a single customs window, speeding up the vessel and cargo handling and issuing more licenses to build modern terminals in existing ports, especially outside Lagos.