Luxury tax to fetch N10.56bn as FG unfolds 2015 budget

The Nigerian government, in 2015 hopes to raise N10.56 billion additional revenue from levies on luxury items – one of the strategies it is adopting to shore up revenue to manage the economy in the light of present shocks coming from falling oil prices.

Ngozi Okonjo-Iweala, co-ordinating minister for the economy and minister of finance, announced that beginning next year, a 10 percent import surcharge would be imposed on new private jets and that this is estimated to yield about N3.7 billion to the federation revenue.

The government has also slammed a

39% import surcharge on luxury yachts, which is estimated to potentially raise N1.6 billion in 2015; and 5 percent import surcharge on luxury cars, also estimated to yield about N2.6 billion of additional revenues.

There would be a surcharge on business and first class tickets on airlines, going forward, as well as the imposition of 3 percent luxury surcharge on champagne, wines and spirits, to generate about N2.3 billion in 2015.

The CME also announced a one percent FCT Mansion Tax on residential properties with value of N300 million and above, which should yield additional N360 million.

“These surcharges would yield a total of about N10.56 billion in 2015,” she said yesterday, as she publicly presented the already N4.46 trillion 2015 proposed budget which had been delayed as government tried to figure out the appropriate budget oil benchmark in the present uncertain times.

The minister said these would go a long way to support the economy and provide Nigeria a responsible pathway to overcoming the limitations of falling oil revenues without disproportionately affecting the poor-to-middle class.

The minister signaled that in the medium term, tax policy would be reviewed, which could see the Value Added Tax (VAT) at 5 percent currently raised by another 5 percent as she argued that Nigerians, as at today still pay the lowest VAT all over the world.

“Nigeria has one of the lowest VAT rates in the world and medium term.

“A 5 percent increase in VAT rate for instance, would yield N614 billion, most of which would go to the states and local governments,” the minister stated.

She further disclosed that Tax Waivers and exemptions is another component that the government is looking at to ramp up revenue, as analysis shows that about 30 percent of those that received tax waivers from government, especially under the pioneer status scheme, now abuse the system.

As a short-term measure, she said that the Government has already commenced a review of the implementation of pioneer status exemptions to some oil companies which could unlock up to N36 billion of additional tax revenues in 2015.

She also hinted that in 2015, the government would be ramping up the FIRS/McKinsey initiative to hopefully contribute an extra N160 billion in tax receipts and an aggregate of about N460 billion over and above the 2014 levels in the 2015-2017 period.

Meanwhile, the tax effort has so far already yielded additional non-oil revenue of about N143 billion for Government in 2014.

The government is instituting measures aimed at improving spending, which according to her would save a total of N82.5 billion.

The 2015 budget contains proposed cuts to International Travels and Training by 50% for all MDAs, saving about N14 billion, while other provisions for overhead expenditure have been dropped completely – saving about N4 billion.

Administrative Expenditures for Buildings, Equipment, Supplies, etc: MDAs’ provisions for the procurement of administrative supplies and equipment will be cut to bring in an extra saving about N5 billion, Okonjo-Iweala said.

Procurement and upgrade of buildings were similarly curtailed, saving about N44 billion, while another N76 billion is proposed for reallocation to more impactful programmes of Government in and provide Nigeria a responsible pathway to overcoming the limitations of falling oil revenues without disproportionately affecting the poor-to-middle class.

The minister signaled that in the medium term, tax policy would be reviewed, which could see the Value Added Tax (VAT) at 5 percent currently raised by another 5 percent as she argued that Nigerians, as at today still pay the lowest VAT all over the world.

“Nigeria has one of the lowest VAT rates in the world and medium term.

“A 5 percent increase in VAT rate for instance, would yield N614 billion, most of which would go to the states and local governments,” the minister stated.

She further disclosed that Tax Waivers and exemptions is another component that the government is looking at to ramp up revenue, as analysis shows that about 30 percent of those that received tax waivers from government, especially under the pioneer status scheme, now abuse the system.

As a short-term measure, she said that the Government has already commenced a review of the implementation of pioneer status exemptions to some oil companies which could unlock up to N36 billion of additional tax revenues in 2015.

She also hinted that in 2015, the government would be ramping up the FIRS/McKinsey initiative to hopefully contribute an extra N160 billion in tax receipts and an aggregate of about N460 billion over and above the 2014 levels in the 2015-2017 period.

Meanwhile, the tax effort has so far already yielded additional non-oil revenue of about N143 billion for Government in 2014.

The government is instituting measures aimed at improving spending, which according to her would save a total of N82.5 billion.

The 2015 budget contains proposed cuts to International Travels and Training by 50% for all MDAs, saving about N14 billion, while other provisions for overhead expenditure have been dropped completely – saving about N4 billion.

Administrative Expenditures for Buildings, Equipment, Supplies, etc: MDAs’ provisions for the procurement of administrative supplies and equipment will be cut to bring in an extra saving about N5 billion, Okonjo-Iweala said.

Procurement and upgrade of buildings were similarly curtailed, saving about N44 billion, while another N76 billion is proposed for reallocation to more impactful programmes of Government in the security, health, and education sectors.

We have also commenced partial implementation of the Government’s Whitepaper on the rationalisation of Agencies based on the Oronsaye Report.

We have built in savings of about N6.5 billion in the 2015 Budget from the rationalisation of some agencies, committees, and commissions.

Nevertheless, medium term measures require greater efforts to cut the cost of governance across all tiers and branches of government. This requires support from the legislature to amend laws underpinning certain agencies.

A list of such laws will be submitted to the National Assembly for consideration by the second quarter of 2015.

Meanwhile, government is projecting to raise its Internally Generated Revenue (IGR) receipts to N450 billion for 2015 which Okonjo-Iweala said would be another reliable source of funding for the economy.

Over the last three years, government had intensified efforts to increase its independently generated revenues (IGR) and has in fact, sustained an upward trajectory in IGR receipts.

Okonjo-Iweala said the efforts saw continued rise in actual receipts, from about N182 billion in 2011 to N274 billion in 2013 and then, N328 billion as of October 2014.

She however said while this is encouraging, there are still leakages and incidences of non-remittance of requisite funds to Treasury by some agencies.

A fundamental restructuring of budgets is required at Federal and State levels if fiscal sustainability is to be achieved in the nation’s economy going forward. The high ratio of recurrent to capital spending must be reversed going forward.

Based on these parameters, the 2015 Budget envisages a net federally collectible revenue of N6.9 trillion.

Of this, a total of N3.6 trillion is envisaged to fund the FGN 2015 Budget, representing about 3.4 percent drop from N3.7 trillion for 2014 Budget.

This is with more emphasis on non-oil revenue sources to partly compensate for the shortfall in actual oil revenue.

Based on the foregoing, the FGN 2015 Budget has an Aggregate Budget Revenue of N3.602 trillion made up of: oil revenue of N1.918 trillion and non-oil revenues of N1.684 trillion (implying a ratio of 53 percent oil revenues to 47 percent non-oil) to fund an Aggregate Budget Expenditure of N4.358 trillion proposed for 2015 Budget, some 8 percent less than in 2014 Appropriation.

Businessday