wp-signups.php Public Finance Archives - Centre for Social Justice https://csj-ng.org/tag/public-finance/ mainstreaming social justice in public life Tue, 22 Dec 2020 07:20:38 +0000 en-US hourly 1 https://wordpress.org/?v=6.9.4 https://csj-ng.org/wp-content/uploads/2024/03/cropped-CSJ-Favicon-1-32x32.png Public Finance Archives - Centre for Social Justice https://csj-ng.org/tag/public-finance/ 32 32 CSJ criticizes the amendment of 12 Fundamental Economic Acts with just one Bill(Finance Bill 2020) https://csj-ng.org/csj-criticizes-the-amendment-of-12-fundamental-economic-acts-with-just-one-billfinance-bill-2020/ https://csj-ng.org/csj-criticizes-the-amendment-of-12-fundamental-economic-acts-with-just-one-billfinance-bill-2020/#respond Tue, 22 Dec 2020 07:20:38 +0000 https://csj-ng.org/?p=222771 News CSJ criticizes the amendment of 12 Fundamental Economic Acts with just one Bill Share on facebook Share on twitter Share on whatsapp Share on telegram The lead director of the Centre for Social Justice, Eze Onyekpere on the Tuesday 15th December 2020, along side other CSJ staff addressed the media on the NGO’s stand...

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CSJ criticizes the amendment of 12 Fundamental Economic Acts with just one Bill

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Finance bill Memorandum by CSJ

The lead director of the Centre for Social Justice, Eze Onyekpere on the Tuesday 15th December 2020, along side other CSJ staff addressed the media on the NGO’s stand on the 2020 finance bill, which was passed by the senate on the 15th of December 2020. The Lead Director in his statement, condemned the move by the National Assembly, describing it as an ambitious attempt to amend 12 Acts with just one bill. The 12 Acts include Capital Gains Act, Companies Income Tax Act, Personal Income Tax Act, Tertiary Education Trust Fund (Establishment) Act, Customs and Excise Tariff, etc. (Consolidated) Act, Value Added Tax Act, Federal Inland Revenue Service (Establishment) Act, Nigeria Export Processing Zone Act, Oil and Gas Export Free Zone Act, Fiscal Responsibility Act, Companies and Allied matters Act and the Public Procurement Act.

The lead director said “It is simply too ambitious to propose to amend 12 Acts of the National Assembly (NASS) with just one Act of 39 pages. The competencies and expertise required to attend to the subjects covered by these laws are too wide to be considered in just one amendment Bill. Furthermore, these laws are too fundamental to our economic management to contemplate amending them in a hurry. They require due contemplation and deep consultation with stakeholders. Their presentation and consideration as single bills should be considered on their merits. Lumping them together serves no useful purpose.”

The Lead Director then went further to advice the other arm of the National Assembly yet to pass the bill to seek the right competences when considering the bill, given its broad scope. Although it took the Senate about 2 weeks to complete the entire process, Mr. Eze advised the other arm of the National Assembly to spend more time on the bill so as to enable them consider all angles, to avoid creating problems for the future.

Mr. Eze went further to criticize some parts of the bill. One of such parts is the increase in the mobilization fee for contracts to thirty percent (30%). He described this move as opening doors for unfinished contracts to thrive since most contracts have a profit margin of less than 30%. He said this move will encourage contractors to abandon projects at very early stages.

The Lead Director discussed the proposed amendment to the procurement Act. The proposed amendment seeks to create second level approving authorities: The Federal Executive Council for the Executive; the National Assembly Tender’s Board for the Legislature; and the National Judicial Council Tender’s Board for the Judiciary. He said that there is only one government, one treasury/ministry of finance, and that procurement need not reflect the three arms of government. Eze Onyekpere also said that the proposed bill runs contrary to best practices. Nigeria’s Country Procurement Assessment Report June 2000 had warned against this. The Report had recommended as follows:

“Once a law on public procurement has been enacted and regulations, manuals and standard bidding documents issued, carrying out public procurement including contract awards will clearly be an administrative function, the mechanics of which should be disengaged from the executive. Currently, high level politicians such as Governors, Ministers and Commissioners are operationally involved in the procurement process. However, under the reformed procurement system, high level politicians should maintain their overall managerial oversight responsibilities while leaving administrative and operational matters (including procurement) to the civil servants.”

When this recommendation is juxtaposed with the intended amendment, it becomes quite easy to assert that this amendment is not in line with best practices. The implication of continuing on this new path may lead to a situation where the President of the Federal Republic or the Chief Justice of Nigeria will be cited for procurement fraud. Furthermore, the proposed amendment still makes reference to a Council everyone knows does not exist.

Finally, the Lead Director then said a more concise document detailing the recommendations CSJ is proposing will be submitted to the House of Representatives to enable them consider the bill from a different light.

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]]> https://csj-ng.org/csj-criticizes-the-amendment-of-12-fundamental-economic-acts-with-just-one-billfinance-bill-2020/feed/ 0 222771 Nigeria’s revenue challenge and tax expenditures https://csj-ng.org/nigerias-revenue-challenge-and-tax-expenditures/ https://csj-ng.org/nigerias-revenue-challenge-and-tax-expenditures/#comments Mon, 02 Nov 2020 11:32:33 +0000 https://csj-ng.org/?p=219100 Blog Nigeria’s revenue challenge and tax expenditures Share on facebook Share on twitter Share on whatsapp Share on telegram In the last couple of weeks, the #EndSARS campaign and its issues have taken public attention away from Nigeria’s economy and economic governance challenges. Some of the economic issues that have arisen since then are so...

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Nigeria’s revenue challenge and tax expenditures

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revenue

In the last couple of weeks, the #EndSARS campaign and its issues have taken public attention away from Nigeria’s economy and economic governance challenges. Some of the economic issues that have arisen since then are so grave that they demand urgent attention and engagement by citizens for the security and welfare of Nigerians to have any meaning as anticipated by the Constitution of the Federal Republic of Nigeria 1999 (as amended). This discourse intends to engage the revenue challenge of the three tiers of government against the background of the disclosure of the current status of tax expenditures. The disclosure which fleshed out the President, Major General Muhammadu Buhari (retd.)’s 2021 budget speech was made by the Minister for Finance, Budget and National Planning on the occasion of the 2021 budget explanations and breakdown to the media, private sector and civil society. It is available on the website of the Budget Office of the Federation.

In the President’s speech, he indicated that the executive would for the first time prepare a Tax Expenditure Statement which will accompany the budget estimates to the National Assembly. This is a welcome development that seeks to comply with Section 29 (1) of the Fiscal Responsibility Act. It will increase transparency and accountability in public revenue and opens this rather opaque area of economic governance to public scrutiny.The section states that: “Any proposed tax expenditure shall be accompanied by an evaluation of its budgetary and financial implications in the year it becomes effective and in the three subsequent years, and shall only be approved by the minister, if it does not adversely impair the revenue estimates in the annual budget or if it is accompanied by countervailing measures during the period mentioned in this subsection through revenue increasing measures such as tax rate raises and expansion of the tax base”. But what is a tax expenditure?

Tax expenditures are equivalents of appropriating public revenue for the specific use of particular individuals or class of taxpayers. Experts from the International Budget Partnership have defined tax expenditure as: “Tax expenditures are usually defined as a government’s estimated revenue loss that results from giving tax concessions or preferences to a particular class of taxpayer or activity. The revenue loss, or “expenditure,” is calculated as the difference between whatever tax would have been paid under a defined benchmark tax law (which identifies what tax structure should normally apply to taxpayers) and the lower amount that was actually paid after the tax break. Tax expenditures are used instead of direct spending to deliver a government subsidy to a class of taxpayer or encourage a desired activity. They can take many forms, including tax exemptions; tax deductions; tax offsets (or credits); and concessional tax rates or timing rules, such as accelerated depreciation of capital assets, that either reduce or defer a taxpayer’s tax liability”.

From the foregoing, tax expenditures are as good as appropriating money in a budget and allocating it to certain named natural or artificial persons. These are public revenues that should have accrued for the use of all Nigerians but foregone by government to serve certain supposedly higher public ends. These higher ends include promotion of economic growth and welfare – manufacturing and value addition, employment, diversification of the economy, etc. The expectation is that these entities need to be supported when they start as pioneers or engage in economic activities very critical to national development and in future, the economy will immensely benefit from the tax breaks, concessions, waivers, etc., they got.

Tax expenditures are currently estimated as follows: Companies income tax at N1.18tn; value added tax at N3.1tn; customs duties at N347bn and VAT on imports N64bn bringing the total to N4.691tn. With the huge deficit incurred by the Federal Government and the states over the years and the level of public debt, it is imperative that tax expenditures be reviewed in the nearest future. Indeed, if possible, the review should be done by the 2021 Finance Act. The justification is as follows: Actual CIT available to the Federation Account (before deductions) for sharing by the three tiers of government was N1.517tn in 2019 and N1.429tn in 2018. Incurring a CIT tax expenditure of N1.18tn means retaining 56.2% and giving away 43.8% of due CIT in 2019. The tax expenditure as a percentage of the accrued CIT is 78%. Actual VAT available to the Federation Account (before deductions) for sharing by the three tiers of government was N1.141tn in 2019 and N1.046tn in 2018. Incurring a VAT tax expenditure of N3.1tn in 2019 meant retaining only 26.9% of due VAT while giving away 73.1%. The tax expenditure is 353% of the accrued VAT. Furthermore, actual Customs duties available to the Federation Account (before deductions) for sharing by the three tiers of government were N792.06bn in 2019 and N657.88bn in 2018. Incurring a VAT tax expenditure of N347bn in 2019 meant retaining only 69.5% of due customs duties while giving away 31.5%. The tax expenditure is 43.8% of the accrued customs duties.

The foregoing raises the poser; is it reasonable and prudent to give away N4.691tn as tax expenditure at a time the 2021 budget estimates have a deficit of N5.196tn which exceeds the three per cent of the GDP rule in the FRA while we propose to borrow N4.2tn in new debt? The answer to this poser is overwhelmingly in the negative as it is a very unreasonable path to follow. This development throws up another issue. If these entities have been benefitting from tax expenditures over the years, where is the cost benefit analysis of the foregone taxation and benefits to these entities vis a vis the expected benefits to the nation in terms of economic development and expansion, new jobs and increased tax revenue after the expiration of previous tax expenditures. Since our revenues have been stagnated over the years and we are still singing the mantra of economic diversification, on the face of it, it appears we have been foregoing public revenue without the intended benefits accruing over time,

It is therefore time to start the process of reviewing these tax expenditures. The National Assembly and the Ministry of Finance are therefore called upon to amend the requisite laws and policies and take action to reduce the tax expenditures. There is a need to reduce the tax expenditures to not more than 20% of total estimated value of each tax category. Again, it is pertinent to compel entities that have benefitted from these tax breaks to keep their own side of the bargain by taking appropriate steps that will benefit the economy. Future tax expenditures must be accompanied by detailed deliverables with benchmarks and indicators of progress by the entities to the economy as a condition for them to benefit from public revenues.

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