The FG Records N3.67 Trillion Deficit in the First 9 Months of 2019; Total Revenue at 48% of Total Expenditure

An Overview

The Nigerian economy is simply divided into two- the oil and non-oil sector, as such, revenue is also basically divided into the oil and non-oil sector. While the oil sector contributes less than 10% to the country’s GDP, the Non-Oil sector contributes about 90% to the entire GDP. However, the reverse is the case when it comes to earnings as the oil sector over the years, have been contributing more than 90% to the export earnings of the country.
In the case of generating revenue for the country, the Nigerian Government has seen the need to diversify the earnings of the country due to the fluctuation in the international price of crude oil which has been dictating the revenue movement of the country over the years. A peep into the 9 months fiscal operations of the government has shown that though the oil sector still dominates in terms of contribution to the revenue base of the government, the margin is getting reduced as the non-oil sector contributed 47% to the gross revenue, thereby leaving the oil sector with a contribution of 53%.
It is in light of the above, that this analysis provides a look into the financial operations of the government in the first 9 months of 2019, as well as ranks the revenue sources to provide knowledge of the sources that contribute more to the entire gross revenue. The analysis therefore ends by providing more data on the monthly performance of the government in terms of revenue and expenditure.

Gross Revenue in 9 Month is N7.46 trillion with 53% Coming from Oil Revenue

In the first 9 months of 2019, general government revenue amounted to N7.46 trillion and this is 7.9% more than gross revenue in 2015 and 32.7% more than the gross revenue of 2016. While the oil sector contributed N3.97 trillion to this amount, gross non-oil revenue was N3.49 trillion during the same period.

Based on the data obtained from the CBN

And with a total real GDP of N51.81 trillion in the first 9 months of 2019, Nigeria’s total gross revenue to real GDP stands at 14%. When compared to the nominal GDP of N104.55 trillion, it means total gross revenue to nominal GDP for the first 9 months of 2019 is 7%.

66.3% of Gross Oil Revenue Comes from Petroleum Profit Tax and Royalties, 9 Times More than Revenue from Crude Oil and Gas Export

Nigeria’s oil revenue majorly comprises of crude oil and gas exports, Petroleum Profit Tax and Royalties, as well as domestic crude oil and gas sales. Other components of Nigeria’s oil revenue are education tax, National Information Technology Development Fund (NITF), solid minerals and other mining revenue, all of which averagely contributes less than 10% to gross oil revenue in each month. Petroleum Profit Tax (PPT) and Royalties however, are the major contributors to the gross oil revenue.
As an insight, PPT is a tax charged on the income of companies that are engaged in oil exploration in the country (operations in the upstream aspect of the petroleum sector). For companies that are under the Production Sharing Contract with the NNPC, they are charged 50% of their profit as tax. However, those that are not under the Production Sharing Contract are taxed 85% after the first five years of operation.

Based on the data obtained from the CBN

In October 2019, Petroleum Profit Tax and Royalties contributed N319.9 billion (representing 55%) to the total gross oil revenue of N577.3 billion in the same month. In the 9 months, the country earned N3.97 trillion as gross oil revenue with N2.63 trillion coming from PPT and Royalties.
Furthermore, gross oil revenue was highest in March 2019, when the oil revenue hit N516.9 billion from N479.5 billion recorded in the previous month. This was due to an increase in revenue gotten from all the sources of oil revenue during the period (excluding other revenue which recorded a decline of 82.4%.

Company Income Tax Remains the Largest Contributor to Gross Non-Oil Revenue

For the non-oil revenue, corporate tax, customs and excise tax, Value Added Tax (VAT) and independent revenue of the Federal Government are its major components. Other components of the gross non-oil revenue are education tax, Customs special levies, National Information Technology Development Fund (NITF), solid minerals and other mining revenue. Of these components, the Corporate Tax (Company Income Tax) is the major contributor as it contributed N1.28 trillion to the 9 months gross non-oil revenue of N3.49 trillion and this represents 37% contribution.

Based on the data obtained from the CBN

Furthermore, gross non-oil revenue was highest in July 2019 as the country earned N574.1 billion from this source, thanks to the 38.8%, 68.9% and 61.1% growth in corporate tax, independent FG revenue and ‘others’ revenue respectively in July from the amount gotten from them in June.

By Ranking, PPT and Company Income Tax (CIT) are the Largest Contributors to Revenue

Based on the data obtained from the CBN, there are 9 broad major sources of revenue when the oil and non-oil revenue are unbundled. In the first 9 months of 2019 therefore, domestic crude oil and gas sales contributed more to gross revenue than export of crude oil and gas. The amount earned from the domestic crude oil and gas sales is about 4 times the amount generated from export of crude oil and gas in the first 9 months of the year. However, data obtained from the NBS showed that the country exported N7.31 trillion worth of crude oil in the first 6 months of 2019. This explains that majority of these exports are carried out by the International Oil Companies, who then pay tax to the government in form of PPT and Royalties.

Based on the data obtained from the CBN

In the first 9 months of 2019, the PPT and royalties were the largest contributors to the entire gross revenue of the country. With more than 120 companies listed on the Nigerian stock exchange including the numerous limited liability companies in the country, corporate tax came second in the rank of the various sources of revenue in the first 9 months of 2019, but the largest source of gross non-oil revenue. Domestic crude oil and gas sales and VAT came in as the third and fourth largest contributors to the entire gross non-oil revenue. Recall that an increment in VAT from 5% to 7.5% will take effect from 2nd of January, 2020. This is in light of the government seeing the need to raise it as it is a major source of revenue to the country and the rate has not increased since 1994 when the VAT law came into place.

Summary of the Fiscal Operations of the FG in the First 9 Months of 2019

In the first 9 months of the year alone, deficit of the FG has mounted to N3.67 trillion as expenditure over the months have been greater than revenue while each month’s actual revenue has been less than the budgeted revenue estimates for each of the months.

Over the 9 months, the country never recorded revenue in excess of N500 billion, but expenditure was in excess on N1 trillion in April 2019. While revenue was lowest in May, expenditure in the same month almost doubled the revenue generated and this led to a deficit of N689.6 billion which represents the second highest deficit among the 9 months under review. Overall, total revenue generated during the 9 months was 48.2% of the total expenditure which means that the remaining 51.8% was borrowed from both internal sources and external sources during the 9 months under review.

More of the Data can be Found Below:

Download the October 2019 CBN Economic Report Here

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