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Cash crunch: All eyes on FIRS, Customs

Hint of zero revenue remittance into the federation purse by the Nigerian National Petroleum Corporation (NNPC) has turned everyone’s attention to the capacity of Nigeria Customs Service and Federal Inland Revenue Service to fill the gap. ABDULWAHAB ISA reports

For the Federation Account Allocation Committee (FAAC) meeting, a monthly congregation of state commissioners of finance, state auditors general and representatives of revenue generating agencies, the merriment may soon be over. Routine revenue remittance into federation purse is fast receding, no thanks to the shrinking contribution by the Nigerian National Petroleum Corporation (NNPC), the largest contributor to the revenue pool. In ranking, the Federal Inland Revenue Service and Nigeria Customs Service follow NNPC revenue remittance. Other revenue generating MDAs follow in tow.

The poser, however, is, if these other institutions can step in to fill NNPC’s gap in the event the state’s oil firm stops remittance to the FAAC revenue pool as it has hinted In recent months, FAAC has been encountering systemic cash squeeze. The squeeze got to public domain last month, following the alarm raised by Edo State Governor, Mr. Godwin Obaseki. The governor said N60 billion was ‘printed’ to augment the shortfall in March allocation.

NNPC’s zero remittance threat

Last week, NNPC cried out for being overburdened by oil subsidy payment. For shouldering subsidy payment, the Corporation said it was impossible for it to continue revenue remittance into federation purse. NNPC accounts for 70 per cent revenue flow into the federation’s purse. In a memo addressed to the accountant general of federation and the minister of finance, budget and national planning, which got leaked to the public, NNPC alerted the federal and state governments of its dwindling contribution to the federation account as a result of the bloated fuel subsidy. It said it would only be able to remit N12.966 billion to the Federation Accounts Allocation Committee in June after removing fuel subsidy from its income. NNPC’s memo highlights January to March actual and April to June projected remittance to federation account. The Corporation indicated that it would not make any remittance for the April and May FAAC after paying fuel subsidy from its revenue. Monthly revenue shared to the three tires of governments comes from revenues generated by the Nigeria Customs Service, the FIRS and NNPC. However, Nigeria’s oil Corporation is the highest contributor as crude oil is the biggest source of revenue for the country.

Can FIRS, Customs fill the gap?

FIRS, in recent past, spearheaded series of tax reforms with a view to repositioning it to meet and surpass tax targets. Number of tax payers in FIRS net has incredibly doubled in recent years as a result of tax reforms exercise. Last week, the Senate approved N216.646 billion for FIRS as its 2021 budget. However, the senate jerked up revenue targets for FIRS by 49 per cent to N7.61 trillion from N5.076 trillion budgeted last year.

The Senate’ resolutions followed its consideration of a report by the Senate Committee on Finance. Chairman of the Committee, Senator Solomon Adeola, said FIRS targeted total revenue collection of N7.61 trillion for the year as against N5.076 trillion budgeted last year, which represents about 49.90 per cent increase above the corresponding year’s budget. According to the lawmaker, out of the proposed total collection of N7.61 trillion, N5.645 trillion was expected from non-oil components, while N1.964 trillion is expected from oil components.

Out of the proposed expenditure of N216.65 billion for the fiscal year, Adeola said N107.52 billion was for personnel cost; N47.22 billion for overhead cost; and N61.9 billion for capital cost, as against N97.36 billion, N43.64 billion and N27.80 billion budgeted for the three expenditure heads in 2020. He noted that the cost of collection to the service was pegged at four per cent of non-oil revenue. He, however, disclosed that there would be marginal reduction in the taxable income of tax payers due to the effect of COVID-19.

“The service seeks to continuously improve its technology for automated tax collection across all sectors of the economy through e-filing, e-registration, e-payment etc., to facilitate ease of doing business with tax payers,” Adeola said. Similarly, Nigeria Customs Service is saddled with collection of excise duty. The agency has upped its revenue remittance level since Col. Hammed Ali (rtd) took over the leadership. Last week, the House of Representatives, while considering NCS 2021 budget, increased its revenue target from N1.4 trillion to N1.6 trillion as expected revenue for the 2021 fiscal year. The House also approved about N257.183 billion as budget for NCS for this year. Presenting the report of the House Committee on Customs and Excise for consideration on the floor of the House, Chairman of the Committee, Rep. Leke Abejide, said the committee considered initial target of N1.465 trillion given to the service as inadequate and as such increase it to Nl.678 trillion based on the fact that the target for 2021 Ffiscal year is less than N 1.562 trillion collected by the service in 2020 despite the pandemic. He said the committee also considered the expanded excisable item to include carbonated drinks, reduction of levy on new vehicles and devaluation of naira that will increase volume of money collected in naira term during the year. The House approved the seven per cent cost of collection for 2021 of N111.573 billion it also approved that the service should keep two per cent of Value Added Tax (VAT) collected on behalf of the FIRS to be retained by the Customs and another N47.007 billion interventions Fund from the Comprehensive Import Supervision Scheme (CISS). As impressive as both Customs and FIRS revenue targets for 2021 may seem, non-inclusion of NNPC revenue remittance, largest contributor to FAAC revenue pool, is sure to impact negativity on amount available for sharing to three tires of governments.

Way out

Unless there is concerted joint effort to rally all revenue generating MDAs to contribute maximally to FAAC coffers, exit of NNPC would hurt the amount available for sharing. Time is ripe for government to sanction any MDA who violates 2007 Fiscal Responsibility Act, which requires MDAs to remit a certain threshold amount generated to Consolidated Revenue Account. As a practice, FAAC maintains a few subsidiary accounts. Such accounts include stabilisation account and Excess Crude Account (ECA). These are fall back accounts which FAAC defer to in time of augmentation whenever shortfall occurs. Over the years, states are in habit of putting pressure on FAAC to share funds kept in stabilisation account. This ignoble practice of let’s eat all in which states mount pressure on FAAC must be discouraged. The culture of saving for raining days has to be imbibed now that remittance flow looks bleak.

Last line

States must cut down on their frivolous items of expenditure and up internally generated revenue. Majority of states can’t function in the absence of monthly allocation from Abuja. Time has come for state governors to put on thinking cap by looking inward to turn around abundant resources onto wealth.

 

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