How Buhari will raise trillions from tax

 

Udo Udoma

 

Says FG to ‘ raid’ MDAs for funds
•He declares: No retrenchment, but workers will be redeployed

“Nigerians are naturally enterprising people. So we believe that if government can provide excellent infrastructure, roads, transport and power, they will no longer be waiting for government to provide jobs. They will create their own businesses” – Senator Udo Udoma, Minister for Budget and Planning, December 28, 2015.

CAVEAT

The following is the summary of what the Honourable Minister said. He deserves an apology in advance if any of it is distorted. The call met me asleep in bed with a serious head cold and catarrh and no note book around. But, it is not every day that a Minister calls; there was no alternative to listening very well. The fate of our country depends on it.

SETTING OUT AT DAWN

Seldom does a columnist have the pleasure of receiving a call from a Federal Minister very early in the morning – especially when one is at a loss about what to write next. The mental block was total until the phone rang that morning and it was the Minister who had called to provide more background briefing on the 2016 Budget.

In nearly 30 years of writing analysis on annual budgets, what we published last week was the latest to be released and the 17th by a civilian government. The first analysis was in 1987 and that was the year the Structural Adjustment Programme, SAP, entered our economic and political lexicon. It was a game-changer at the time and an admixture of prospects and problems. In the end, the problems dominated the prospects and left the nation worse than when we started.

The 2016 is also a game-changer in many respects, as the chat with the Honourable Minister revealed. But, before going into the details, a word is required about the efforts the Minister and his staff must have made to prepare and deliver the 2016 Budget at a time most of us had considered that as a mission impossible.

Those who have been fortunate to work with multi-nationals would confirm that the budget cycle starts sometime in the third quarter and it is invariably a race to the deadline for delivery to the Board of Directors by the last week of November. Ministers of this administration were sworn-in in late November last year, less than six weeks to the end of 2015. It was the shortest time any Minister has ever had to deliver the annual budget.

Even for a conglomerate, it must be regarded as a minor miracle. For an entire country, it must be regarded as a major miracle that Senator Udo Udoma was able to drive the process to deliver it in such a short time. Any defects in it must therefore be largely explained by the tyranny of time. Its merits, which are considerable, reflect the years the Minister had spent at the top of one of our largest companies with many divisions. Nigeria is the beneficiary of years of the UACN experience.

BUDGET HIGHLIGHTS AND THRUSTS

“Ideas are capital; the rest is money.”

The last 16 budgets presented by governments of Nigeria had suffered from the absence of an important idea around which the budgets revolved. There were no budget thrusts which constitute the compass directing their activities. Instead, what we had were mere allocations of funds to various Ministries, Departments and Agencies, MDAs, to be spent as the officers in charge felt appropriate. Budget 2016 has changed the approach to budget preparation. Each year’s budget is part of a building bloc designed to achieve specific short, medium and long term goals. For lack of a name, this might as well be called the Budget for Upgrading Nigeria’s Infrastructure. This will be explained shortly.

Four important elements were prominent in the explanation provided by the Minister as follows:

• Crude oil benchmark
• Tax
• Infrastructure
• Revenue generation

BENCHMARK AT $38 PER BARREL; OIL REVENUE AS COMPONENT OF BUDGET

Because most of the criticism of the budget had centred around the $38 per barrel benchmark, the Minister provided the answer to our queries on that issue first.   Government, he assured us, had taken into account the forecasts made by several organizations and individuals before settling on an average figure of $38 per barrel. That figure represents the average for the year 2016 and not the current global price levels.

Government is aware that the current price is near the benchmark but expects a higher level by mid-year.

At any rate, government is not relying on crude oil revenue as much as in the past to fund this year’s budget. Even if crude revenue estimates are off the mark, the budget implementation relies on a series of non-oil sources of revenue for 2016. Prominent among these are increased tax collection, blocking of revenue leakages, long term loans and reduction of recurrent expenditure as well as the Infrastructure Development Fund which will be employed to improve infrastructure while generating revenue to render the loans self-liquidating.

Recurrent expenditure will be slashed by nine (9)% in 2016 mostly by blocking wasteful expenditure.

TAXES

Before your heart beats unusually faster, the Honourable Minister had informed me that government has no intention to increase taxes in 2016. The Federal Internal Revenue Service, FIRS, under Mr Fowler, who had performed creditably in Lagos State, had identified various ways by which individuals and corporate entities engage in tax evasion. Shocking, as it might appear, the percentage of tax to Gross Domestic Product, GDP, is 5% in Nigeria, 15% in Ghana and a whopping 40% in South Africa. By doubling the tax revenue, government aims to make up for any shortfall in revenue from crude oil.

Furthermore, owners of Small and Medium Scale Enterprises will actually enjoy reduced taxes providing they pay. The lower tax is supposed to be the incentive for compliance.

RAIDING MDAS

FOR FUNDS

For years, it had been the least guarded secret that many MDAs of the Federal Government generate surpluses which are lavished or misappropriated internally by the Boards and top executives of the organisations. Included in this group are Nigerian Communications Commission, NIMASA, NPA, CBN, NERC, etc. In the days when crude oil sold for $118 per barrel, nobody in government bothered to ask about the “chicken feed” available, as surplus, at the MDAs. Today, the story is different and government wants all the money it can get to fund the 2016. For the MDAs, the party is over. For other Nigerians, it is just starting.

To that extent, this is a populist budget attending to the greatest good of the majority of Nigerians.

INFRASTRUCTURE

FUND — $25B

At the heart of the greatest push for infrastructure development since the Murtala/Obasanjo/Yar’Adua governments (1975-1979) is the $25 billion Infrastructure Development Fund which will address the nation’s infrastructure deficits with regard to roads, railways, airports, power supply, etc. Mostly borrowed, the funds will, however, target projects which will yield revenues that will liquidate the loans and still yield surpluses. Approximately $10 billion of this is supposed to be raised in 2016 alone; while the rest will be spread over the next four years.

Another aspect of the infrastructure development programme is the re-introduction of concessioning of major projects and the application of the Build, Operate and Transfer (BOT) approach. Airports and the toll gates, which will soon be reintroduced to the nation’s roads, will be largely financed by this method.

NO MASS RETRENCHMENT

As if the Minister could guess the question uppermost in people’s minds nationwide, he provided the answer before being asked. There will be no mass retrenchment of workers by the Federal Government, although with the merger of Ministries, several thousand people will be redeployed. Instead, the planned recruitment of 500,000 graduates as teachers and infrastructure development will provide millions of jobs nationwide.

HALF YEAR REVIEW

Finally, the Minister announced that government plans to undertake a Half Year Review and to make amendments considered necessary. This is “hands on deck” approach to budget management.

MY COMMENTS

“Wise skepticism is the first attribute of a good critic” – James Russell Lowell, 1819-1891 (VANGUARD BOOK OF QUOTATIONS p 222).

Few people nursing a head cold can be totally alert when woken up from sleep. But nothing wakes up an economist faster than talk about the national budget and this one certainly set the heart moving faster. The first thing to do was to quickly write down an accurate rendition of what the Minister said in about 45 minutes of conversation (dictation really). The Minister must forgive any error in the recollection.

The next thing is to ask: Will it work? These are my comments on the matter.

Budgeting has never been an exact science – even at the best of times. For Nigeria, “these are the times that try men’s souls”. So a difficult assignment had turned more arduous. So credit must be given to those charged with it in such a short time. Still the question remains: Will it work? The answer is, “Yes, with some reservations”. The reasons for optimism are the following:

• Leadership
• Professionalism
• Innovation

Leadership here includes not only the President and the Minister, but the entire team that will face the task. Since leadership involves intelligence and integrity, the drivers of this budget, Buhari and Udoma, have both in abundance. Buhari is the better known of the two. But Udoma will also satisfy anybody’s gold standard for competence and character. He has been on my radar since he turned down appointment as Minister under Obasanjo and opted to remain in the Senate for eight years. Totally “un-Nigerian”! At any rate, this is the first time since Babangida appointed Dr Okongwu as Minister of Budget that Nigeria will have someone monitoring the budget. Attention alone will guarantee improvement in implementation.

Professionalism relates to Udoma’s years of experience working with, and leading, organizations which take budgets seriously. Nigeria will certainly benefit from the experience and the tenacity of purpose associated with it.

Innovation is demonstrated by the fact that our leaders have, at last, understood that government money alone does not build infrastructure. They intend to tap a wider source of funds globally. That should provide relief to domestic lenders already stretched to breaking point.

Does that mean Nigerians can “go to sleep with their two eyes closed” (apologies to Professor Soludo). Not at all. Instead, we need to be wide awake and be vigilant. For once, our money will be spent – not oil money.

The skepticism, which has become habitual, after watching nearly 30 budgets fail woefully, involves two non-quantifiable essential components of national budgets. The first is for government to provide. The other is for fellow Nigerians to supply.

“Behind the facts of economics are the facts of psychology…the emotions of fear and confidence…” wrote Arthur Stone Dewey in October 1923.

Government must take the lead in reducing fear (social, political, religious, economic) and increasing confidence in the nation’s leadership. Without this, a budget is only a trope of words on paper.

“Ask not what your country can do for you; ask what you can do for your country”- US President John Kennedy, 1917-1963.

President Kennedy made this declaration at his inauguration in 1960. It is still the best test of patriotism and good citizenship. More than ever, since oil became our “god,” Nigerians are being asked to pay to execute the budget and to determine the direction of our economy. We can all help in two major areas – taxes and revenue leakages. Unless we pay all our taxes and identify tax-dodgers and also point to those stealing public funds, we will make a very difficult task a mission totally impossible. Actually, it is not much to ask for from us.

Will it work? It depends on all of us.

STOP PRESS!!!

Just as the last lines of this article were being written, another call came in from the Minister. He had read a lot of the comments about the 2016 Budget which he knew were inaccurate. That demonstrates how passionate the man is to communicate with Nigerians and to be perfectly understood. This is a first in my experience with a Minister.

So be careful; don’t believe all you read about   the 2016 Budget. The Finance Ministry will not receive N1.5 trillion; neither will Budget and Planning be allocated N1.15 trillion.

When in doubt, ask questions.