Observations on the implementation of 2020 budget By senator (Dr.) Ajibola Basiru.

by Adabanija Kamorudeen

By Senator (Dr) Surajudeen Ajibola Basiru

Going by the Budget Speech of Mr. President on 08/10/2019 particularly paragraphs 53-54 sums of 2.45b trillion and 296b billion were state to have been provided for debt servicing and Sinking Fund respectively, it must be emphatically reiterated right from the outset that we should not delude ourselves that Nigeria is a buoyant Nation, we are barely keeping our head above the water.

Importance of Budget

It is not just an annual ceremony; it plays an important role in the economy such as:
Proper resource pool allocation (such as sectorial allocation);
Ensuring economic growth – growth of businesses and manufacturing; and
Reducing inequalities in income and wealth – safety net such as social investment programme.

Revenue Generation as a Critical Component for Growth

Successive Governments in Nigeria have suffered problems of implementation because focus and or emphasis is placed on expenditure rather than on revenue generation.
The reality of this asymmetric relationship between revenue generation and expenditure is highlighted in the paragraph 21of the Budget Speech where the President stated that:

“Despite the delay in capital releases, a deficit of N1.35 trillion was recorded at the end of June 2019. This represents 70 percent of the budgeted deficit for the full year.”

The impact of adverse revenue was also echoed in paragraph 19 of the speech where the President also stated that:

“…2019 Budget implementation was also hindered by the combination of delay in its approval and the underperformance of revenue collections.”

Going forward, it must be reiterated that the only way to improve our economy is in shoring up our revenue base by thinking outside the box. In paragraph 32 of the Budget Speech, the President alluded to this when he stated that the increasing share of non-oil revenues underscores our confidence in our revenue diversification strategies. The new Value Added Tax Regime is projected to be the major fulcrum for the implementation of the 2020 Appropriation Bill and the additional revenue to be derived therefrom will be used to fund health, education and infrastructure.

The fear about the new regime of Value Added Tax that is to take effect from the beginning of next year has been allayed in the Finance Bill, 2019 which was submitted along with the 2020 Budget, as stated in paragraph 28 of the Budget Speech, the new Bill already exempts pharmaceuticals, educational items and basic commodities which are considered critical to the survival of the average Nigerian, thus paving the way for the operation of a progressive Tax regime in Nigeria where the affluent pays more for what they can afford and does not place tax burden on everyday commodities that are regarded as necessities.

Also, the threshold for VAT registration has been pegged at N25million in turnover per annum, thus, compliance efforts can be placed on larger businesses thereby bringing the much-needed respite to our Micro, Small and Medium-sized businesses which are the main stay of the low-income earners. In essence, the poor and the vulnerable have been greatly insulated by the provisions of the Finance Bill, it is the elite that are comfortable have the wherewithal that are exposed to the supposed incidence of progressive taxation.

Comparatively, according to EU Law, EU Member States are required to levy a standard VAT rate of at least 15 percent and a reduced rate of at least 5 percent. Switzerland, as a non-EU country, levies the lowest VAT rate of only 7.7 percent, followed by Luxembourg (17 percent), Turkey (18 percent), and Germany (19 percent). The countries with the highest VAT rates are Hungary (27 percent), and Sweden, Norway, and Denmark (all at 25 percent). The average VAT rate of the European countries covered is 21.3 percent.

A progressive tax is characterized by a more than proportional rise in the tax liability relative to the increase in income, and a regressive tax is characterized by a less than proportional rise in the relative burden.
Taxation is a means by which governments finance their expenditure by imposing charges on citizens and corporate entities. The main purpose of taxation is to accumulate funds for the functioning of government machineries.
Progressive tax systems are designed to subject a larger percentage of income to taxation for individuals, households and businesses with larger incomes, while lowering the tax burden on those with lower incomes.

The Principles for Entrenching Progressive Taxation:

Start from the law, not current tax policy. Our Tax Legislations need to be revisited for proper enforcement and where necessary, amended to be in tune with world best practice.
We should not try to define “the rich” with arbitrary thresholds. –no person/business with taxable income lower than a given threshold should face any kind of tax increase and any increase should apply only to income above a certain and defined threshold so that the impression that taxes are a sort of punishment for the rich would be erased.

Consider new sources of revenue –by thinking outside the box, other taxable incomes abound that nobody would hardly notice when taxed on, a very good example is the Digital Satellite Television sources. Digital Television is now in every known part of the country, even in the remotest part of our States, there are unique ways of taxing the usage of such in a way that the end user pays without even feeling the brunt, it may be embedded in the subscription and pay to the government as soon as subscriptions are made, it will operate on the basis of the higher the content you are subscribing for the higher the tax you are expected to pay.

The improvement of the economy is also revenue development and the President must be commended for the allocation of a princely sum of 127 billion to the power sector in the 2020 Budget but, it is also very important to look critically into the Legal and Commercial aspects of the Nigeria Energy Sector.

Addressing Nigeria’s Power Problem

According to the reports, the average power supply in Nigeria is 3,851 MW and is rated as one of the poorest power supply country in the world.
Prior to privatization, the pace of electricity infrastructure development in the county was very slow.
Even with the privatization of generation and distribution segments, it only changed the dimensions of the challenges; power supply remains largely inadequate, unaffordable and unreliable in the country.
The design of the power sector reform makes the viability of the distribution companies (DisCos) critical to the long-term sustainability of the sector. However, DisCos are unable to recover cash shortfalls on account of the lack of investment in network rehabilitation and metering (partly due to low tariffs and inability to obtain loans from Nigerian banks due to unpaid debts).
Debts, Electricity Theft, and Non-payment Culture of the Public, especially government ministries, department and agencies are contributing to the sector’s cash shortfall.
Inconsistent enforcement of rules and policies reinforces aforementioned challenges.

Several interventions are needed to attract significant private sector capital, improve baseline power supply with data-driven innovations, and enhancing sector governance.

Specifically, Operational and Technical and Interventions are needed to improve baseline power supply (using data-driven, innovative on- and off- grid solutions).
Improve transmission wheeling capacity and redundancy as well as improve grid design and electricity demand estimation.

Governance Intervention is also necessary to improve sector governance and transparency to make contracts fully effective as well as to improve sector communication, coordination and monitoring.

A clear and concise contractual, regulatory and financial framework is a critical requirement for attracting private sector capital to the Power Sector.

Regulatory/Policy Interventions, especially related to tariff that balances the protection of electricity customers with the interests of investors, outlines a trajectory to cost-recovery tariff, and is implemented in a timely manner is essential.
Well-enforced policies that incentivize improvement in DISCOs performance, as well as fiscal and monetary policies aimed at encouraging private sector investments are needed.

Critical Infrastructure and Economic Growth

How does poor infrastructure affect the economy? Its impact is felt both on the economic and social sectors. Without roads in particular, the poor are not able to sell their output on the market. Lack of basic infrastructure such as paths, trails, bridges and roads and access to transport services makes it difficult for poor people to access markets and services.

With respect to overall economic output, increased infrastructure spending by the Government is generally expected and has been proven globally to result in higher economic output in the short term by stimulating demand and in the long term by increasing overall productivity.
The infrastructure is important for faster economic growth and alleviation of poverty in the country.

The adequate infrastructure in the form of road and railway transport system, ports, power, airports and their efficient working is also needed for integration of the Nigerian economy with other economies of the world.
Infrastructure development is a vital component in encouraging a country’s economic growth. Not only does infrastructure in itself enhance the efficiency of production, transportation, and communication, it also helps provide economic incentives to public and private sector participants
Transport infrastructure is one of the most important factors for a country’s progress. It has been proven by so many instances how transport infrastructure has added speed and efficiency to a country’s progress. Good physical connectivity in the urban and rural areas is essential for economic growth.

Education in every sense is one of the fundamental factors of development. Education raises people’s productivity and creativity and promotes entrepreneurship and technological advances. In addition it plays a very crucial role in securing economic and social progress and improving income distribution.

A country’s economy becomes more productive as the proportion of educated workers increases since educated workers can more efficiently carry out tasks that require literacy and critical thinking. … As a result, many countries provide funding for primary and secondary education to improve economic performance.

Education provides a foundation for development, the groundwork on which much of our economic and social well-being is built. It is the key to increasing economic efficiency and social consistency. By increasing the value and efficiency of their labor, it helps to raise the poor from poverty.

Higher education institutions assure the relevance of their knowledge, identify skills gaps, create special programmes and build the right skills that can help countries improve economic prosperity and social cohesion, adapt workforce development to the economy and changing demand for the new skills, develop relevant

Education is highly important in today society. Education is a formal process of learning in which some people consciously teach while others adopt the social role of learner. Education prepares a person to adapt to new skills and value that will be very essential in today society

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