Vi-M’s Journal of 2017 Macroeconomic Trends and 2018 Predictions for Nigeria (Volume II)

The National Budget (2017)

The 2017 Budget, tagged “Budget of Recovery and Growth” was signed into law in June 2017 by the then Acting President, Vice-President Yemi Osinbajo. The signing of the Budget authorized the release of N7.4 trillion from the Consolidated Revenue Fund, of which N2.361 trillion was allocated to capital expenditure (inclusive of Statutory Transfers of N.434 trillion).

Based on precedent, the Nigerian budget has not been the best indicator of economic outcomes due to its high level of unpredictability. The APC government particularly has had a notoriety for incidences of budget padding, prolonged disagreements and back and forth between the executive and judiciary over the items in the budget. The characteristic drama of the APC government over the national budget only just subsided with this current 2018 budget, which is even yet to be signed into law.

Secondly, according to the National Bureau of Statistics, comprehensive data on actual results (for benchmark of the economic results) at the end of each fiscal year is hardly available for collation and publication. Little wonder why the Nigerian budgets are always prepared on a zero basis.

Despite the optimism expressed by analysts and the relevant government agencies in 2017, over the relatively huge capital expenditure outlay and its expected positive impacts on the economy, one can hardly tell if any of the current positive economic trends can be attributed to that expenditure outlay. Many of the capital projects referenced as beneficiaries of the capital expenditure have either not been commenced at all or are only partly completed.

We will discuss the 2018 Budget (Budget of Consolidation)  and its implications in details, in our 2018 predictions.


The government, as part of its efforts to shift focus from oil revenue, embarked on aggressive tax campaigns in 2017, aimed at improving the nation’s very low tax to GDP ratio of 6% – one of the lowest in the world. As the receding state of the economy did not merit an increase in tax rates, the government’s focus was mostly on widening the tax net, improving tax administration and tax collection mechanisms and using effective information technology platforms. Highlights of the tax reforms in 2017 include:

New e-Tax Services:

In alignment with the goals of the Presidential Enabling Business Environment Council (PEBEC) to remove bureaucratic constraints to doing business in Nigeria and make the country a progressively easier place to start and grow a business, the Federal Inland Revenue Service (FIRS) introduced six (6) new electronic tax services (e-services) in 2017. The available e-services are: e-Registration, e-Stamp Duty, e-Tax Payment, e-Receipt, e-Filing, and e-TCC; all geared towards the ease of tax administration and payment.

Extensive Nationwide Tax Audit Exercise:

In 2017, FIRS conducted tax audits in collaboration with private professional services firms on a sector-by-sector basis. Over 5,000 tax audits were commenced in 2017 and are expected to be concluded in 2018.

Revisions of the National Tax Policy, Tax Laws & Regulations:

Early 2017, the Federal Government approved the revised National Tax Policy document which contains measures designed to: address multiplicity of taxes and multiplicity of Revenue agencies, reduce income tax rates and compliance burden for Micro, Small and Medium Enterprises, improve Nigeria’s ranking on the global ease of paying taxes index from the current position of 181 out of 189 economies to top 50 by the year 2020, encourage diversification, expand the country’s tax base and improve Tax to GDP ratio.

Revisions to other tax laws, practices and Regulations in 2017 include:

  • The Federal Executive Council (FEC), during its meeting 0n 1 February 2017, finalised plans to increase the rate of VAT on some luxury items- subject to the approval of the National Assembly. This increase was neither concluded nor finalized in 2017.
  • As part of measures to sanction tax defaulters and enhance voluntary/ timely compliance to taxes, the Federal Government, announced that it would from July 1, 2017, impose additional 5 per cent interest charge above the monetary policy rate of 14% (making a total of 19%) on all firms that fail to pay their taxes as and when due in 2017.
  • The Lagos State Internal Revenue Service (the largest Internal Revenue generating and industrialized State in Nigeria), also in 2017, reviewed many of the grey areas of the Personal Income Tax Act to shed more light on the applicability of these provisions of the law to the incomes of individual taxpayers residing in Lagos State. There were 11 Public Notices in all issued by the LIRS in this regard. Their summaries can be found on our blog via this link:
  • In May 2017, the Senate passed the Petroleum Industry Governance Bill (PIGB), the first of four of such, to replace the Petroleum Industry Bill. The Bill, which still needs to be passed by the House of Representatives and assented to by the President before it becomes law, seeks to establish a framework for the creation of commercially-oriented and profit-driven petroleum entities, to ensure value addition and internationalization of the petroleum industry, through the creation of efficient and effective governing institutions with clear and separate roles for the petroleum
  • The National Pension Commission (PENCOM) issued a Circular in November 2017 to all Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs) communicating new guidelines on withdrawals from voluntary pension contributions (VC). This was issued in response to the high trend of requests for withdrawals from VCs, usually shortly after contribution, which resulted in personal income tax leakages and faulted the purpose of the contributions.

Voluntary Assets and Income Declaration Scheme (VAIDS):

The scheme which commenced on 1 July, 2017, to be run for a period of nine months was formally launched on 29 June, 2017 by the then Acting President, Prof. Yemi Osinbajo. VAIDS is an initiative designed to encourage voluntary disclosure of previously undisclosed assets and income for the purpose of payment of all outstanding tax liabilities. It is being implemented by the FIRS in collaboration with the 36 States and FCT Internal Revenue Service.

Very importantly, the Scheme offered a waiver of interest and penalty on outstanding tax liabilities for all who declared voluntarily on or before 31 December 2017, and a waiver of penalty for all who would declare voluntarily on or before 31 March 2018. It also offers an agreed installment payment plan of up to 3 years, plus confidentiality and protection from tax audits for all who declare and remain fully compliant afterwards.

The scheme is expected to help expand Nigeria’s tax base and improve the low tax to Gross Domestic Product (GDP) ratio from the current 6% to between 12% to 15% in the first instance, and so far ₦17 billion in Federal taxes has been generated as a result.

Tax Thursday and Sensitization Campaigns:

Every Thursday starting from 29th June, 2017 and for one year afterwards, was declared “Tax Thursday” for tax campaigns and sensitization programs across the country.

Multilateral/Bilateral Taxation Agreements signed in 2017:

Nigeria became the 71st country to sign the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“Multilateral Instrument” or “MLI”)

0n 17 August 2017. The MLI is a legal instrument, designed to prevent BEPS through the modification or override of certain provisions in existing bilateral double tax avoidance treaties between signatory countries. It implements agreed minimum standards to counter treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific reservations and exercise of options by signatory countries on ‘Covered’ Agreements.

On the same day, Nigeria also signed the Common Reporting Standard Multilateral Competent Authority Agreement (CSR MCAA) as the 94th signatory country. The CRS MCAA was designed to implement the automatic exchange of Multinational Entities (MNEs)’ financial account information in line with OECD’s common reporting standards, and to deliver this automatic exchange by 2018 between 101 countries.

Nigeria also signed a double taxation treaty (DTT) with the government of Singapore in August. The DTT is aimed at eliminating or providing relief for double taxation on income of companies and individuals that are resident in either country. However, the treaty is yet to be ratified by the National Assembly and thus remains inactive in Nigeria until ratified. Similar treaties awaiting ratification are DTAs with Republic of Korea, Mauritius, Qatar, Sweden and United Arab Emirates. The treaty with Spain was signed into force on 26 January 2018 by President Buhari.

Nigeria also signed other International Agreements which provide for the Automatic Exchange of Information (AEI), with a number of nations such as Switzerland, Panama, the Bahamas and other tax havens. Additionally, banking information will easily be shared across countries due to newly implemented Common Reporting Standards (CRS).

Lastly, Nigeria signed up for the establishment of the Beneficial Ownership Register at the Anti-Corruption Summit in London. This is expected to provide access to true owners of properties in the UK and other participating countries.

The Capital Market

External Debt Profile:

In February 2017, the federal government successfully issued US$1 billion 2032 notes and recorded an additional US$500 million a month later. It raised another US$300 million through Diaspora Bond issuance in June 2017 and then issued US$3 billion dual-tranche notes comprising of 10 and 30-year Eurobonds of US$1.5 billion each. In December 2017, the Debt Management Office (DMO) offered for subscription a N 10.69 billion Sovereign Green bond. This effectively brought total funds raised to over US$4.8 billion in a single financial year. Whilst debt to GDP is low at 16.2% (in June 2017) relative to Sub-Saharan African average of over 40%, debt to revenue stands at over 62% in the same period. The Debt Management Office (DMO) revealed that Nigeria spends 34% of its revenue on debt servicing while acknowledging concerns about the country’s rising debt profile and the need to bring this ratio to much lower levels.

FDI Flows:

According to the Foreign Direct Investment (FDI) Intelligence, Nigeria’s share of FDI flows declined by 43% in 2016. But according to Q3 2017 report released by the NBS, capital inflows into Nigeria increased to US$4.15 billion which represents a 127.5% increase from US$1.82 billion in Q3 2016. This increase could be attributed  to improvement in FX policy and the attractive yields in fixed income securities and equities.

The Money Market

The Central Bank of Nigeria (CBN) also contributed to the rebound of the economy to growth territory by implementing policies that saw the exchange rate in the interbank window and the parallel market converge. It established a special foreign exchange window for investors, exporters, and end users with the objective of boosting liquidity in the FX market and ensuring timely execution and settlement of eligible transactions. It also continued to implement tight monetary policies as the Monetary Policy Rate (MPR) remained stable at 14%.

The CBN, on 20 February 2017, in apparent response to the scarcity of foreign exchange in the country, released some amendments to the current forex policy providing direct additional funding to banks to meet the needs of Nigerians for Personal and Business Travel, Medical needs, and School fees, effective immediately. CBN also mandated such retail transactions to be settled at a rate not exceeding 20 percent above the interbank market rate.

On 10 April 2017, the CBN, in its effort to ensure access to foreign exchange by Nigerian businesses, opened a foreign exchange window specially for Small and Medium Enterprises (SMEs). To provide not more than $20,000 to each enterprise in every quarter, to help SMEs import eligible finished and semi-finished items, necessitated by its findings that many of the SMEs were being crowded out of the forex space by large firms.

In June 2016, the CBN announced its intention to automate the process of issuance of Certificate of Capital Importation (CCI) for improved efficiency in the banking industry. With effect from 11 September 2017, the apex bank directed that all active CCIs be migrated to the electronic CCI (eCCI) portal as physical CCIs was to be phased out. This complete phasing out of physical CCIs was targeted towards enhancing transparency and efficient processing of foreign investment flows into the country.

To be continued.


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