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

2018 Predictions cont’d.


According to the Federal Inland Revenue Service (FIRS), its major goals for 2018 is to achieve its revenue collection targets, with particular focus on Value Added tax (VAT); to conclude audits of at least 5,000 companies initiated in 2017; and to continue to sensitize taxpayers on the use of the e-tax solutions launched in 2017.

The National Tax Policy implementation committee (set up in 2017) on Friday, 2 February 2018, presented the national tax policy implementation strategy document to the Honorable Minister of Finance. The New National Tax Policy is expected to address the following:

  • Straighten the tax system challenges and bottlenecks;
  • Enhance the ease of paying taxes;
  • Improve tax to GDP ratio;
  • Establish a VAT threshold for SMEs;
  • Address the fragmented taxpayer database;
  • Address the weak structure for exchange of tax information; and
  • Ensure accountability to taxes by both incumbent and incoming governments.

Other tax strategies for 2018 include reviews of the VAT Act (to impose stiffer penalties on defaulters); and the Stamp Duty Act (to impose stamp duty on all forms of Agreement).

Early this year, Nigeria also signed into law, the Income Tax (Country-by-Country Reporting) Regulations 2018, giving effect to the third requirement of the OECD’s Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of Country by Country (CBC) Reports. That is, the necessary legislation to require Reporting Entities within signatory jurisdictions to file the CbC Reports.

The signing of the Income Tax (Country-by-Country Reporting) Regulations 2018, further communicates government’s resilience to clampdown on tax evasion and avoidance practices of multinationals who shift profits to tax haven jurisdictions.

The Capital Market

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. A portion of these funds have been earmarked for refinancing existing domestic debt (which accounts for around 80% of total debt) to shift towards lower priced FX external debt. We expect the government to work towards reducing its borrowing cost and also utilize these borrowings (net of debt servicing) to fund infrastructural investments to stimulate and reposition the economy.

FDI inflow into the country is expected to increase, with the actions of the Federal Mistry of Industries Trade and Investment through the NIPC, the improved ease of doing business ranking and the convergence of the foreign exchange rates.

 The Money Market

In view of the proposed utilization of the proceeds of the US$3 billion dual-tranche Eurobond split between funding the 2017 budget capital projects and refinancing some short term domestic debt, it is expected that the yields on fixed income securities would decline marginally. However, we also expect that the monetary authorities would have to discover an equilibrium interest rate that will on the one hand, attract portfolio investors and on the other hand, encourage lending as a change might alter the inflow of foreign exchange, destabilize exchange rates and increase inflation.

Other 2018 Economic Outcomes

New International Financial Reporting Standards (IFRS) Obligations for Companies, Effective 1 January 2018

IFRS 15 – Revenue from contracts with customers

The way companies will report revenues in their financial statements will change from this year, with the change affecting the 2017 comparative figures in the 2018 financial statements.

Companies will now report revenues in a different way and revenue reporting patterns will change. The revenue reporting pattern is expected to better reflect the substance of the transaction as contained in the contracts. The objective of the revenue standard IFRS 15, is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries, and across capital markets.

This new revenue recognition and disclosures requirement of IFRS 15 will lead to more work for accountants and auditors, and so the cost of issuing financial statements is expected to increase marginally. IFRS 15 will also impact on reported profits and tax (particularly for prior year and transitional entries), therefore adequate transition disclosures/ documentations need to be kept for the review of tax officials in the event of any tax queries/ audits.

IFRS 15 was issued in May 2014 and applies mandatorily to annual reporting periods beginning on or after 1 January, 2018. To recognize revenue under IFRS 15, an entity applies the following five steps:

  • identify the contract(s) with a customer.
  • identify the performance obligations in the contract. Performance obligations are promises in a contract to transfer to a customer goods or services that are distinct.
  • determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. If the consideration promised in a contract includes a variable amount, an entity must estimate the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods or services to a customer.
  • allocate the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of each distinct good or service promised in the contract.
  • recognize revenue when a performance obligation is satisfied by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). For a performance obligation satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognized as the performance obligation is satisfied.

IFRS 9 – Financial Instruments

IFRS 9 replaces IAS 39, Financial Instruments – Recognition and Measurement. It is meant to respond to criticisms that IAS 39 is too complex, inconsistent with the way entities manage their businesses and risks and defers the recognition of credit losses on loans and receivables until too late in the credit cycle.

Under IAS 39, the standard provides that there must be an objective evidence of impairment before provisions are taken. IFRS 9, on the other hand, is slightly more stringent because companies carrying financial assets or financial liabilities in their books (banks and other financial institutions mostly affected) will have to recognize not only credit losses that have occurred but also losses that might occur in future. In other words, these companies would be required to make provisions for expected credit losses over the next 12 months and where credit risks are deemed to have increased significantly, they would have to record the lifetime expected credit loss. The major implication of IFRS 9 is that more provisions will be taken by companies carrying portfolios of financial assets.

In view of the transitional entries to be taken in January 2018 in line with the provisions of IFRS 9, it is excepted that most banks and financial institutions would have taken proactive steps to ascertain the potential effects of IFRS 9 and also identify measures to mitigate the potential effects on their books.

IFRS 9 is effective for annual periods beginning on or after 1 January 2018 with early application permitted. The Standard specifies how an entity should classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items.


As much as a review of the macroeconomic indices help businesses understand the economic trends that may have impacted or will impact their businesses, in one way or the other, each business is also expected to recognize and articulate the peculiar trends around its business activities and operational model that may shape its business environment for the coming year and beyond. Examples of these peculiar situations include the simplicity or otherwise of the operational model, impact of technological advancements on the business, employment and talent retention issues, customer needs versus products/ services offered and the level of customer satisfaction provided,  funding procurement and management options versus business expansion needs, etc.

As the economy is expected to look up in 2018, businesses are encouraged to reshape their operational models in order to tap into and take maximum advantage of the macroeconomic indices discussed.

A compendium of our Journal of 2017 Macroeconomic Trends and 2018 Predictions for Nigeria can be downloaded here.


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