Diversifying the revenue base

As the price of crude oil in the international market nose-dives, fears have heightened that the nation’s three tiers of government may soon run into serious financial crisis. Crude oil price per barrel fell from $147 to less than $42, its lowest price since January 2007. Apart from the sharp decline in oil prices, government’s actual revenues for 2008 fell below budgeted levels due to the Niger Delta crisis, which resulted in a series of oil production shut-his.

As the possibility of further fall in prices looks real, the development is already causing some disquiet among the major stakeholders to the Federation Account. While the federal government appears to be facing the grim reality by reducing the budget benchmark price to a more realistic price, the 36 governors initially insisted on a higher benchmark price.

The drastic fall in crude oil prices has been attributed to the scaling down of industrial production in the United States and other industrialised countries as a result of the global meltdown.

Truly, the fall in crude oil prices calls for prudent spending. But contrary to the wise counsel by the CBN governor that oil dependent countries should not spend their entire oil revenues during boom periods, the three tiers of government have been lavish in their spending of the excess crude earnings.

The N16 trillion that accrued to the country between 1999 and 2007 was largely frittered away. Very little was done to diversify the nation’s revenue basis.

It is common knowledge that oil and gas exports account for more than 80 per cent of federal government revenue. It is estimated that Nigeria has earned over $1.7 trillion from oil since independence. Though the country’s foreign reserve stands at $60billion, it can only finance less than  30 months of import bills.

Indeed, the times are hard and offer a lot of challenges. Without being told, state governors as well as local government councils ought to intensify efforts at raising their internally generated revenue profiles. That is to say that states and LGs should henceforth depend less on the monthly FAAC allocations by intensifying their internally generated revenue drives.

It is heartrending that  after the country has gone through painful boom-bust crises in the past, there has never been any genuine effort to diversify the nation’s resource base and stimulate internally generated revenues. Instead, a period of depressing global economy and declining revenue from oil has always resulted in the formulation of anti-people policies. Owing to over-dependence on oil, revenues, the three tiers of government have virtually abandoned other veritable sources of income.

Even for the few revenue sources other than oil, there is mounting evidence of insufficient collection of taxes that belong to the three tiers of government. There are many federal agencies that short-change the government in the area of money remittance to the government. For instance, federal agencies such as the Nigerian National Petroleum Corporation (NNPC), the Nigeria Ports Authority (NPA) and the customs have reportedly failed several times to transfer a large chunk of collected revenue to the Federal Inland Revenue Service. The federal government is accused of rashly granting duty relief that reduces the revenue pool, hurt domestic production and induces job losses.

Banks are also accused of remitting only a fraction of the revenues they collect on behalf of government to public treasuries. Indeed, the House of Representatives stated recently that over N1 trillion receipts by ministries, departments and agencies in the last few years were not remitted and largely unaccounted for.

The defective federal structure and the existence of anti-investment laws in the nation’s statute book, that render about 34 non-oil mineral resources untapped have stifled wealth creation and economic diversification. The effect is that virtually all the 36 states and their 774 councils remain fiscally weak and unviable.

Now that oil revenues are drying up, the government should not aggravate the level of poverty in the society by increasing the burden of taxation on the people. While the existing loopholes in revenue collection should be plugged, the three tiers of government should look for ways of cutting down on the escalating cost of running government. It should check the rampant graft and profligacy by public life.

Arnold Alalibo