Nigeria’s Federal Government made more money from non-oil sources last year than from oil, but the country is still far from getting rid of its long-standing dependence on oil revenues. This has been a promise and failure by successive presidents.
In the 11 months to November 2021, the government earned 62.5 percent of its income from non-oil sources. This is the first time non-oil revenue has exceeded oil revenue since 1973’s oil boom.
According to the Budget Office, the government’s non-oil revenue (cash generated from sources such as Corporate Income Tax (CIT), Valuable Added Tax (VAT), and Customs) was N1.62 trillion. This is a significant difference to the N970 billion oil revenue.
Even though non-oil revenue is higher than oil revenue it still remains inadequate to finance the annual budget. It is the only income source that the government has at the moment because oil revenues have fallen due to lower prices and lower production levels.
Oil revenues have dropped more than half from N4 trillion at their peak in 2014 to N2 trillion since 2016. This has allowed non-oil income to become a dominant source of revenue.
The government is spending too little on non-oil income despite the increase in oil income. This indicates that Nigeria’s postoil future remains uncertain.
The Federal Government spent N12.56 trillion during the period. Non-oil revenue was N1.62 trillion in 11 months.
The majority of this expenditure was funded instead by debt. This amount came to N6.7 trillion over the 11-month period under review, 53 per cent of all expenditure.
“We can only say we have successfully reduced our reliance on oil when non-oil revenue can fund the majority of our expenditure,” said Taiwo Oyedele, a partner and head of tax and regulatory services at PriceWaterhouseCoopers (PwC) Nigeria, saying, “Our dependence on oil revenues has only shifted to borrowing.
“Remember that even if non-oil revenue declined, it would still be greater than oil revenue, which has fallen significantly over the past few years.”
Oyedele admitted however that there was some progress in boosting non-oil revenue, particularly as it pertains to certain tax reforms such as the increase of VAT. However, he cautioned that an economy still recovering after a severe pandemic shouldn’t be overtaxed.
Corporate Income Tax contributed 15 percent more to the total cash to non-oil revenues during the 11 months to November 2021 with N718 billion.
Revenues from customs were N503.75 trillion, while VAT exceeded the budget target by 65 percent to reach N360.56 billion.
These taxes have risen in response to an economy that is quickly putting behind the COVID-19 –induced economic disruptions. As profitability improved, companies declared higher taxes in 2017 than they did in 2020.