Austerity: FG to raise N480bn through luxury tax, others

November 28, 2014

Minister of Finance, Dr. Ngozi Okonjo-Iweala

The Federal Government is targeting additional revenue of N480bn within the next three years from the implementation of the tax on luxury goods and other austerity measures recently announced by the Minister of Finance, Dr. Ngozi Okonjo-Iweala.

The minister had on November 16 announced the measures following the persistent drop in the price of crude oil in the international market.

Speaking at the fourth edition of the Capital Market Committee retreat in Abuja on Thursday, Okonjo-Iweala listed the areas where the amount would be generated to include taxes on luxury items as well as stoppage of abuses of investment incentives, such as exemptions and waivers.

The luxury goods being targeted for taxation, according to Okonjo-Iweala, include private jets, yachts, expensive vehicles and alcoholic beverages.

The minister also said the Federal Government would assist the Nigerian Customs Service to block existing leakages and loopholes in order to generate more revenue.

Other areas that would help boost revenue, she said, included remittance of surpluses to the treasury by all agencies of government in line with all extant laws establishing them; and the strengthening of tax administration to boost non-oil tax collections.

She said, “On the revenue side, a lot of work was already underway prior to the fall in price to improve non-oil revenue generation.

“There are also ongoing efforts to ensure that all agencies of government comply with all extant laws relating to their remittance of surpluses to the treasury, including the strict implementation of Mr. President’s directive on agencies and parastatals’ remittances to the treasury.

“This is crucial as many agencies have not been remitting surpluses to the treasury as they should. In this regard, I recently met with the managing directors of banks to ensure their collaboration and compliance.

“Still on the revenue side, we are looking at our policies on investment incentives, and waivers and exemptions, and are working with the National Investment Promotion Council to stem the tide of abuses.

“Over 30 per cent of companies operating under pioneer status abuse their tax exempt status. We shall also look at Customs to plug existing leakages and loopholes to enhance revenues.

“We are also introducing surcharges on certain luxury goods in the country, not only to raise additional revenue but also to ensure that the better-off in our society contribute a little bit more to easing the pain resulting from the current economic headwinds.

“In summary, our aim on the revenue side is to raise an additional N480bn ($3bn) over the 2014 base in the next three years.”

The minister, who spoke on the theme, “Competing in an uncertain world,” told the audience that the drop in oil price would not in any way rattle the economic management team because the situation had been expected since 2008 during the period of the global financial crisis.

For instance, she recalled how in 2012 she predicted that the persistent rise in price of oil was not “sustainable” owing to what she described as “possible reduction in global oil demand and increased global oil supply as new discoveries in Africa and elsewhere come on stream.”

However, she assured Nigerians that the economic management team was currently equal to the task of ensuring that the economy did not collapse with the decline in oil prices.

As a strategy, she said the government was adopting a scenario based approach to address the decline of oil prices on the economy.

She noted that as each scenario plays out, additional measures would be unveiled to cushion the impact.

She said, “As a central part of our strategy, we have revised our oil price expectations over the short to medium term.

“We have lowered our benchmark oil price assumption to $73 per barrel after some careful analysis of the possible future direction of oil price as well as the soft floor price for shale oil, which is estimated at about $75 per barrel.

“But let me clearly state that we are not taking a point-estimate position as regards the future price of oil. We fully recognise that oil prices may fall lower or even rebound. Prices could fall to $70 a barrel, $65 or even $60. Prices could also rebound to $75 – $85 a barrel.

“What we did was to work within a range of $60 – $85 thought possible by analysts, put a package of measures around an estimate at the midpoint of that range, that is, $73, and then build additional measures for scenarios at $70, $65 and $60 a barrel.

“The best way to manage uncertainty is to take a scenario-based approach to be ready for alternatives that may occur.”

In all of these, she said that the interest of ordinary Nigerians would be adequately protected by the government, noting that efforts had been put in place to strengthen tax administration to get more revenue from the well-off in the society.

On the recent devaluation of the naira, the finance minister said the move was timely as it would help complement the austerity measures being implemented.

She said, “Our fiscal measures will also now be accompanied by appropriate monetary policy measures as we have always stressed.

“As announced yesterday by the monetary policy authorities, the Monetary Policy Rate and Cash Reserves Requirement on private sector deposits have been hiked to 13 per cent and 20 per cent from 12 per cent and 15 per cent respectively, while the RDAS mid-rate has moved to N168/$ from N155/$, and the band around it widened to +/-5 per cent.

“With these moves, the CBN has shown commitment to complementing the measures outlined by the fiscal authorities to deal with the current challenges and uncertainties facing the country, so the economy can be stabilised.”