Nigeria: FIRS to the Rescue as Subsidy Gulps NNPC’s Revenue

With a major chunk of the Nigerian National Petroleum Company Limited’s (NNPC) monthly revenue now being channeled to the payment of fuel subsidy, the Federation Account Allocation Committee (FAAC) now relies heavily on the revenue from the Federal Inland Revenue Service (FIRS) for its monthly sharing to the three tiers of government.

The 2021 financial records of the FIRS’ contributions to FAAC showed that in the year under review, the federal revenue collecting agency’s contribution was a total of 59.45 per cent, as out of the total of N8.912 trillion to the three tiers of government last year, N5.298 trillion was contributed by the federal revenue collecting agency.

The trend has continued in the first five months of 2022 as the NNPC’s contribution is still weighed down by the fuel subsidy burden.

This emerged just as Nigeria again lost a whopping $650.7 million to crude oil losses resulting from declaration of force majeure, equipment failures and host communities’ disturbances between the April and May production cycle.

The World Bank had estimated that fuel subsidy payment in the country may rise to N5 trillion this year. Last week, President Muhammadu Buhari shut down calls for the removal of petrol subsidy, querying why the West should be demanding that Nigeria ends subsidy payments, while they continue to support their citizens with same to ameliorate the current economic hardship. In May, the NNPC was unable to carry out its statutory obligations to the federation, recording a N704 billion deficit for the year thus far. In its monthly presentation to FAAC for May, the national oil company had disclosed that it deducted another N327.07 billion as shortfall in the month under review. With a projected N1.473 trillion payments to the federation for the entire year and a monthly remittance of N122.767 billion, the implication was that the federal, state and local governments may continue to have cash shortages for a while since the payments constitute a major revenue source. In January, February and March 2022, petrol subsidy gulped 210.38 billion, N219.78 billion, and N245.77 billion, respectively while in April, the country spent N271 billion. These deductions were expected to continue throughout the year.

However, a breakdown of the FIRS monthly contribution to FAAC for 2021 showed that in January, it contributed 65.71 per cent (N388.54billion) to FAAC; in February (60.57%) – N361.26 billion; March (60.01%) – N501.32 billion; April (59.74%) – N403.70 billion; May (59.66%) – N359.77 billion; June (65%) – N664.30 billion and July (52.03%) – N397.95 billion.

Other months included August (55.46%) – N403.85 billion; September (58.8%) – N516.57 billion; October (57.13%) – N333.82 billion; November (58.17%) – N496.19 billion and December (60.43%) – N470.90 billion.

The report also showed that in the past three years, the FIRS had been making steady progress in terms of revenue collections as it garnered N5.262 trillion in 2019; N4.952 trillion in 2020 (obviously due to COVID-19) and N6.405 trillion in 2021. It was glaring that the FIRS has been gradually making progress despite the impact of Covid-19, the instability in the oil and gas sector, insecurity in the country and economic downturn.

Findings also revealed that out of the total expenditure incurred by the FIRS during the year 2021, the payment of staff salaries, allowances and other staff-related costs accounted for over 63.6 per cent.

Other key recurrent activities of the Service took 19.2 per cent of the funds, while capital expenditure accounted for only 4.8 per cent of the total fund utilisation for the period under review.

Interestingly, out of the meagre amount received by the apex revenue agency, 12.47 per cent of the total amount received as cost of collection (CoC) was transferred for servicing the capital project account and for the funding of its 13th-month salary to staff.

The 19.2 per cent which represented other key recurrent activities was spent on fueling and servicing over 272 generators, rent and the rent paid in respect of over 71 rented properties/office accommodation (particularly in Lagos).

The remaining amount was used for capacity building of over 11,000 workers, fueling and maintaining over 1584 operational vehicles, and payment of Service Level Agreements for security, cleaning, and maintenance of properties and critical equipment in its over 367 operational offices nationwide.

Sadly, the agency could only spend 4.8 per cent of its revenue on capital projects. This could be largely attributed to the lack of adequate funding for the critical agency which accounts for well over 60 per cent of the monies distributed to the three tiers of government in the year 2021.

Analysts believed that in view of the above positive contributions, the agency needs more support from the government than it is currently getting. This, according to them was necessary because of the current peculiar revenue challenge the country was facing as well as in view of some of the global and local challenges being faced by the revenue authorities. These included capital projects started some years ago by FIRS are yet to be completed; some of the agency’s construction sites have been abandoned due to delays in honouring payments certificates; inadequate funding has also made it difficult for the FIRS to adequately build capacity and retrain its officers for modern tax administrative practices; as well as lack of ICT infrastructure necessary to identify and track digital transactions.

Specifically, FIRS has lots of capital projects it had started (including its Corporate Headquarters which is rated one of the 10 top capital projects in Africa) and could not complete the project for lack of funds.

The provision of adequate funding would also be necessary because the FIRS would be able to deploy technology and block leakages; generate more revenue to fund the budgetary needs of both local and state governments as well as the federal government at the centre; complete its capital projects (particularly its HQ, prototype offices, training schools etc.) to save it from the current huge rents it pays to landlords for its office accommodations in some major cities; and above all provide more funds for the country as against the current resort to constant borrowing by the government at all levels is unsustainable.

Furthermore, analysts also advised governments at all levels to invest wisely the little that the apex revenue agency currently generates in critical infrastructure, social amenities, safety and security of the citizens.

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