‘Contrary to the popular parlance in the government quarters that Nigeria has revenue problem, the country’s debt crisis is not a result of inadequate revenue and it is anti-growth to view manufacturing taxes as the last resort for curbing the debt problem.’
In the absence of commensurate infrastructural development and significant success in poverty-reduction and industrialization programmes, Nigeria’s bloated debt profile has become a source of worry, says Manufacturers Association of Nigeria (MAN) in its CEO’s Confidence Index (Special Focus) for First Quarter 2023.
According to the report, “Contrary to the popular parlance in the government quarters that Nigeria has revenue problem, the country’s debt crisis is not a result of inadequate revenue and it is anti-growth to view manufacturing taxes as the last resort for curbing the debt problem. The manufacturing sector which has always been at the receiving end has not felt any significant impact of the debt finance on the numerous challenges that have bedeviled its performance in many years. Infrastructure decadence, forex scarcity, credit crunch and naira depreciation have become bones in the throats of MAN members despite the humongous increase of over 410% in the country’s debt profile in the last eight years.”
It adds that amidst multiple taxes, Nigeria’s real problem is not revenue generation or collection but the siphonage of collected revenue so that they do not reflect in the records.
It argues, “Contrary to popular believe, exorbitant taxes are also collected in the informal sector of the economy without adequate remittance into state coffers. MAN is of the view that debt worth of N77 trillion is an enormous burden to inherit and will most likely limit the achievements of the new administration unless the
following recommendations are implemented:
- Increase the revenue base by widening the tax net through an enhanced data capture of business operators in the informal sector
- Strictly implement the Voluntary Assets and Income Declaration Scheme (VAIDS) through the Federal Inland Revenue Service (FIRS).
- Further identify and amend the loopholes in the tax laws in order to reduce the leakage of tax revenues
- Promote fiscal discipline by reducing the cost of governance and strictly complying with section 41 of the Fiscal Responsibility Act and section 38 (sub-section 2) of the CBN Act.
- Ensure the rehabilitation of local refineries and remove the humongous annual subsidy in phases while ensuring they are backed with appropriate palliatives for households and businesses.
- Ensure proactive judicial investigation into allegations of oil theft and stamp duty fraud.
- Embark on mechanisms that promote coordination and confidence among creditors in order to be granted opportunity for debt restructuring.
- Prioritize debt management and transparency to control risks and reduce the need for restructuring, which stands to benefit both debtors and creditors
- Ensure proper management of capital and recurrent expenditure by determining the appropriate spending priorities that reflect the yearnings and aspirations of households and businesses within the limits of available resources.
- Establish incorruptible monitoring teams tasked to ensure effective budget implementation and detailed evaluation of budget performance.
- Set up a special court and reinvigorate the anti-graft agencies like the Economic and Financial crime Commission (EFCC), and the Independent Corrupt Practices Commission (ICPC) in order to strengthen the fight against corruption.
- Promote transparency and productivity in government expenditure by ensuring public funds are expended on feasible development projects in order to minimize wastage.
- Optimize the capability of the states to generate internal revenue given the abundant natural and human resources.
- Diversify the country’s revenue base by boosting critical sectors like manufacturing, agriculture, entertainment, tourism and ICT.
- Prioritize and incentivize critical sectors with low interest rate and improved infrastructure to enhance investment and productivity.
- Expend recovered loots on debt servicing and sustain the economy with internally generated revenue.
- Ensure highly effective exchange rate management to avoid exchange rate crisis that could threaten the sustainability of debt.
- Ensure the funds borrowed are highly purposeful, properly documented and studied along with the specific maturity date, negotiations and clauses, among others.
According to the report, “As of December 2022, the country’s total debt had escalated to N46.25 trillion, marking about 17 percent surge from the record of December 2021. The debt composition revealed that while domestic debt stock accounted for 59.6% of the total debt, external debt stock contributed 40.4%. Unfortunately, the country’s debt profile has ballooned to over N77 trillion following the approval of the securitization of the Ways and Means advances. A whooping debt service-to-revenue ratio of over 100 percent may spell doom for the new administration leaving it to continue the borrowing spree or incapacitated to provide critical infrastructure needed to boost the manufacturing sector and kick start the recovery of the economy.
“The domino effects of escalating public debt on the manufacturing sector are endless. To start with, rising domestic debt is highly crowding out private investment in the manufacturing sector by reducing credit availability and forcing hike in lending rates. External debts are mostly serviced in foreign currencies, hence high demand for foreign currencies further depreciates the naira and makes importation of non-locally produced critical inputs highly expensive for manufacturers.”
It states further, “Moreover, higher debt servicing is consuming greater volume of forex and worsening the forex scarcity that has plagued the manufacturing sector for many years. Higher debt repayment requires increased revenue. The Nigerian government has continued to breed a harsh business environment by its indiscriminate imposition of high and multiple taxes on manufacturers all in a bid to generate revenue. A major point of reference is the recent exponential hike of the excise duties on beverage and tobacco goods.
“Huge public debt led to low foreign investment and foreign capital inflow which worsen the forex scarcity that has remained a bone in the throat of manufactures. As public debt continues to grow unsustainably, it becomes increasingly difficult to cover salary payments and other recurrent expenditure in the civil service. The implication is more borrowing for government consumption or recurrent expenditure and less on infrastructure and other capital projects meant to boost manufacturing sector performance.”
Siaka Momoh :Sector; www.realsectornow.com;