Juliana Taiwo-Obalonye, Abuja
The Minister of State Budget and National Planning, Clement Agba recently took time off to explain the Federal Government’s decision to raise Value Added Tax to 7.2 per cent from 5 per cent earlier in operation.
In this interview with Daily Sun he gave reasons why VAT increase by the present administration has become inevitable if the country must address its huge infrastructure deficit.
Agba also spoke on the benefits of border closure to the government and Nigerian in general among other issues.
Anxiety over another recession over rising inflation, rising debt and fiscal challenges
I agree that we tend to have a revenue problem, but I think that more importantly it is how we manage the revenue we have, that is the issue. In the past Nigeria made so much money when oil production was high and price was averaging over $100 per barrel. Yet, we have huge deficit in infrastructure. If the governments of the day had taken care of what ought to be done, had we prudently used our money, we would not have even gone into a recession in 2016 when oil price crashed.
So, for me even though I do agree that we have revenue problem, I think what is more important is that the little that is available, should be well utilised.
Are government revenues utilised effectively and efficiently?
What we are beginning to do to allay the fears of Nigerians is to ensure that the little money that is available is appropriated to the priorities sectors that will grow economy. And this is also based on the Economic Recovery and Growth Plan (ERGP) put in place when Nigeria went into a recession because we are still following that plan. We have had nine quarters of consecutive growth. The growth may not have been as planned, but what is important is that it is positive and consistent.
So, I want to reassure Nigerians that they need not get worried. I know people will say recent statistics we released showed that inflation has gone up but when you look at it, you will ask why did this inflation go up? Is it something that is going to be long term or short term or is it as a result of the closures of the borders. Sometimes certain things happen that will change the structure of the economy.
But if you will recall when Nigeria first went into GSM, people struggled to have a SIM card, people paid N25,000, N30,000 just to have a SIM card. Today you are begged to have a SIM card because the forces of demand and supply had to come into play and that is what is happening.
Mr. President has pumped a lot of money into the agric sector. A lot of our farmers have gone back to the farm, rice farmers output is increasing, millet and all others, but Nigerians were not buying because of the influx of these banned imported products.
For over three years no permit has been given for rice to be brought into this country, yet you find it everywhere. The next thing is that the quality of rice that comes into the country. Is it truly something that is fit for human consumption? Those who bring it in cannot consume it in their country because they have overstayed in the silos but they come and dump it on our country. And because we have prohibited it, they decided to use our neighbouring countries.
So, what has happened because of the influx of this foreign consumables, is that our farmers became discouraged when they were no longer able to sell their produce. So, with the closure of the borders, there was a supply gap and of course when you look at forces of demand and supply, since the demand is higher than the supply, then prices have to go up. That is why you see the temporal increase in inflation rate.
If you recall from 2016, inflation has been trending downwards from 18 percent we got down to 10.8 percent before it started rising again due to the border closure, which for me is temporal spike.
Priorities project of funding you are talking about
I just mentioned one which is agriculture, the other one is mines and steel, these are areas that are going to create employment. For the real sector, we are looking at infrastructures like roads and railways. You can see that a lot of monies are being pumped into rail. The rail architecture is being changed to make it more efficient, we are taking the rail lines up to the ports in Lagos Tincan, Apapa, also Warri. The Aladja-Itakpe rail line is being linked up to Abuja so that if you move from Warri you can at least move up to Kano. So, these are some of the areas that monies are being put into.
A lot of money is also going into the power sector to take care of the bottleneck in transmission because currently with the installed capacity we are able to produce about 7,000 megawatts, but we are not able to transmit all of that. And because we are unable to transmit all that, we are also unable to distribute it to get to the final consumers. So, that bottleneck is also being worked at. These are the sectors we are truly focusing on.
The other one is the mass housing programme where a mortgage fund is going to be set up to provide low interest rates loans to the poor and the vulnerable, so that they can own their homes too.
Why government is insisting on VAT increase rather than boosting tax base by capturing more taxable people.
VAT is a consumption tax and this is consumption tax is more for the high and mighty in the society. I say this because it does not cover all commodities, it does not cover basic food, pharmaceuticals, educational materials, institutions and all of that, and would not affect the things that the poor and the vulnerable consume. Even within West Africa, we are still the lowest in terms of rate of VAT. Sometimes I wonder what kind of a country we are, maybe a country of contradictions. We want to eat omelet, but we don’t want to break eggs, we want good roads but we don’t want to pay tax, we want power but we don’t want to pay the price, we want fuel we don’t want to pay for it. Everything has to be provided free. Countries all over the world survive on taxes and levies for development to be sustainable.
So, like I said, five percent VAT is one of the lowest in the world. People tend to refer to Ghana that they have reduced theirs and we are increasing but what they don’t tell you is that theirs have just been reduced to 12 percent. If I had my way, I will take it to 10 percent, but this was a discussion during the negotiations for the minimum wage and a lot of the stakeholders were involved including labour.
Note that a lot of the states have been having issues paying salaries and with the increase in minimum wage, it means that we require more funding. Eighty five percent of what is going to come up from VAT would be going to the states and local government, the Federal Government only gets 15 percent. So, this is not so much of bringing in revenue for federal but bringing in revenue for the states and local government so that they also will be able to meet the task of paying those who work for them.
FG’s plan to capture taxable adults currently not paying tax
You will see that with the Finance Bill that has gone to the National Assembly, there are other areas that have been captured. This is just to show that government is not out to punish the citizens.
The MSMEs from survey by PwC, UNIDO, puts them to contribute about 84 percent of employment and UNIDO says its about 80 percent. We are looking at those segments of people because they are the engine room for creating employment and economic activities.
And we agreed that those whose turnover is N20 million and below will be tax free, talking about company income tax. And those whose turnover is N25 million to N100 million, their tax rate is reduced from 30 percent to 20 percent. Again, this will encourage others to come in. So, that is one way of also of expanding the tax net. And those who are between zero and N25 million turnover will come into the tax net. There are a lot of other provisions that we have in that Finance Bill because it’s a humane government and so in some areas additional income will come in and in some areas there will be a little bit of reductions just to be able to stimulate economic activities.
Capturing taxes in the informal sector
Most of them fall under the Micro Small and Medium Enterprises (MSMEs), that is why we said tax free so you may want to legitimise what it is that you are doing and you come and register and get your Taxpayer Identification Number (TIN). But the Federal Inland Revenue Services (FIRS) are also working out those modalities.
Any prosecutions after the tax amnesty programme (VAIDS)?
You see, sometimes there are certain things you don’t say publicly, when you do that you let the cat out of the bag and then you are unable to solve the problems. So, this is one question I wouldn’t want to speak on for now.
China, Turkey and others built massive infrastructure via PPP, why is Nigeria not exploring that option?
Nigeria is exploring that option, and the Infrastructure Concession Regulatory Commission (ICRC) is doing quite a lot in that area. But recently, we want to work on more coordination so that we are not seen to be working at cross purposes. As we speak, there is some discussion that is going on with regards to Public Private Partnership (PPP) which involves the Ministry of Finance Budget and National Planning which involves ICRC and others, like the Dangote refinery that is private sector led. We are working with the private sector on that. But going forward, one of the things that we really want to determine are those critical infrastructures that will have economic value and will be able to attract the private sector to want to invest. If you are looking at roads constructions for instance, if it is not a primary road that has a lot of traffic, private sector will not want to come into it because they are not welfare organisations. So, first we are trying to determine those, work out the economics and then put them forward to private sector to express interest. Because, those are the roads that they can toll and be able to get their investments back overtime. But if it is a rural road for instance where the traffic is low and investment is high, the private sector wouldn’t want to dabble into that.
Other areas the private sector may be interested in.
I have just spoken to the fact that we are identifying and then working on the economics and then to put them forward for expression of interest.
Insight into €500 million Eurobond being raised to create jobs. What areas of job creation and what is the timeline? Critics also accuse government of increasing the nation’s debt profile
First, we are only giving a guarantee, it is not the Federal Government per say that is seeking the facility. It is the Bank of Industry and this isn’t the first that they have done that. The last one that they did was for three years tenure and the interest rates were higher. This one that has been negotiated has a much more lower interest rate with a longer tenure of five years.
Like I said the objective is to support industry, revitalise Afro-industrial processing zones, to facilitate the creation of new jobs and so it is mainly targeted at MSMEs to increase the income of the farming communities so that there will be more inclusion of MSMEs, and small holders in industrial value chain. Basically, it is to catalise economic growth and create jobs.
Like I said earlier, from the PwC survey, 84 percent of jobs are created within the MSMEs space. UNIDO puts it at 80 percent. Look at the UN standard that says for every one billion invested there is usually 6,000 jobs that is created. So, you can see how much employment that will come out of this which we estimate to be about 1.2 million jobs.
BOI has had a success story, they have always been able to pay back their loans and also make profit out of it and so there shouldn’t be any fear. And their rating is also very high based on the last loan that was taken.
Addressing critics fears about efficiency of government vis a vis the loans. If you take loans to pay salaries, to feed it may be considered bad for a government. But but if you are taking loan for production, infrastructure then it is good. Because, already we have all agreed that there is a dearth of infrastructure, we have serious deficits and you have alluded to that in one of your questions a while ago that we don’t have revenue.
So, what should we do? Fold our arms and look? A country is like a state and it’s like an individual and you have responsibility as a parent to your children. So, what do you do, you say there is no money so let’s just sit and look? If all the monies that were made from 1999 or during the period that oil revenue was so high was put into infrastructure then, we will not be telling this story.
Look at the Itakpe-Aladja rail, for over 40 years no train passed through it and it has been idle for all these years, trees were growing over the project. So, money is now being taken to make it functional, that is a good loan. You know if we are able to network the entire country with rail like we are currently doing following the master plan, the pressure on our roads will reduce, we will move people and we will move goods by rail and our roads will last longer. But we abandoned the rail and have been spending so much money on the roads and we are putting a lot more traffic and tonnage on the roads which is why the roads are not lasting, and so the investment is going to waste. Is like throwing money into the pond.
We have a president who is committed to ensuring that our lost glory is brought back. And the loans that are being taken are targeted at projects and they are being prioritised and commissioned in segments.
Now you can move from Abuja to Kaduna, stations are now being built on the Aladja to Warri line so that it can now be fully commercialised. A decision has also been taken to link up that Itakpa to Abuja. So, its a continuous trip that you can make, instead of stopping at Itakpa and taking a bus to Abuja. And it’s now being linked to the ports, that is progress. We can’t fold our arms. What is bad is when you take loans like was done in the past to pay salaries. But no loans are being taken now to pay salaries, they are being used for infrastructure. Because if we don’t do it now, and we wait till manna falls in 10 years time, all the monies in the world comes, a road that would have cost N1 billion today will now cost N10 billion at that time because there is time value of money. So it’s better to do it now than never.
States are in dire straits but the Ministry insists on deducting the loans it gave them, are there plans to help states boost their IGR and block leakages so they become less dependent on FAAC?
We are not running a unitary government, it is a federation. The states don’t take instructions from the Federal Government. This is a federation made up of the federal and the states, that is why they say is national and sub national. And you used the right words, it was a bailout to assist. But each state decides what to do with their funding and they are responsible to their electorate. I think our electorate need to begin to take a lot more responsibility to demand for accountability from their leaders. The Federal Government cannot say you must do this or that road, it’s a decision that they must have to take. You have the basic education fund and if you are interested you pay the counterpart fund and the federal gives the other. But how many states are taking advantage of that? There is now one for basic healthcare.
You know usually when you take a loan, you asked about the N500 million loan and you are taking about interest, it means you are going to pay back and there are conditions in there that you have to meet and conditions that follow it. The same thing applies to the bailout. Abinitio, the states knew that they were going to pay back and they also knew that there were interests attached to it that they had to meet. And if all these are not met our credit ratings will decline and it will affect the nation.
So, it was not something that was said take and then two years later, you say we have thought about it now you have to pay interest. They knew upfront that there will be deductions.
Measures to check corruption in the MDAs.
I am sure you have heard of the controversy on the Integrated Payroll and Personnel Information System (IPPIS), that is to take care of some of these issues. You know for so long there had been the issue of ghost workers across the country whether at federal or at state levels. And to stem this, the IPPIS scheme was introduced. Right now there is a high level of compliance and in fact the President had given instructions that those not on IPPIS will not be paid. This is to address this issue.
You are also aware of the controversy from ASUU that they will not comply, why will anyone not want to comply if they don’t have skeletons in their cupboards. So for me this is no news.
When you are captured, biometrics details are also captured and that is why we are saying use the IPPIS. There is no 100 percent compliant yet so ICPC might be right because they have seen maybe those who haven’t complied. I also do not know the period covered by their report maybe is before IPPIS or at 40, 60 percent compliance. But I am not denying the fact that some of those are not existing but the issue is there is a solution using the IPPIS to deal with that and that solution is on course.