The 2017 Budget is intended to expand PPP and partner with development capital, to leverage and catalyse resources for growth.
The 2017 Budget is intended to expand PPP and partner with development capital, to leverage and catalyse resources for growth. Other key objectives of the Budget include:
a. Focusing on the rapid development of infrastructure such as roads, railways, power, information and communications technology, etc., that have quick positive effects on the economy.
b. Utilising Special Economic Zones and Industrial Parks as vehicles to accelerate domestic economic activity for innovation and wealth creation.
c. Contributing to food security and creating platforms for agro-business in agriculture supply chains through the Agriculture Green Alternative Plan.
d. Establishing a new Social Housing Fund to deepen the mortgage system and expand its availability across all States of the Federation.
e. Encouraging and stimulating the growth of small and medium scale industries for innovation, job creation, productivity and wealth creation.
f. Achieving self-sufficiency in food and other products, and patronising made-in-Nigerian goods and services.
g. Reviving Nigeria’s fertilizer blending plants to ensure that local inputs for agriculture, such as NPK fertilizer, are available and affordable.
h. Recapitalising the Bank of Industry and Bank of Agriculture with ₦15 billion.
i. Stabilising and creating coherence in the monetary, fiscal and trade policies of the nation.
j. Diversifying the economy and creating more jobs.
k. Enhancing public service delivery and security.
l. Providing social safety nets for poor and vulnerable Nigerians.
The aggregate revenue projected in the 2017 budget is ₦4.94 trillion, out of which oil revenue will contribute ₦1.985 trillion. This is based on an estimated crude oil production of 2.2 mbpd converted at an exchange rate of ₦305:US$1.
Non-oil revenue for the year is projected at ₦1.373 trillion, which represents about 28 percent of the budgeted revenue. Independent revenues, various recoveries and mining will account for the balance of about ₦1.584 trillion.
The 2017 budgetary expenditure is estimated at ₦7.30 trillion. This represents an increase of about 20 percent over 2016. However in real terms, using an average inflation rate of 15.6 percent, total expenditure increased by a mere 4 percent in 2017. The capital expenditure (exclusive of statutory transfers), which constitutes a larger part of 2017 budget (about 28 percent of the projected spending) increased from ₦1.59 trillion in 2016 to ₦2.06 trillion in 2017. This indicates that the FG plans to further improve infrastructure and security in the country.
The Ministry of Power, Works and Housing is the MDA with the highest capital allocation with a budget of ₦529.34 billion. The Ministry of Transportation and Ministry of Education come in second and third with projections of ₦262 billion and ₦142 billion, respectively.
In 2017, debt servicing is projected to increase by 22 percent, which is above the current inflation level, indicating a real increase in the country’s debt burden as the FG plans to increase borrowings.
Interestingly, there are no significant changes to tax and regulatory policies in the 2017 budget proposals. However, Government intends to broaden the tax base, improve the effectiveness of the revenue-collection agencies and tax compliance. Consequently, audit activity will increase across the board; with particular focus on transfer pricing.
The highlights of the budget as regards tax are as follows:
Companies Income Tax (CIT) and Personal Income Tax (PIT)
The budget does not make reference to changes in CIT and PIT rates in 2017.
Petroleum Profits Tax (PPT) and Royalties
• There is no proposal to change the PPT rate.
• However, there is a proposal for a new joint venture (JV) funding mechanism, which will dispense with the need for the FG to provide JV cash calls and allow for cost recovery.
Value Added Tax (VAT)
The budget does not make reference to changes in VAT rate in 2017. However, there are reports that the FG may adopt a higher VAT rate for luxury items. We definitely need a more comprehensive VAT reform comparable to what obtains in other countries where a higher VAT rate is matched with input VAT recovery and lower income tax rate. This is consistent with the shift from direct to indirect taxes enshrined in the National Tax Policy.
• The budget does not make reference to changes in custom duties rates in 2017.
• In October 2016, the FG approved the ECOWAS Common External Tariffs (CET) for 2015 to 2019 alongside its 2016 Fiscal Policy Measures.
• Aside from the reduction of import duty for certain items in the 2016 Fiscal Policy Measures, the CET includes an Import Adjustment Tax (IAT), which is a temporary provision to allow ECOWAS member states to adjust to the ECOWAS CET during the transitional period.
• The IAT component of the ECOWAS CET would continue to be gradually phased out until the 2020 deadline when the detailed provision of the ECOWAS CET would be in full force.
• Additional items originating from non-ECOWAS member states were added to the Import Prohibition List.
Export Expansion Grant (EEG)
• The FG has proposed to revive the EEG scheme by way of tax credits, thereby incentivising non-oil exporters. ₦20 billion has been budgeted for this purpose.
Export Processing Zone (EPZ)
• The FG intends to expand existing EPZs and develop new ones as part of its strategies for increasing non-oil revenue. ₦50 billion has been estimated for this programme.
• Approved enterprises carrying on approved activities in EPZs are exempt from all legislative provisions pertaining to taxes. The expansion and development of EPZs will create opportunities for new companies to enjoy tax exemption on their operations in the zones.
• The FG is set to finance the 2017 budget deficit by borrowing ₦2.32 trillion; with expected domestic borrowing estimated at ₦1.254 trillion.
Based on the provisions of the CIT (Exemption of Bonds and Short Term Government Securities) Order, 2011, income derived from investing in FG securities is tax-exempt. Therefore, companies might look to include the purchase of treasury bills in their treasury management plans.
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