October 25, 2022/FBNQuest

We see from the Budget implementation report for Q2 ’22, that total revenue available to fund the FGN’s budget in H1 ’22 amounted to NGN2.4trn. In comparison to the budgeted sum for the half year, the amount represents a shortfall of NGN1.7trn, or an implied revenue performance of 58.6%. On a y/y basis, the FGN’s available revenue was little changed, as it increased by just 4.0% compared with NGN2.3trn in H1 ’21. The observed trend is consistent with the historical pattern of actual revenues diverging markedly from stated targets due to the FGN’s aggressive revenue projections. The report is produced by the Budget Office of the Federation in conjunction with the Office of the Accountant-General of the Federation. 

Although almost all the key revenue lines underperformed relative to the budget, one of the primary sources of the revenue shortfall was the FGN’s independent revenue which came in at just NGN467bn, far short of the pro-rata budget benchmark of NGN1.3trn.

The FGN’s independent revenue was also down by around -16% on a y/y basis.

The FGN’s portion of oil revenue (including its share of LNG dividends), totalled NGN747bn and underperformed the benchmark by almost 37%. However, it improved by c.21% relative to the sum for the comparable period of 2021, thanks largely to higher oil prices.

Away from oil, the FGN’s share of non-oil revenue increased by c.22% y/y to c.NGN952bn. However, it was still about c.-11% below the budget target.

Specifically, revenue from customs and excise was the major source of the variance relative to the pro-rata benchmark. Although it was up 48% y/y to NGN347bn, it was about 17% below the pro-rata budget benchmark of NGN417bn for H1 22.

With respect to other non-oil revenue sources, the NGN451bn of revenue generated from company income tax was almost in line with the budget target of NGN454bn, while revenue from value added tax at NGN154bn missed by just 4%.

Going forward, we expect that the government’s recent efforts aimed at curbing crude oil theft and pipeline vandalism will help in boosting oil revenue in 2023.

The FGN also has an ambitious plan to improve tax revenue by expanding the tax base and improving tax collection efficiency.

We welcome several of the proposals in the 2022 finance bill, especially those that aim to gradually eliminate pioneer and other tax incentives for mature businesses.