Recent increase in FG’s revenue largely due to removal of implicit FX subsidy – World Bank

The World Bank has stated that the recent increase in the federal government’s revenue in the first half of the year is largely due to the removal of implicit FX subsidy.

Alex Sienart, the bank’s Chief Economist in Nigeria stated this during his presentation at the launch of the recent edition of Nigeria Development Update (NDU) titled, “Staying the course; Progress amid pressing Challenges”  

According to him, the implicit FX subsidy in 2022 was larger than the much talked about fuel subsidy which was removed in June 2023.

He said, “We are seeing a fiscal consolidation underway with the fiscal deficit shrinking from 6.2% of GDP in the first half of 2023 to 4.4% of GDP in H1, 2024 and that is largely due to expenditure being roughly constant.”  

“So this surge in revenue is largely due to the removal of implicit subsidy which was even more larger than the PMS subsidy that we talk about. So if you look, in 2022 the PMS subsidy was around N5 trillion but if you look at the revenues the federal government should have been getting from anything dollar-related be it oil revenues and taxes, customs, etc that hit N6 trillion in 2022. So the combined cost was N10.7 trillion or 5% of GDP and that was what was driving the accumulation of Ways and Means.”  

He also explained that with the official exchange rate in 2022 being around N460 and the parallel being around N700, the federal government was losing around N250 for every dollar denominated revenue.

Increase in Federal government’s revenue in H1, 2024 

Nigeria’s revenue in the first half of the year has soared by over 100% to N9.1 trillion on the back of savings from subsidy payments. The increase in the federal government’s revenue has put it on track to meet its revenue target of N18.32 trillion in the 2024 budget thereby keeping the fiscal deficit stable.

• In the past one year, revenues from the Nigeria Customs Service (NCS) has soared on the back of pegging the exchange rate for duties collection to the market reflective official CBN exchange rate unlike in the previous years.

• In the first half of the year, the Nigeria Customs recorded a 127% increase in revenues to hit N2.7 trillion beating its half year target of N2.54 trillion.

• Furthermore, it has been observed that Company Income Tax (CIT) payment from foreign companies has surged significantly following the unification of the multiple segments of the forex market. In the one year following the implementation of the unification policy, foreign companies paid N3.41 trillion in the company tax as against the N1.42 trillion paid in the one year before the FX market unification policy.

This represents a 140% increase in CIT payment by foreign companies as against the 35% increase in CIT payment by indigenous firms who always pay in Naira.