The Federal Government on Tuesday finally released the Economic Recovery and Growth Plan, which raised the Value Added Tax rate on luxury items from the current five per cent to 15 per cent.
Through the increase in VAT rate on luxury items, which the document stated would commence in 2018, as well as improvement in Companies Income Tax, a total of N350bn is being projected to be generated annually.
The new plan comes after months of extensive consultation with stakeholders from both the private and public sectors of the economy.
The administration of former President Goodluck Jonathan had in 2014, while unveiling its austerity measures, identified some items that were to be taxed as luxury goods to include champagne, alcoholic beverages, private jets, luxury cars based on engine capacity, and yachts.
The President Muhammadu Buhari-led government said it would increase non-oil tax revenues by improving tax compliance and broadening the tax net by employing appropriate technology and tightening the tax code, as well as introducing tax on luxury items and other indirect taxes to capture a greater share of the non-formal economy.
It also announced plans to undertake major reforms in the budgeting for state-owned enterprises, which would include legislative amendments of the laws establishing many of the SOEs.
The government, according to the document, is targeting real Gross Domestic Product of N81.38tn by 2020.
The document, the content of which is expected to take the country out of recession, was released by the Ministry of Budget and National Planning and contains the economic blueprint of the government for the three-year period, 2017 to 2020.
“Continued dependence on crude oil exports as a primary source of foreign exchange earnings makes the Nigerian economy vulnerable to domestic and external shocks from the oil and gas sector.
“Indeed, although the oil and gas sector represents about 10 per cent of the total GDP, it still accounts for 94 per cent of export earnings and 62 per cent of government revenues. Diversification of the economy must therefore extend to finding other sources of revenue and foreign exchange earnings.
“Policy objectives (are) to improve overall Federal Government revenues by increasing revenues from oil production and targeting non-oil revenue sources. Increase the tax base by raising the VAT rate for luxury items from five to 15 per cent from 2018, while improving CIT and VAT compliance to raise N350bn annually.”
The plan envisages that by 2020, Nigeria would have made significant progress towards achieving structural economic change with a more diversified and inclusive economy.
Overall, the plan is expected to deliver on five key broad outcomes, which are a stable macroeconomic environment; agricultural transformation and food security; sufficiency in energy (power and petroleum products); improved transportation infrastructure; and industrialisation focusing on small and medium-scale enterprises.
An analysis of the document indicates that the real GDP is expected to increase from N69.4tn in 2017 to N72.7tn, N76.05tn and N81.38tn in 2018, 2019 and 2020, respectively.
The GDP growth rate, according to the document, is expected to rise from 2.2 per cent in 2017, to 4.8 per cent, 4.5 per cent and seven per cent in 2018, 2019 and 2020, respectively.
The document stated that “The ERGP has set a GDP growth target of 4.62 per cent average annual growth between now and 2020. From the estimated negative growth of -1.54 per cent recorded in 2016, the real GDP is projected to grow to 2.19 per cent in 2017 and 4.8 per cent in 2018, before peaking at 7.0 per cent in 2020.
“The sectors each play a different role in driving the GDP growth, with agriculture and industry having the most important roles, and services having an increasingly important role in the later stages of the plan.
“Given the ERGP’s strong focus on agriculture, it has set a GDP growth target for the agriculture sector of 5.0 per cent in 2017, rising to 8.4 per cent by 2020, for an average growth rate of 6.9 per cent across the period.”
The document added that that the recovery plan would enable the economy to increase the level of fresh jobs from 1.5 million in 2017 to 3.8 million, 4.3 million and 5.1 million in 2018, 2019 and 2020, respectively.
Unemployment rate, according to it, is expected to reduce from 16.32 per cent in 2017 to 14.51 per cent, 12.9 per cent, and 11.23 per cent in 2018, 2019 and 2020.
The Federal Government, as indicated in the growth plan, is targeting to increase the revenue from oil and non-oil sources from N4.94tn in 2017 to N4.96tn, N5.85tn and N6.12tn in 2018, 2019, 2020, respectively; while expenditure is pegged at N7.29tn, N7.22tn, N7.41tn and N7.65tn in that order.
Total government debts for the period are estimated at N19.3tn, N20.7tn, N20tn and N21.51tn, broken down into domestic debt of N12.43tn, N13.41tn, N13.92tn and N14.32tn; and foreign debt of N6.86tn, N7.29tn, N6.08tn and N7.18tn.
It added, “The combined efforts to grow both oil and non-oil revenues will result in an average annual growth of 12.8 per cent in government revenue until 2020. Efforts will focus on restructuring and rebalancing the revenue structure between oil and non-oil to increase the percentage share of more sustainable non-oil revenues relative to oil revenues.
“Total expenditure is projected to grow by around six per cent, with capital expenditure growing by 6.1 per cent. The fiscal deficit will be maintained within the legally acceptable level stipulated by the Fiscal Responsibility Act at an average of about 1.6 per cent of GDP, but declining to 1.1 per cent by 2020.”
“Fiscal financing will be restructured gradually in favour of foreign financing, while domestic financing is de-emphasized. Thus, while the proportionate share of foreign financing will increase from the current level of about 28 per cent to almost 72 per cent in 2020, that of domestic financing will decrease gradually from about 54 per cent in 2016 to about 26 per cent in 2020.”
During the period covering 2017 to 2020, the document stated that inflation rate was expected to drop from 15.74 per cent to 12.42 per cent, 13.39 per cent and 9.9 per cent, respectively.
Explaining how the economy will be revived, the document stated that the government would be implementing about 60 strategies to achieve its objectives.