London Brent touched $68.03 in early trading in Tokyo on the 3rd of January as the prospects for the 2018 budget improves. On November 7 2017, the President had submitted an 8.61trillion naira appropriation bill to a joint session of the National assembly with a $45 oil benchmark. The budget estimates a 2.8trillion naira revenue generation from oil receipts, with a 2.1trillion naira deficit in estimated revenues. Nigeria currently produces 2.53 million barrels per day with the hopes that the reforms in the Petroleum Industry Bill (PIB) passed last year by a joint session of the National Assembly (that transfers the collection of revenues to the Federal Inland Revenue Service), will be able to police the system and ensure that oil theft is reduced, fraud is clamped down on and tax evasion is eliminated.
Section 313 of the Petroleum Industry Bill Act Reforms of 2016 from the earlier version of 1969 establishes comprehensive reforms for the Oil & Gas Industry in Nigeria, it mandates that the one tier tax system is revoked and a two tier tax system that requires all companies that engage in upstream and downstream activities be taxed through the provisions of the Petroleum Profit Tax Act for Exploration (PPTA) & Production Companies, and the Corporate Income Tax Act (CITA) for processing and distribution companies.
The Nigerian Government has hopes that if current production levels are maintained at 2.53m per day, OPEC sustains its current production levels at 39.3m barrels per day with the support of Saudi Arabia & Russia, it can effectively fund the revenue side of the budget of 2.8 trillion naira, with substantial sums in its Excess Crude Account (ECA) that could be used as a supplementary funding tool in case there is lack of sufficient funds to implement the budget.
Lawmakers at the National Assembly last year November 7 through Senator Rose Okoh kicked against the continued existence of the ECA and the importance of converting its use to the consolidated revenue fund when it moved a motion for the abolishment of the ECA, saying its status is unconstitutional and only provides for reckless spending of money by the executive arm, of funds that are not appropriated by the National Assembly.
Fitch & Moody’s successively in November & December 2017 cautioned the Government with a downgrade by Moody’s to BB- as well as to Banks substantially exposed to government securities, against relying on oil revenues as tool to fund the budget. It warned the government about the importance of widening the tax brackets, stopping tax waivers and concessions to companies that are established and broadening the scope for credit to unlock growth that will have a ripple effect on the economy.