23 July 2024

Breaking: Zacch Adedeji-led FIRS fails to meet target of oil tax revenue target by N1.69T in Q1 2024

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The Federal Inland Revenue Service (FIRS) has failed to reach the approved target for the 2024 budget of N9.96 trillion, with a monthly average of N829.97 billion from oil taxes.

 

 

 

Based on the approved 2024 budget, FIRS is meant to have collected N3.32 trillion in oil taxes between January and April this year but the agency is farther from this goal by N1.69 trillion, an amount more than what it collected.

 

The FIRS recorded a total of N1.63 trillion as tax revenue from the oil sector between January and April 2024, which is 49% of the approved goal.

 

 

 

Lower than the approved budgetary goal, the FIRS has an internal goal of N7.5 trillion for the entire year, with a monthly average of N625 billion.

 

This means that the agency should have an internal four-month tax revenue goal of N2.5 trillion. However, it only recorded about 65% of its four-month goal.

 

The amount is also 22% of the N7.5 trillion that the agency plans to collect this year, as it sets its sights on a significant revenue boost from the oil sector in 2024.

 

 

 

 

 

 

 

Source: FIRS

 

 

 

The total figure raised so far this year is slightly higher than the N1.19 trillion collected within the same period last year.

 

The data for the amount raised this year is based on figures presented by FIRS officials at the monthly meetings of the Federal Accounts Allocation Committee (FAAC).

 

 

 

 

What the Data Shows

 

In the period under review, FIRS only recorded Petroleum Profits Tax (PPT) and Hydrocarbon Tax (HT) from foreign firms and zero collection from local firms in 2024. A total of N966.73 billion was recorded as foreign receipts, a substantial increase of 84% compared to the total foreign receipts collected in the same period of 2023 (N525.14 billion). This increase can be attributed to higher oil prices or naira devaluation. However, in 2023, there was a record of N664.90 billion as local receipts for PPT. A total of N1.19 trillion was collected in the first four months of 2023 from local and foreign oil firms.

The data also shows that Company Income Tax (CIT) on Upstream Activities was N667.74 billion in the period under review in 2024. However, there is no record of such tax in the same period in 2023. This means a total of N1.63 trillion was collected from the oil sector’s PPT and CIT in 2024.

Issues in the oil sector

 

Nigeria’s oil sector has been bedevilled by several challenges, such as pipeline vandalism, illegal oil bunkering and theft. Also, the majority of Nigeria’s oil pipeline infrastructure was constructed around 70 years ago, and is outdated.

 

Due to the challenges in the oil sector, the Federal Government hardly made up to 70% of its target revenue from this sector in the past two years.

 

In 2022, the Federal Government generated only 35.4% of its targeted oil revenue, earning N776.35 billion out of N2.19 trillion.

 

 

There was some improvement in 2023, as FIRS collected about 60% of its targeted oil revenue in 2023, getting N3.17 trillion out of N5.26 trillion last year.

 

Aside from the government’s revenue taking a hit, oil firms, who have been struggling in the sector, have chosen to exit the market. They include TotalEnergies,  Shell, ExxonMobil and Norway’s Equino.

 

TotalEnergies’ CEO, Patrick Pouyanne, stated that the company chose to invest $6 billion in Angola over Nigeria due to policy inconsistencies and other issues in the country.

 

What You Should Know

 

While being a leading oil producing nation, Nigeria still struggles to meet its OPEC quota as a result of so many factors such as oil theft, low investment and infrastructure inadequacy in the sector.

The Federal Government targets a conservative oil price benchmark of $77.96 per barrel, coupled with a daily production estimate of 1.78mb/d for 2024.

About two weeks ago, Brent crude futures traded near $84 a barrel, while West Texas Intermediate (WTI) remained above $80.

Last month, Nigeria’s 1, higher than the major oil benchmark.

Also, the Joint Ministerial Monitoring Committee (JMMC) of the Organisation of Petroleum Exporting Countries and its allies (OPEC+) pegged Nigeria’s crude oil production quota for 2024 at 1.5 million barrels daily.

However, Nigeria’s average crude oil production for the month of April marginally rose to 1.281 million barrels daily.

In the first quarter of the year, average daily production stood at 1.327 million barrels per day.

The consistent inability of the country to meet its OPEC quota and budget proposal target has negative effects on revenue generation, foreign exchange stabilisation, overall budget performance and foreign reserve position.

Despite the challenges, the current administration said it aimed to increase the country’s oil production to an ambitious 4 million barrels daily by the end of the decade.

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