Oil price crash: Private jets owners to pay more taxes

Mrs. Okonjo-Iweala

The rich will be hard hit by new measures to save the economy, which has been badly shaken by falling oil prices.

Private jet owners are to pay more taxes. So are lovers of luxury items, such as champagne.

Other measures announced yesterday by the Federal Government are  freezing of foreign travel for civil servants, slash of budget oil benchmark and drop in capital projects financing.

Minister of Finance Dr. Ngozi Okonjo-Iweala announced the measures in Abuja, saying  it is important for Nigeria to keep an eye on oil prices because the importance of oil to the country’s economy. Oil is the backbone of Nigeria’s economy.

According to her, the Medium Term Expenditure Framework (MTEF) and the 2015 budget proposal before the National Assembly have been revised. The Federal Government is now proposing a benchmark of $73 dollars per barrel compared to the proposed $78.

The Excess Crude Account has $4.11 billion down from $11.5 billion at the start of 2013.

Government’s projected revenue for 2015 is $6.83 trillion lower than the $7.288 billion initially targetted for the outgoing year.

A projected expenditure for 2015 is N4.66 trillion down 2.92 per cent from 2014’s.

Dr. Okonjo-Iweala said: “Given the nature of the oil market, we needed to see the extent and trend of the oil price in order to take the right measures. Panic is not a strategy. It’s important that our strategies are based on facts and a clear understanding of both the strengths of the economy and the challenges posed by the drop in oil price, which is currently at $79 for our premium Bonny Light Crude.

 ”The drop in oil prices is a serious challenge which we must confront as a country. We must be prepared to make sacrifices where necessary. But we should also not forget that we retain some important advantages such as a broad economic base driven by the private sector and anchored on sound policies. Our strategy is to continue to strengthen the sectors that drive growth, such as agriculture and housing while reducing waste with a renewed focus on prudence.”

 According to Mrs. Okonjo-Iweala, the decline in oil prices has given additional impetus to the Federal Government’s focus on increasing non-oil revenues. In this regard, the collection target for the Federal Inland Revenue Service (FIRS), which has been working with Mckinsey to increase receipts will be revised upwards for next year. The country has had good success in reaching the initial target set this year of N75 billion; so far N65 billion of this has been collected. For 2015, the revised target is N160 billion above the 2014 base.

 As part of the efforts to reduce expenditure, international travel within the public service will be severely curtailed. From next year, only critical foreign travels will be allowed with the permission of Head of Service of the Federation (HoS).

“Any other foreign travel would have to be funded by those inviting civil or public servants and all expenses paid by the inviting body. Same goes for training, local training will be encouraged but expenses for foreign training will be borne by inviting foreign host with permission sought from HoS. Evidence of sponsorship detailing all expenses paid for by inviting body must be tendered before the HoS will grant approval.”

The minister said there will be a drop in some capital spending, but critical infrastructure projects will not be affected.

Investment in infrastructure, job creation and security will not change, but there will be prioritised investment in those with significant economic impact, such as Lagos-Ibadan Expressway, Second Niger Bridge and rail projects.

The implementation of the new mortgage system including the current processing of over 66,000 applicants for mortgages, will go on as planned, she said.

Also unaffected are public sector wages and key initiatives in education, health and other areas critical to the country’s human development.

 Mrs. Okonjo-Iweala said she was “not sure of what direction to take with taxes but that a key initiative on the revenue side is a surcharge on luxury items. The details are being worked out. The government’s efforts from now, she said, will be to increase Internally Generated Revenue (IGR) of entities and ensure that they remit these IGRs on time to government coffers. “This economy has to stop talking about oil” she said.

The minister noted that there would be surcharges on luxury items, such as champaigne, private jets and yachts, so that those well-to-do individuals can contribute more to the government’s  treasury.

Also Ministries Departments and Agencies (MDAs) that make surpluses will now be made to remit such surpluses immediately to government accounts while some taxes will be adjusted to enhance revenue.

 On calls from some quarters that the Federal Government should respond to the decline in revenues arising from the drop in oil prices by printing more naira to fund projects, the Coordinating Minister said the government could not adopt such measures.

She said such prescriptions ignore the facts of history as well as the elementary principles of economics. ”Printing money without adequate revenue support will lead to serious consequences for the country. It will spur spiral inflation as the experiences of Germany in the early part of the last century and, more recently, Argentina and Zimbabwe demonstrate. This prescription will victimize the poor and middle class that it is supposedly protecting.”

Should oil price fall to $70 or lower, the government, Mrs Okonjo-Iweala said, has additional measures to ensure soft landing for the economy, which, she insists “continues to exhibit strength but government will not compensate by borrowing or printing currency but will borrow at very low interest rate and no large domestic borrowing”.

Mrs. Okonjo-Iweala explained that the best way to protect the interest of the ordinary people is to control inflation as much as possible, expand the economic base, strengthen the sectors that drive growth, boost critical infrastructure and create more jobs.

The External Reserve, she said, “is now at $37 billion and is still reasonably good”. She said the government would spend part of the Excess Crude Account (ECA) on some transparent transactions. “We might tap into half of the ECA between now and the new year. We have arrears on subsidy pending when this will be addressed,” Mrs. Okonjo-Iweala said.