Nigeria faces a pressing challenge: a high public debt-to-GDP ratio that threatens economic growth. In this interview with The Nation, Victor Athe, a tax expert and Partner at Stransact (Chartered Accountants), dives deep into this issue. Athe offers valuable insights on how Nigeria can maximize its tax revenue to reduce its debt burden and achieve a more sustainable fiscal future. He explores strategies for widening the tax base, enforcing existing tax laws, and improving tax administration. Additionally, Athe discusses the importance of taxpayer morale and harmonization across different levels of government.

 

The ratio of 60 percent public debt to GDP in Nigeria surpasses the International Monetary Fund’s recommended threshold of 50% for developing countries. How can the country maximise its tax revenues?

Under IMF’s Debt Sustainability Framework (DSF), a country’s debt-carrying or debt-accumulation capacity would typically be determined by the strength of its macro-economic performance and policies. Studies have shown that the accumulation of debts above recommended threshold levels could be inimical to economic growth, especially when the debt increase is not aligned with the country’s growth needs.

A high public debt-to-GDP ratio can also further exacerbate the already deteriorating exchange rate in various ways, including putting pressure on foreign exchange reserves, investor confidence, inflationary pressures, and the need for more foreign currency to service debt obligations. This underscores the importance of sustainable fiscal management and prudent borrowing practices to maintain exchange rate stability and overall economic health.

One important thing I believe the Federal Government should do is to ramp up our tax revenue in our current context, by widening the tax base. Several steps can be taken to achieve this, including the increased formalisation of the current vast informal sector in Nigeria.

On assumption of office, the current Acting Federal Inland Revenue Service (FIRS) Chairman, also immediately expressed commitments to significantly improve the nation’s tax-to-GDP ratio from the then 10% to as much as 18%.  There is an inverse relationship between the “public debt-to-GDP ratio” and the “tax-to-GDP ratio”. This means that as the latter increases, the former is likely to reduce since it would directly mean that the government would have a larger pool of resources available to finance its expenditure priorities, and would not need to borrow or cut down on its expenditures to maintain fiscal stability.

Another measure that can be taken, is the stringent implementation of some of the recent amendments to our tax laws, such as the Significant Economic Presence (SEP) rules.  There are currently cases of multinational enterprises (MNEs) deriving income from sales through digital/electronic channels to Nigerians (mostly B2B transactions) that are caught under our SEP rules, but do not remit the appropriate share of income taxes to the Nigerian government. Considering the significant earnings these MNEs derive in Nigeria, it may be an effective strategy to channel focus to collecting the appropriate level of taxes (income tax and VAT) from these multinational businesses that are deriving enormous value from Nigeria.

 

With many Nigerians groaning under the weight of taxes and VAT, indications are that the Federal Government hopes to increase the ratio of tax revenue to GDP. Don’t you think this could further exacerbate the burden of taxes on Nigerians?

It is certainly important for the Federal Government to work at expanding the tax base to capture a sizable portion of the country’s vast informal sector, which mostly comprises unregistered small-scale businesses. This sector plays a crucial role in the nation’s economy, as it accounts for a significant portion of employment and national GDP -more than 50%.

Tax collection from the informal sector has remained a complex issue, since a majority of the businesses therein, largely operate without proper regulatory oversight. However, recent efforts by the government, which include the introduction of Micro, Small, and Medium-sized Enterprises (MSME) Development Fund, Ease of Doing Business reforms,, and Tax Reforms, introduced by the amendments to our tax legislation (e.g. the exemption of small businesses from VAT and Income Tax obligations); are all laudable steps aimed at encouraging the increased formalisation of the informal sector.

 

Download our “Doing Business in Nigeria” guide for 2024

 

Today, for any company, having a full-service consulting firm to support them is extremely valuable. What is the philosophy of Stransact Chartered Accountants and Audit in this regard?

Stransact currently offers a broad spectrum of professional services covering tax compliance/advisory services, all aspects of transfer pricing (TP) and its related services, transaction advisory, deal advisory, accounting, audit, and all other Attest-type services.  Our strategy for our target market is to provide these professional services to our clients with the same or a superior level of ‘quality’ compared to what is offered by the big brands in the market.

This way, we constantly help our clients derive’ strategic value in all their transactions, that is significantly more than the costs to them.’

 

Last year, Nigeria enacted the Finance Act 2023 (FA 2023), with the most significant aspect being its effort to enhance the compliance or enforcement modalities surrounding the taxation of income derived from international shipping and airline transportation. What is your structural assessment of this Act?

The Nigerian Companies Income Tax Act (CITA) provides specific rules for the taxation of foreign entities engaged in international shipping and airline transportation in Nigeria.  The profits that these foreign entities specifically derive in Nigeria are typically subjected to tax using a deemed income approach (where the income tax rate is applied to a fair and reasonable percentage of their gross revenues).

The FA 2023 now requires that the gross revenue statements submitted by these foreign entities when filing their annual income tax returns would now have to be certified by an external auditor. The agencies that maintain regulatory oversight over shipping and air transport companies have also been mandated to ensure that these foreign companies present evidence of adequate tax compliance in Nigeria before all relevant regulatory permits and approvals are approved for them.

In my view, the additional requirements introduced by the FA 2023, would help ensure that the tax bases relating to the economic activities carried on by the foreign entities in Nigeria are not eroded. This way, the country can reap its fair share of taxes from the enormous economic activities of these foreign businesses in Nigeria.

 

Read More: Understanding the Tax Consequences of Remote Work

 

What are the key challenges and opportunities for businesses concerning taxation in the current economic and regulatory landscape?

There are undoubtedly a plethora of challenges in Nigeria’s current economic and regulatory landscape as it relates to taxation, which includes: multiplicity of taxes, poor tax administration, non-availability of a database, tax touting, the ambiguity of Nigerian tax laws, non-payment of tax refunds, Issues around utilisation of Withholding Tax Credit Notes, Wrong Interpretation of tax laws during tax dispute resolutions, etc. Most of these issues generally result in a low tax morale in taxpayers (both businesses and individuals).

Recent studies have shown that a key determinant of tax morale is the perceived quality of the tax administration.  An increase in tax morale has also been linked to satisfaction with public services, supporting the existence of the fiscal contract between taxpayers and the state- willingness to pay tax in return for effective public services.

Notwithstanding the existing challenges, there are lots of tax incentives that have been structured to encourage increased investments in the Nigerian economy. Some of the existing incentives include tax holidays, tax exemption schemes, repatriation of foreign capital or profits at official exchange rates, export incentives, export expansion grant (EEG) schemes, gas utilisation incentives, tourism incentives, reduced tax rates on interest income, etc.

What is the implication of tax to GDP on the growth of the Nigerian economy and where are we compared to peers in Africa?

There is evidence to support the fact that countries with high tax-to-gross domestic product (GDP) ratios have higher tax morale. Improving tax morale has the potential to increase government revenue from taxation with relatively little enforcement efforts.

 

Read More: The Power of Effective Tax Planning

 

States are battling with taxes too. What do you think is holding back other states in addressing the issue of multiple taxation they have?

The Nigerian Constitution, the bedrock on which all other laws run, contains the exclusive, concurrent, and residual Legislative lists’, which each specify the type of taxes that the various tiers of government in Nigeria should have legislative powers over.  The debacle on whether the Federal Government or State governments should collect VAT is yet to be conclusively resolved due to the peculiar complications and complexities around the issue.

The practice of coming up with different names for the same tax type by federal, state, and local government agencies and ministries is tantamount to “Tax duplication”. Duplication or multiplicity of taxes is driven primarily by the need for states to generate more revenue. Despite the increase in statutory federal allocations to the states by about 69% in 2024 compared to the prior year, most states are still not able to independently fund the deficit of their respective budget expenditures.

The outcome of tax duplication is that taxpayers would have to bear a burden of taxes that is astronomically higher than what they had anticipated or planned. This huge disincentive for businesses in Nigeria contributes significantly to the poor ranking of Nigeria on the World Ease of Doing Business Index and weighs negatively on the investment climate in Nigeria. This also encourages tax touting -creation of illegal taxes that are enforced and collected through illegal, aggressive, and unorthodox means, which are mostly extortionate.

 

What kind of policy should be in place for there to be harmonisation of taxation?

Our National Tax Policy (NTP) document was first created sometime in 2012 and then revised in 2017, to provide policy direction for tax matters generally. This also serves as a procedural guideline for achieving effective harmonisation between the respective tax authorities of the different tiers of government. The NTP was designed to be an instrument for creating awareness of the importance of taxation as a stable flow of revenue for the Nigerian government in the face of dwindling oil revenue. The NTP sought to address fundamental issues relating to multiple taxation, lack of accountability for tax revenue, and a lack of clarity on the taxation powers of each level of government.

However, considering the fact the NTP is only a document that is not a legal instrument, the intended benefits are yet to be realised, primarily due to lack of effectiveness in its implementation, perhaps due to the lack of legal backing.

 

How will the federal government cope if the Supreme Court reaches judgment on the case instituted against it by Rivers, Lagos and some other states that joined both parties on the issues of VAT and who has the right to collect taxes?

One of the challenges Nigeria is currently facing is that the indices that drive the allocation of revenue accruing to the government centrally do not effectively consider and reward contributions to the economy from arms of government that demonstrate effective utilisation of resources, promotion of investments, infrastructural development, and others.

 

Source: The Nation

In Nigeria’s bustling economic environment, small and medium-sized enterprises (SMEs) constitute about 96% of businesses and 84% of employment. But for Nigerian entrepreneurs, the journey is fraught with the need to navigate a 15.75% average inflation rate, fluctuating exchange rates, and infrastructural deficits that can hinder growth and innovation.

Financial management, a critical pillar for sustainability, demands more than just a cursory understanding; it requires a deep dive into the nuances of cash flow management, compliance, and strategic foresight. In Nigeria, where capital importation was reduced by more than 50%, and foreign direct investment fell by 33% in the last quarter of 2022, the ability to make informed decisions becomes even more crucial. Business leaders must harness their passion and expertise to decode customer needs and stay competitive, all while keeping a vigilant eye on the ever-evolving market dynamics.

This article aims to shed light on the financial management intricacies that Nigerian businesses must master to not just survive but flourish. It is a call to action for business proprietors to embrace the numbers, understand the statistics, and apply them to their business strategies, ensuring that the pulse of financial management beats strongly at the heart of their operations.

Budgeting and Forecasting

Businesses encounter a substantial challenge in creating accurate budgets and forecasts that align with strategic objectives.
This complex process requires a deep dive into the nuances of market trends, internal cost structures, revenue streams, and potential risks. For instance, the Nigerian Stock Market NSE-All Share has surged by 39.84% since the onset of 2024, indicating a bullish trend that companies must factor into their financial strategies. Moreover, with the tax-to-GDP ratio in Nigeria increasing from 5.5% in 2020 to 6.7% in 2021 and still growing over the years for every business sector, businesses must navigate the fiscal landscape with precision to align their budgets accordingly.

The initial creation of budgets is a detailed endeavor, yet the true challenge emerges in adapting these financial plans to the ever-evolving market conditions. Nigeria’s economic landscape is not immune to volatility; with an inflation rate hitting a high of 31.7% in February 2024, companies must be agile in adjusting their financial projections. The agility to recalibrate budgets in response to unexpected market shifts, economic uncertainties, or internal disruptions is paramount for business sustainability.

 

Read More: From Zero to Profit: Financial Tips for Startup Business Owners

 

Risk Management

Effective financial risk management gives businesses a strategic advantage.

Nigerian businesses face unique challenges, such as volatile market conditions, with the Naira’s fluctuation impacting both borrowing costs and investment returns. Operational risks are equally critical, with the Nigerian economy’s heavy reliance on oil exports making it susceptible to global oil price shocks, which in turn affect the operational costs and supply chain stability.

To navigate these complexities, Nigerian businesses must adopt a comprehensive risk management strategy that includes regular assessment and monitoring, diversification of portfolios and revenue streams, and adherence to regulatory changes.

Cash Flow Management

In Nigeria, the vitality of financial management cannot be overstated, especially for businesses navigating the delicate balance between immediate financial commitments and long-term expansion goals. A robust budget is crucial, as the absence of one can precipitate financial strife.

The FinTech sector, a burgeoning force in Nigeria’s economy, has not been immune to these challenges. Despite attracting 25% of the $491.6 million raised by African tech startups in 2019, the sector has witnessed companies falter under the weight of aggressive expansion strategies without prudent cash flow management. With over 200 fintech companies operating within the country, the stakes are high. The Nigerian business landscape demands a judicious approach to financial planning, where growth is pursued without compromising the liquidity necessary for daily operations and meeting short-term financial duties. This equilibrium is essential for maintaining operational efficacy and ensuring the financial well-being of businesses.

 

Read More: Effect of Multiple Taxation on Business Survival in Nigeria

 

Financial Reporting and Analysis

In any economy, the value of precise financial reporting cannot be overstated, as it is a foundation for business sustainability. The Financial Reporting Council of Nigeria emphasizes the importance of high-quality financial reporting in enhancing economic growth and investor confidence. Yet, many Nigerian businesses face the challenge of producing accurate financial reports, often due to complex operations or inadequate accounting systems. This can obscure a company’s performance, impeding strategic decision-making.

Statistics reveal that poor financial management practices are a leading cause of business failure in Nigeria, with 80% of small businesses failing due to cash flow problems. To mitigate these risks, outsourcing financial reporting to specialized firms like Stransact can be a strategic move. Stransact provides expert financial reporting, accounting, and audit services tailored to the Nigerian market, ensuring compliance and clarity in financial communications.
For inquiries about our services, reach out at [email protected].

 

Read more: How to Prepare for an Audit

 

Capital Budgeting and Investment Decisions

Nigerian businesses confront the intricate task of sifting through myriad investment opportunities, each with its distinct risk-reward profile. In 2022, the Nigerian economy witnessed a growth of 3.11%, yet faced an inflation surge to 18.60%, the highest in five years, influenced by factors like foreign exchange shortages and export and production problems. Investment decisions must account for such volatility, considering the long-term ramifications and potential costs.

The Nigerian Stock Exchange (NGX) was ranked as the 4th best-performing market index globally as of June 2022, with a return of 21.3%, showcasing the growth potential for well-calibrated investments. However, the market is not immune to fluctuations, as evidenced by the NGX’s drop to the 7th position by July 2022.

Navigating this requires a comprehensive financial analysis, balancing the scales of risk and return, and leveraging financial acumen to optimize investment portfolios amidst market uncertainties, regulatory shifts, and unforeseen economic challenges.

Cost Control and Expense Management

Businesses often fail to master cost control and efficient expense management. The pitfalls of overspending and ineffective allocation of resources pose significant challenges, potentially leading to a reduction in profitability and hindering the achievement of long-term financial sustainability. Effectively managing costs is essential for maintaining a healthy bottom line, and businesses must implement strategies to optimize spending and allocate resources judiciously. By addressing these challenges head-on, businesses can enhance their financial resilience and position themselves for sustained success in changing economies.

 

Read More: Creating a Culture of Compliance: Embedding Risk Management in Organizational DNA

 

How You Can Get Help

Stransact provides an array of services tailored to meet your organizational needs. From meticulous accounting and bookkeeping to reliable financial reporting, including income statements and cash flow statements, we ensure your financial records are accurate and up-to-date. Our expertise extends to tax planning and compliance, managing tax audits, and staying current with changing tax laws. Stransact conducts independent audits, instilling confidence in the accuracy and compliance of your financial statements. 

Moreover, our financial analysis and advisory services offer valuable insights into your organization’s performance, assisting in strategic decision-making. We go beyond by offering business advisory services covering mergers, acquisitions, financial restructuring, risk management, and internal controls. At Stransact, we pride ourselves on providing the value of a big firm with the personalized attention of a small firm, guiding your organization through complex financial challenges, and fostering growth while ensuring compliance with International Financial Reporting Standards (IFRS), and other applicable regulations.

For inquiries about our services, reach out at [email protected].

Managing Partner, Stransact Audit, RSM correspondent firm in Nigeria, Eben Joels, speaks with Justice Okamgba on the nation’s rising inflation, mounting debts, weakening naira, 2024 budget, among other issues

Some analysts have said Nigeria debt may not be sustainable with almost 90 per cent of its revenue going for debt servicing. What is your take on this?

I do not share this view. It’s unfortunate that most of the debts we take are not used for the purposes for which they were meant. They are stolen by office holders. If we plug the leakages, the infrastructure deficits we have are such that, if we channel our national debts to fix them, there will be a consequential quantum growth in our GDP that will make the borrowings more sustainable.

How do you think the government can unify our multiple exchange rates?

I believe the CBN policy reforms are ongoing, It does not appear that the CBN has applied all the fix they intend. Do not forget that the events in the CBN itself have dampened the confidence of the global community, and has held us out further as a country with very poor governance. It is a sad thing for the country for a CBN governor to be accused of all the things the last CBN governor is being accused of. I will like to stay neutral and hope that he’s not guilty of such reckless actions, the impact of which is on all of us. It will take some time for the CBN itself to gain the confidence the world had in it as a trusted regulator. But more importantly, our foreign reserves which were depleted severely, need to start growing again. Remember that the last time we moved closest to a convergence between the parallel market and official market forex rates, our foreign reserves was at an all time high. The amount we spend on importing petroleum and similar products was not what we have now. Hopefully as we stop spending our forex earnings on importing petroleum, the Naira will gain significant mileage. However, I seriously fear that if those in charge of governance do not act quickly, our economy is at the risk of being completely dollarised. We hope to see those days when global events that push the price of crude oil to very high levels, translate to a windfall for Nigeria rather than hardship for Nigerians as it is right now.

World Bank has said 130 million Nigerians are facing multidimensional poverty. What is the way out to reduce this number?

I saw a report recently that said there was a marginal reduction in the number of people in absolute poverty in Nigeria in the last six months. We cannot reduce poverty if people do not have jobs. In certain societies, jobs are as important as life itself. In the Japanese society, a man’s right to work is as important as his right to life. These are societies with enough social cushion for those at the risk of poverty. It will take us a while but we should do more about small businesses who are the largest employers everywhere in the world. Our small businesses here get aesthetic support from government. We need to borrow a leaf from the US Small Business Administration (SBA). If there’s no actionable program to spur the growth of small businesses, the government and big businesses by themselves cannot lift enough people out of poverty.

Do you think the government can actually do anything to reduce the Japa wave? What can be done?

The government should start governing rather than ruling us. Like I said previously, it does not take a lot to please Nigerians. Many Nigerians leaving the country are forced to that decision. It is not an easy decision. For every 10 people that left Nigeria, there are probably more than 50 per cent for whom things became way tougher such that their friends and relatives in Nigeria never here from them again. It is particularly tougher for those forced out of Nigeria in their middle age. If you leave Nigeria as a successful doctor in your mid 40’s for example,   and you are forced to become a caregiver because you are not eligible to practice medicine in that jurisdiction, how do you think such a person will fare mentally? What do you think it will do to the person’s self esteem? We need a country where there are consequences for judges who sell judgment to the highest bidder, for politicians who snatch or stuff ballot boxes, for public officers with eye popping assets that they clearly never worked for. We need a police station that does not charge a fee to track a crime. We need public health emergency services that work. We need a community policing system where every village has a functional police and patrol team. We need public schools that work as well as the ones we attended. If we get this over the next 4 years, Japa will reduce.

The country’s economy is obviously in a parlous state, with the excruciating cost of living, dearth of infrastructure and low productivity. What can the government do to refloat the economy and get it back on even knee?

The government should undertake major structural reforms.  For example, this country is long overdue for a Federal Personal income Tax. It is sad that all the egg heads are unable to see this obvious fix.  It is even more sad that the most recent public corruption case in Nigeria is that of funds meant for humanitarian and poverty alleviation activities.  To steal directly from the less privileged appears most callous to any enlightened person.  We can fix this by simply requiring every individual adult of a certain age and above to file a tax return to the center and they get any poverty alleviation payments through their banking and other official information submitted in a tax return.  This is how it works in other advanced societies where stealing of public funds is not as ubiquitous.  There are many other obvious fixes, but the issue is that politics and state capture has been the biggest industry in Nigeria since 1998 when we returned to democracy. There is no genuine intention to fix this country by a critical mass of its political leaders and its people.

 

Read more: From Zero to Profit: Financial Tips for Startup Business Owners

 

Corruption remains a drainpipe on the economy, how well can this administration tackle the issue?

President Tinubu started well, he dissolved all non-statutory boards to select new ones. To be candid, the fight against corruption in the country can only be won if there are consequences for official corruption.  The recent actions of the government that includes sanctioning a Minister in a so called juicy ministry is a good step in the right direction.

Judging by the number of political appointees, a bleeding economy, poverty index and other unnecessary cost components. This administration is accused of running a profligate government. What do you think?

The biggest issue we have is the absence of industry and enterprise. There are few motivations to be entrepreneurial in Nigeria when you can make more money and live an easier life by taking a political office. Until the incentive for political office is no longer the opportunity to acquire wealth and power, we would all continue to wallow in our poverty.  There will be only a minimal amount of Foreign Direct Investment (FDI), if there are are no examples of big brands that have come into Nigeria and prospered.

Talking about big brands coming into Nigeria and FDI, how did you convince RSM international, one of the largest accounting networks in the world, to come to Nigeria through your firm Stransact?

According to the United Nations, the population of Nigeria could reach 730 million inhabitants in 2100. The country’s growing young population means that public infrastructure is stressed but this presents opportunity for future economic growth under the right political environment. It was not difficult to let RSM see the importance of Nigeria if the network intends to deliver on its strategy to be a leading global accounting, tax and consulting organisation globally. RSM has been around for over a century. They are the fifth largest accounting firm in the USA, the world’s largest economy.  RSM is also probably number 5 in Germany in terms of revenue after Ebener Stolz, Germany’s 6th largest firm joined our network.  What is important for the network is the commitment of the member firms to certain values which we call the RSM DNA. Upon interaction with RSM 4 years ago, the network was convinced that Stransact is a firm that shares its DNA. We built our firm on values. Unleashing the human potential is why we exist.  We are still improving our processes and methodologies and as soon as our internal quality attains the global standards set by RSM, we shall be rebranding as RSM in Nigeria.

The 2024 budget is over N22tn with a large chunk of it planned for capital expenditure. Do you think this revenue projection by the government is achievable, given the lingering economic crisis bedeviling the country?

There are a lot of leakages in the system that can release some of the deficits in the budget. Priority should be placed on accountability, exploring diverse revenue sources, and fostering an environment conducive to private sector participation. While the emphasis on capital expenditure is commendable for infrastructure development, careful monitoring and efficient utilisation of funds will be critical to ensure that the allocated resources contribute substantially to economic growth and long-term sustainability and does not end up in private pockets or in funding political activities.

 

Read more: Partners at Stransact (Chartered Accountants), Charge Nigerian Auditors on Professional Conduct

 

This administration wants to achieve a trillion-dollar economy, and has indeed set machinery in motion by putting certain things in place. Do you think the size of the economy matters so much, as the impact on the socioeconomic growth in terms of macro and micro economy?

Such targets are a good start. It is good to have good dreams and to set ambitious targets.  While the ambition to achieve a trillion-dollar economy is commendable, it’s essential to recognise that the size of the economy alone may not be the sole determinant of national prosperity. The emphasis should be on the qualitative aspects of economic growth, focusing on improving the standard of living for citizens and fostering inclusive development. More importantly, the government should harness the UN’s Human development indices and build a program around them.

What do you make of the news of Dangote Refinery finally coming on stream after many false starts? Do you think that would make any difference in terms of cost of PMS and other petroleum products in the country?

The commencement of the Dangote Refinery represents a milestone for Nigeria’s energy sector, promising to reshape the nation’s petroleum industry. As one of Africa’s largest refineries, its successful operation holds the potential to significantly boost local refining capacity, diminishing Nigeria’s reliance on imported petroleum products.  Hopefully we will never see fuel queues again. It contributes to our energy security  and presents an opportunity for substantial savings on foreign exchange, positively impacting the country’s economic dynamics.

What other measures can the government put in place to galvanise the economy in the short, medium to long term?

In the short term, immediate measures to galvanize the economy should include targeted fiscal stimulus packages aimed at specific sectors most affected by current challenges. These can be tax incentives, grants, or subsidies to encourage businesses to retain employees and invest in operational efficiency. Additionally, expedited infrastructure projects can provide quick employment opportunities and inject liquidity into the economy.

In the medium term, the government should focus on enhancing the ease of doing business to attract foreign investment. Implementing regulatory reforms, streamlining bureaucratic processes, and ensuring a stable and predictable policy environment can significantly boost investor confidence. Medium-term strategies should also include comprehensive skills development programs to equip the workforce with the capabilities needed for emerging industries.

Looking to the long term, fostering innovation through research and development initiatives is crucial. Investing in education and technology infrastructure can create a knowledge-driven economy, positioning the nation for sustained growth. Moreover, the government should actively pursue sustainable development goals, emphasising environmentally friendly practices and promoting industries that align with global trends.

Strategic partnerships, both domestically and internationally, will play a pivotal role in all phases of economic revitalization. Collaborations with private enterprises, research institutions, and international organisations can bring diverse expertise and resources to support comprehensive economic growth.

What’s your forecast for 2024 in terms of the economic outlook?

The economic outlook for 2024 is contingent on proactive economic policies and global dynamics. A comprehensive strategy addressing inflation, exchange rates, and security challenges is crucial for steering the nation towards sustainable economic growth. Overall, I can say that the economy will be better this year, though not a total transformation but it will be better. The local economic environment will be better than 2023, this is tied on the gradual phasing out of the current impact of petrol subsidy and FX reforms on the non-oil sector, and higher crude oil production relative to 2023 levels amid supportive oil prices.

If CBN is able to have a better grip on inflation and exchange rates, it will be positive for the economy. If inflation continues to trend downwards globally, then it will be good for the economy because it will reduce the extent to which imported inflation will affect local prices.

Credit: PUNCH NEWSPAPER

The recent decision by the Central Bank of Nigeria (CBN) to unify the multiple naira exchange rates in the country has sparked discussions among economic experts. This move aims to stabilize the exchange rate, regulate the forex market, and attract foreign investors.

In this critical analysis, we will delve into the potential consequences of this unification, considering both the positive and negative outcomes.

Government Debt and Debt-to-GDP Ratio

The unification of exchange rates will have a profound impact on the Nigerian government’s debt profile. With the naira value of external debt expected to increase, the total government debt is likely to rise significantly. This adjustment will result in a significant rise, estimated to be around N12 trillion, bringing the total government debt to approximately N90 trillion. As a consequence, the debt-to-GDP ratio will also experience an uptick of approximately 5%, requiring careful fiscal management and debt servicing strategies.

Debt Service Costs

Managing the increased debt service costs associated with foreign debt will be a critical challenge. As the naira value of debt rises, allocating sufficient resources for debt servicing becomes crucial to avoid straining the government’s financial position and maintaining stability.

Government Revenue and Tax Collection

While the unification of exchange rates may boost government revenue in naira terms, businesses may face potential challenges due to forex losses resulting from the higher exchange rate. Balancing revenue generation with the support needed for businesses will be essential to foster economic growth and mitigate adverse effects.

Budget Deficit

The unification of exchange rates will undoubtedly impact the budget deficit. The deficit may either shrink or expand depending on the alignment of government forex revenue and foreign currency obligations. Effective fiscal management, including prudent spending and revenue diversification, will be critical in navigating these challenges.

Fuel Prices

An expected consequence of exchange rate unification is the potential adjustment in fuel prices. With market realities and the cost of imported petroleum products factored in, it is anticipated that the pump price of petrol may move closer to the current price of diesel.

Cost Savings and Forex Interventions

As various forex intervention programs are phased out, significant cost savings are projected. Terminating schemes such as Naira4Dollar and RT200 will free up resources that can be channeled to priority areas, fostering economic growth and development.

Capital Market and Foreign Investments

Exchange rate unification has the potential to attract foreign exchange inflows, thereby impacting the capital market positively. Increased investor confidence and potential growth in foreign direct investments and export proceeds can contribute to overall economic stability.

Price Stability and Inflation

While the unification of exchange rates aims to stabilize the Nigerian economy, it is important to consider the potential impact on price stability and inflation. Previously, the Nigerian National Petroleum Corporation (NNPC) held the sole responsibility for importing and accessing foreign exchange (fx) at the official rate from the Central Bank of Nigeria (CBN). However, with the unification, independent marketers will now be able to import and source fx at the open market rate.

This shift in dynamics is expected to have a cost-push inflationary effect. When combined with the prevailing baseline food inflation, which is a significant component in Nigeria’s inflation basket, it creates additional inflationary pressures. Furthermore, many manufacturers relied on a mix of official rates and black market rates for their foreign exchange needs, with extended waiting periods for official rate allocation. However, with the unification, access to fx will be based solely on the open market rate.

These changes in the fx allocation system will undoubtedly impact pricing dynamics, particularly for imported goods and raw materials. The transition from the previous system to the new unified exchange rate may lead to price adjustments in the short term, as independent marketers procure fx at market-determined rates. It is crucial for policymakers to closely monitor these developments and implement measures to mitigate the potential inflationary effects.

 

Conclusion

 

The unification of Naira exchange rates marks a significant milestone in Nigeria’s economic landscape, with far-reaching implications. While challenges lie ahead in managing government debt, debt service costs, and potential price adjustments, there are opportunities for increased revenue, improved budget deficits, and capital market growth.

To ensure a successful transition, policymakers must exercise prudence, implement effective fiscal and monetary policies, and address backlogs in forex demands. By attracting foreign investments and maintaining price stability, Nigeria can unlock its full economic potential, fostering a climate of stability, growth, and prosperity for the nation and its citizens.

Education is a fundamental catalyst for the growth and development of any nation. Recognizing this, President Bola Tinubu took a significant step towards revitalizing education in Nigeria by signing the Students Loan Act into law on Monday 12th June 2023.

In this blog post, we will delve into the key provisions and benefits of the Students Loan Act, shedding light on how it aims to empower indigent Nigerian students in their pursuit of higher education.

Empowering Indigent Students

The primary objective of the Students Loan Act is to provide financial assistance to indigent students, enabling them to access federal government loans for their educational pursuits. Here are some essential facts and benefits of the Students Loan Act:

1. Interest-Free Loans: Under this Act, eligible students will be able to obtain interest-free loans. This crucial provision ensures that beneficiaries will only repay the exact amount they borrowed, easing the burden of interest accumulation.

2. Access to Higher Education: The Act extends loan facilities to indigent students seeking higher education in government-owned universities, polytechnics, and colleges of education across the country. By doing so, it promotes equal opportunities and helps remove financial barriers that may hinder deserving students from pursuing their dreams.

3. Non-Discrimination: The Students Loan Act emphasizes equal rights and opportunities for all indigent Nigerian students. It explicitly prohibits any form of discrimination based on gender, religion, tribe, position, or disability. This ensures that deserving students, regardless of their background, have fair access to educational funding.

4. Tuition Fee Coverage: The Act mandates that the loans be utilized exclusively for the payment of tuition fees. This provision ensures that the financial assistance is directed towards meeting the primary educational expenses of the students, further alleviating their financial burden.

Establishment of the Nigerian Education Bank

To facilitate the implementation of the Students Loan Act, the legislation calls for the establishment of the Nigerian Education Bank. This institution will be responsible for providing educational loan services to Nigerian students, contributing to the overall objective of making education accessible to all.

 

 

Eligibility Requirements

To be eligible for the Students Loan, indigent Nigerian students must meet the following criteria:

1. Admission: Students must have secured admission into a recognized Nigerian university, polytechnic, college of education, or vocational school established by the federal or state government.

2. Income Limit: The annual income of the student or their family must not exceed N500,000 (five hundred thousand Naira).

3. Guarantors: Students are required to provide at least two guarantors who must meet specific criteria, such as being a civil servant of not less than level 12, a lawyer with at least ten years of post-call experience, a judicial officer, or a Justice Peace.

Other Key Provisions of the Student Loan Act

The Student Loan Act also encompasses other provisions that shape the loan repayment process and eligibility criteria. Let's examine these provisions:

1. Repayment Timeline: The Act stipulates that loan repayment will commence two years after the completion of the National Youth Service Corps (NYSC) program. This provision allows beneficiaries time to transition into the workforce before taking on the responsibility of repayment.

2. Default History: Eligibility for the loan is contingent upon the absence of any past loan defaults by the applicant or their parents from any institution. This provision emphasizes the importance of responsible financial behavior and ensures that the loan is directed toward individuals committed to fulfilling their obligations.

3. Legal Consequences: The Act outlines legal repercussions for defaulting on the loan. If convicted, individuals may face up to two years of imprisonment or a fine of N500,000, or both. 

4. Repayment Mechanism: Repayment will be facilitated through salary deductions, with 10% of the beneficiary's salary deducted at the source. For self-employed individuals, they will remit the same percentage of their monthly profits. 

5. Application Process: The Act mandates that students submit their loan applications through their respective educational institutions. The schools will then compile and forward the applications to the Nigerian Education Bank for scrutiny, approval, and disbursement. 

Critical Review

 

While we commend the government for this commendable initiative and the provision of interest-free loans to make higher education more accessible and inclusive of the lower class of the economy, it is crucial to analyze certain provisions and their implications from a pragmatic standpoint.

1. Application Process: The involvement of educational institutions as intermediaries in the application process raises concerns about potential administrative bottlenecks. It is essential to establish clear guidelines and mechanisms to ensure timely processing, accurate documentation, and efficient communication between educational institutions and the Nigerian Education Bank. Failure to address these bottlenecks may result in delays, confusion, and even the exclusion of eligible applicants.

2. Income Limit Criteria: The Act sets a fixed income limit of N500,000 for eligibility. However, with the rising cost of living and inflation, some households may earn just above this threshold but still struggle financially. It is imperative for the government to adopt a more flexible and nuanced approach to income assessment, ensuring that deserving individuals are not excluded solely based on a rigid income limit.

3. Creation of a New Bank and Financial Implications: The establishment of a dedicated Nigerian Education Bank, as mandated by the Act, signifies a significant investment by the government. However, in an era where fiscal conservatism is crucial, questions arise regarding the decision to create a new government parastatal instead of utilizing an existing government loan body.

4. Loan Repayment: One significant aspect of the Student Loan Act is the provision that repayment will commence two years after the completion of the National Youth Service Corps (NYSC).

   However, it is essential to consider the current state of the job market in Nigeria. The country has been grappling with a high unemployment rate, which increased to 37.7% in 2022 and is projected to rise further to 40.6%. With an already overloaded labor force, it is reasonable to expect challenges for loan beneficiaries in securing gainful employment within the stipulated timeframe. It is imperative for the government to consider incorporating provisions that align loan repayment with the attainment of gainful employment or business profits, rather than solely relying on the completion of NYSC

Conclusion

We commend the government's initiative and commend their efforts in promoting accessible education through the Students Loan Act. By continuously evaluating and adapting the Act's provisions, the government can address concerns, refine implementation processes, and maximize the positive impact of this transformative legislation on the nation's educational landscape.

As a business owner, mastering payroll and implementing effective payroll management strategies are vital components of running a successful organization. At Stransact, we understand the intricacies of payroll management and its impact on your business's financial health. In this blog post, we will demystify the basics of payroll, shed light on essential terminology, and provide valuable insights to help you navigate the complex world of employee compensation and benefits. Plus, we have a free e-book resource available for download to further enhance your understanding.

Understanding Payroll

Payroll encompasses the process of calculating and distributing employee compensation, including salaries, wages, bonuses, and benefits. It involves various elements, such as tracking employee hours, deducting taxes and other withholdings, and complying with legal and regulatory requirements. A well-managed payroll system is crucial for maintaining employee satisfaction, meeting legal obligations, and fostering financial stability within your organization.

 

Download free comprehensive eBook on Payroll Management

 

Essential Payroll Terminology

To navigate the world of payroll management effectively, it's essential to grasp key terminology. Here are a few important terms to know:

1. Gross Pay: The total amount of compensation an employee earns before any deductions are made.

2. Net Pay: The amount an employee receives after all deductions, such as taxes, benefits, and withholdings, are subtracted from the gross pay.

3. Withholdings: The deductions taken from an employee's gross pay, including income tax, Social Security contributions, health insurance premiums, and retirement plan contributions.

4. Deductions: Amounts subtracted from an employee's gross pay, such as voluntary contributions to retirement plans, wage garnishments, or child support payments.

5. Benefits: Additional compensation provided to employees, such as health insurance, retirement plans, paid time off, and other perks.

Effective Payroll Management Strategies

Implementing effective payroll management strategies is crucial for accuracy, efficiency, and compliance. Consider the following key strategies:

1. Automate Payroll Processes: Leverage payroll software and systems to streamline calculations, tax withholdings, and payment processes. Automation reduces errors, saves time, and facilitates accurate record-keeping. Visit iPaysuite.com to learn more about our HRM software that can help automate your payroll management processes

2. Stay Current with Tax Regulations: Regularly review and update your understanding of tax regulations to ensure accurate withholding calculations and timely remittance to tax authorities. Engage the services of professionals to stay compliant with tax laws.

3. Maintain Accurate Employee Data: Maintain up-to-date and accurate records of employee information, including personal details, tax forms, benefit selections, and any changes in employment status. This helps prevent errors in payroll calculations and ensures compliance with reporting requirements.

4. Regularly Reconcile Payroll Records: Conduct periodic reconciliations of payroll records to identify discrepancies and address them promptly. This ensures accuracy in financial reporting and minimizes potential issues during audits.

Conclusion

Mastering payroll and effective payroll management is crucial for businesses of all sizes. By understanding the basics of payroll, implementing key strategies, and staying compliant with regulations, entities can ensure accurate and timely compensation for employees. To delve deeper into this topic, we invite you to download our free e-book resource on effective payroll management.

 

Download free comprehensive eBook on Payroll Management

 

For personalized guidance or consultation needs, do not hesitate to reach out to us at [email protected]. We are here to support you in optimizing your payroll processes, ensuring compliance, and driving your business's success.

In today’s digital age, the protection of personal data and sensitive information has become a critical concern for organisations operating in Nigeria. With the increasing amount of data being collected and stored, it’s essential for organisations to comply with regulations such as the Nigeria Data Protection Act (NDPA) to ensure the proper handling and protection of this information.

There are numerous benefits to data protection compliance, not just for the individuals whose information is being protected, but for the organisations themselves. Let’s take a closer look at these benefits.

Protection of Sensitive Information

The primary benefit of data protection compliance is the protection of sensitive information, such as personal data and financial information. This includes information such as names, addresses, National Identification Numbers, and credit card numbers. Compliance with data protection regulations, such as the NDPA, ensures that this information is properly secured and only accessed by authorized individuals.

Prevention of Costly Fines and Legal Penalties

Organisations that are not compliant with data protection regulations can face significant financial penalties, as well as damage to their reputation. The NDPA, signed into law in June 2023, empowers the Nigeria Data Protection Commission (NDPC) to impose fines of up to 2% of an organisation’s annual gross revenue or ₦10 million, whichever is higher, for non-compliance. Compliance with regulations such as the NDPA can help organisations avoid these penalties and protect their bottom line.

Building Trust and Credibility

Data protection compliance also helps organizations to build trust and credibility with customers, partners, and other stakeholders. When organisations demonstrate their commitment to protecting personal data and sensitive information, they can gain the trust and confidence of their customers and other stakeholders. This can lead to increased business and revenue opportunities.

Improved Management and Control of Information Flow

Compliance with data protection regulations also helps organizations to better manage and control the flow of information within their organization. This includes processes for collecting, storing, and sharing personal data, as well as for destroying data when it is no longer needed. Compliance with data protection regulations helps organisations to ensure that personal data is handled in a responsible and secure manner.

Penalties for Non-Compliance

Non-compliance with data protection regulations can have severe consequences. Beyond the immediate financial penalties, organisations may face long-term reputational damage and loss of customer trust. The NDPA emphasizes the importance of sustainable data management practices, ensuring that organisations not only comply with current regulations but also adopt forward-thinking strategies to protect data in the future.

Relevant Deadlines

Organisations must conduct annual data protection audits and submit their reports to the NDPC by March 15th of each year. Failure to meet these deadlines can result in additional penalties and increased scrutiny from regulatory bodies.

Stransact: Your Partner for Data Protection Compliance

At Stransact, we understand the importance of data protection and are dedicated to helping organisations achieve and maintain compliance with the NDPA. Our firm is certified by the Nigeria Data Protection Commission (NDPC) as a Data Protection Compliance Organisation (DPCO) and we perform compliance audits for firms to ensure their systems are secure and are protecting data adequately.

Our team of experts has the knowledge and experience necessary to guide organisations through the compliance process and ensure they meet all the requirements. We take the time to understand our client’s unique needs and tailor our services accordingly to provide the best possible outcome.

Contact Us

Contact us today to learn more about our compliance audit services and how we can help your organisation protect personal data and sensitive information. Our goal is to make the compliance process as smooth and stress-free as possible for our clients, so they can focus on growing their business. Send an email to [email protected]

Conclusion

Data protection compliance is essential for organizations operating in Nigeria. It protects sensitive information, prevents costly fines and legal penalties, builds trust and credibility with customers and stakeholders, and improves the management and control of information flow. At Stransact, we are committed to helping organizations achieve and maintain compliance with the NDPA and are ready to assist you with your compliance needs.

 

The Money Laundering (Prevention and Prohibition) Bill, 2022, signed into law by Former President Muhammadu Buhari, repealed the 2011 Money Laundering (Prohibition) Act.

According to section 1, the Act aims to enhance and strengthen Nigeria’s current legal and institutional framework for fighting and preventing money laundering. We will closely highlight the Act’s noteworthy provisions.

Virtual Assets

The Act includes provisions for virtual assets, which correspond to the growth of digital currencies such as Bitcoin, Ethereum, Solana, and more in the blockchain ecosystem. Section 30 of the Act defines virtual assets as `digital representations of value that can be digitally exchanged or transferred and utilized for payment or investment purposes,`  but excludes digital representations of fiat currencies, securities, and other financial assets.

Expansion of Financial institutions’ reach

One of the Act’s major highlights is the expansion of the definition of `financial institutions` to include virtual asset service providers, as well as `designated non-financial businesses and professions` to include businesses in the hospitality industry, dealers in mechanized farming equipment, farming equipment and machinery, dealers in precious metals and precious stones, dealers in real estate, estate developers, estate agents and brokers, high-value dealers, and molecular biologists.

 

Read More: Capital Gains, Crypto, and Compliance: Understanding SEC’s Incubation Programs and Tax Implications

 

Special Control Unit against Money Laundering (SCUML)

The statutory recognition of SCUML  which was established by the Federal Government in 2005 under the Federal Ministry of Industry, Trade, and Investment, is one of the Act’s milestones. SCUML collaborates closely with the Economic and Financial Crimes Commission (EFCC).

The SCUML is in charge of ensuring that non-designated financial enterprises and professions comply with the Act’s obligations.

Penalty for money laundering violations

Under the 2011 Act, individuals convicted of money laundering faced up to seven years imprisonment, a fine equivalent to the full proceeds of the crime, or both.

However, the 2022 Act makes such a person subject to imprisonment for at least four years or a fine of at least five times the amount of the proceeds of the crime, or both. Corporate bodies who commit money laundering offenses face a penalty of not less than five times the value of the profits.

Evaluating New Technologies and Business Strategies for Money Laundering Risks

Financial institutions, as well as non-designated businesses and professions, are required to detect and analyze money laundering and terrorism funding risks that may arise as a consequence of the development of new technology, business practices, and products. To carry out this commitment effectively, the relevant Institutions must conduct risk assessments and implement acceptable risk management and mitigation procedures.

Attorney-client confidentiality

Under Section 192 of the Evidence Act and Rule 19 of the Rules of Professional Conduct, 2007, attorney-client communications related to briefs or instructions are protected. As a result, such correspondence cannot be divulged by the attorney unless the client consents.

However, the Act states that attorney-client privilege does not apply to the following transactions: the purchase or sale of real estate, the purchase or sale of a business, the management of client money, securities, or assets, the opening or management of bank, savings, or securities accounts, the creation or management of trust companies or similar structures, or the proceeds of an unlawful act.

 

Read More: Financial Management Strategies for Sustainable Growth in Nigeria’s Oil and Gas Industry

 

Casinos

The Act mandates casinos to report financial transactions of customers to the Special Control Unit against Money Laundering (SCUML).

Persons with political influence

According to the Act, financial institutions and non-designated financial enterprises and professions must develop methods for identifying whether a client or a customer’s beneficiary is politically exposed.

Section 4(8) mandates financial institutions and non-financial businesses to follow specific protocols when dealing with foreign politically exposed persons (PEPs). These include obtaining senior management approval, identifying the source of income, and conducting ongoing monitoring of the relationship.

The foregoing requirements also apply to domestic politically exposed people with whom there is a high-risk business connection.

 

Read More: Comprehensive Review: Deduction of Tax at Source (Withholding) Regulations 2024

 

Customer identification

The Act requires financial and designated non-financial firms and professions to take reasonable steps to identify and authenticate their clients, as well as anybody claiming to act on their behalf.

International money, securities, and cash transfers

Section 3(1) of the Act states that any transfer of funds, securities, or cash in excess of $10,000 to or from a foreign country by a corporate body must be reported to the Central Bank of Nigeria, the Securities and Exchange Commission, and the Economic and Financial Crimes Commission within one day (the 2011 Act required such transfers to be reported within seven days).

Separate transaction execution:

Any single transaction in excess of N5,000,000 or its equivalent for individuals and N10,000,000 or its equivalent for corporate bodies must be reported to the Nigerian Financial Intelligence Unit and Special Control Unit against Money Laundering (`SCUML`) by financial institutions and designated non-financial businesses and professions. Section 30 of the Act defines `designated non-financial business and profession` as automotive dealers, hospitality businesses, casinos, clearing and settlement companies, consulting firms, real estate dealers, high value dealers, legal practitioners, licensed professional accountants, tax consultants, and so on.

It should be noted that Section 2(2) of the Act clearly forbids splitting a single transaction into two or more distinct transactions in order to avoid reporting such transaction. Prior to the Act’s passage, some people used transaction splitting to avoid reporting transactions that fell inside the specified monetary levels.

Conclusion

The Money Laundering (Prevention and Prohibition) Act, 2022, represents a significant step forward in Nigeria’s fight against money laundering and financial crimes. By addressing emerging trends such as virtual assets, expanding the scope of financial and non-financial institutions, and reinforcing compliance through stricter penalties and regulations, the Act strengthens the country’s legal and institutional framework for combating illicit activities.

Businesses and professionals must stay informed and compliant with these provisions to avoid penalties and contribute to a more transparent financial ecosystem. As Nigeria continues to align with global best practices, the implementation of this Act sets the foundation for a stronger, more secure economic environment.