The Federal Inland Revenue Service (FIRS) has missed its oil tax revenue target for the first four months of 2024, N1.69 trillion. The approved 2024 budget set a goal of N9.96 trillion, with a monthly average of N829.97 billion from oil taxes.
Revenue Shortfall
According to the budget, FIRS was expected to collect N3.32 trillion in oil taxes between January and April. However, the agency only managed to collect N1.63 trillion, which is 49% of the target. This shortfall means FIRS collected N1.69 trillion less than projected.
FIRS had set an internal goal of N7.5 trillion for the entire year, with a monthly average of N625 billion. By this measure, the agency should have aimed for N2.5 trillion in the first four months but only achieved about 65% of this goal. The amount collected is also 22% of the annual target.
Comparison to Last Year
The total tax revenue collected this year is slightly higher than the N1.19 trillion collected in the same period last year. The data for this year’s collections is based on figures presented by FIRS officials at the monthly meetings of the Federal Accounts Allocation Committee (FAAC).
Breakdown of the Data
During the review period, FIRS recorded Petroleum Profits Tax (PPT) and Hydrocarbon Tax (HT) from foreign firms, with zero collection from local firms. Foreign receipts totalled N966.73 billion, an 84% increase from N525.14 billion collected in the same period in 2023. This rise is attributed to higher oil prices or naira devaluation. However, in 2023, local receipts for PPT were N664.90 billion.
Additionally, Company Income Tax (CIT) on Upstream Activities was N667.74 billion this year, with no record of such tax in the same period in 2023. Overall, N1.63 trillion was collected from PPT and CIT in 2024.
Challenges in the Oil Sector
Nigeria’s oil sector faces several challenges, including pipeline vandalism, illegal oil bunkering, and theft. Much of the country’s oil pipeline infrastructure is outdated, having been built around 70 years ago.
Due to these issues, the Federal Government has struggled to meet its revenue targets from this sector. In 2022, only 35.4% of the targeted oil revenue was generated, earning N776.35 billion out of the projected N2.19 trillion. There was some improvement in 2023, with FIRS collecting about 60% of its targeted oil revenue, amounting to N3.17 trillion out of N5.26 trillion.
Oil Firms Exiting the Market
Several oil firms struggling in the sector have chosen to exit the Nigerian market, including TotalEnergies, Shell, ExxonMobil, and Norway’s Equinor. TotalEnergies’ CEO, Patrick Pouyanne, stated that the company invested $6 billion in Angola over Nigeria due to policy inconsistencies and other issues.
What You Should Know
Despite being a leading oil producer, Nigeria struggles to meet its OPEC quota due to oil theft, low investment, and inadequate infrastructure. The Federal Government targets an oil price benchmark of $77.96 per barrel and a daily production estimate of 1.78 million per day for 2024. Recently, Brent crude futures traded near $84 a barrel, while West Texas Intermediate (WTI) remained above $80.
In April, Nigeria’s Brass River and Qua Iboe traded at $86.53 a barrel, higher than major oil benchmarks. The Joint Ministerial Monitoring Committee (JMMC) of OPEC+ set Nigeria’s crude oil production quota for 2024 at 1.5 million barrels daily. However, Nigeria’s average crude oil production for April was 1.281 million barrels daily, and the first quarter averaged 1.327 million barrels daily.
Future Outlook
The inability to meet its OPEC quota and budget targets negatively affects Nigeria’s revenue generation, foreign exchange stability, budget performance, and foreign reserves. Despite these challenges, the current administration aims to increase oil production to an ambitious 4 million barrels daily by the decade’s end.
