N647.39 Billion Divided Between Federal, State And Local Governments

The sum of N647.39 billion from the federal account has been divided by all three tiers of the government to enable workers get their salaries before the Easter break.

This was revealed during the FAAC meeting which was presided by the Minister of Finance, Mrs Kemi Adeosun and attended by a representative of the Permanent Secretary and Director of Home Finance in the Federal Ministry of Finance, Mrs. Olubunmi Siyanbola; Accountant General of the Federation, Mr. Ahmed Idris; Chairman of Finance Commissioners’ Forum and Adamawa State Commissioner for Finance, Hon. Mahmoud Yenusa; States’ Commissioners of Finance and Accountant-Generals, and representatives of revenue generating agencies.

The money was the revenue collection for the month of February 2018 which was approved at the Federation Account Allocation Committee (FAAC) meeting on Wednesday.

Adeosun, who spoke to journalists at the end of the Committee’s meeting, said the N647.39 billion distributed to the three tiers of government was N11.836 billion higher than the N635.554 billion shared in the previous month.

Statutory revenue accounted for N557.943 billion of the total revenue distributed on Wednesday while Value Added Tax accounted for the balance of N89.447 billion.

The total revenue distribution in the previous month was made up of statutory revenue of N538.908 billion and Value Added Tax of N96.646 billion.

On the States’ dispute with the revenue paid by the Nigerian National Petroleum Corporation into the Federation Account, the Minister said the FAAC would reconcile the revenue figures with the top management of the Corporation led by the Group Managing Director, Mr. Maikanti Baru.

“The NNPC is a major channel of our mineral revenue. Some issues have been raised by the States on the revenue paid into the Federation Account by NNPC.

“These are being looked into and within the next 48 hours, we will be a joint meeting with the NNPC Group Managing Director to address the concerns of the States. The reconciliation of the revenue figures is part of a healthy process to ensure transparency and accountability,” Adeosun said.

The Chairman of Finance Commissioners’ Forum, Mahmoud Yenusa, explained that the reconvening of the meeting had become necessary to enable States pay workers their salaries before the Easter break.

“The account submitted by the NNPC is not acceptable to the States but we are willing to jointly reconcile the revenue figure with the leadership of NNPC.

“We agreed last night to reconvene the meeting for the benefits of Nigerian workers at all tiers of government, to enable them receive their salaries,” the Adamawa State Commissioner of Finance said.

Meanwhile, the Accountant General of Federation on Wednesday signed the mandates for the Central Bank of Nigeria to pay the approved revenue allocation into the accounts of the Federal, State and Local Governments.

Giving further breakdown of the revenue distribution, the Finance Minister said the Federal Government received N257.927 billion of the net statutory revenue as against the N249.366 billion received in the previous month, while the State and Local Governments’ share of the statutory revenue was N130.824 billion and N100.86 billion, respectively.

The States and Local Governments had last month gotten N126.482 billion and N97.512 billion, respectively.

The 13% derivation accounted for the balance of the statutory revenue of N57.356 billion.

The 36 States received Value Added Tax of N42.935 billion compared with N46.39 billion received in the previous month, while the Federal and Local Governments received VAT of N12.88 billion and N30.054 billion, respectively.

Both Federal and Local Governments had received N13.917 billion and N32.473 billion, respectively, from VAT in February 2018.

 

 

 

 

Fg To Name And Prosecute Tax Evader From March 31 – Adeosun

The Federal Government  said on Thursday that it would name, shame and prosecute tax evaders who will not take advantage of the amnesty provided by the Voluntary Assets and Income Declaration Scheme to regularise their tax profiles.

The Minister of Finance, Mrs. Kemi Adeosun, state  this at a VAIDS stakeholders’ symposium held in Kaduna State.

The sensitisation programme was graced by the Governor of Kaduna State, Nasir el-Rufai; the Accountant General of the Federation, Alhaji Idris Ahmed; Executive Chairman, Federal Inland Revenue Service, Mr. Babatunde Fowler; members of the State Executive Council; and business owners.

The minister, according to a statement by her Media Adviser, Oluyinka Akintunde, also said that the Federal Government would strictly adhere to the confidentiality clause in the Automatic Exchange of Financial Account Information in tax matters.

This, she added, was in line with the guidelines of the Organisation for Economic Cooperation and Development.

Adeosun stated that the Federal Government had the political will to prosecute tax evaders once the amnesty programme was over by March 31, 2018.

She said, “The Federal Government has the political will and data to go after tax evaders who fail to take advantage of the tax amnesty programme. Many Nigerians cannot explain their lifestyles or match their lifestyles, assets and incomes with their tax payment.

“We will close the VAIDS at the expiration of the programme on March 31, 2018. And once the programme is closed, we will name and shame, and prosecute tax evaders.”

On data sharing with foreign countries, the minister noted that the information sourced would be strictly used for tax purposes.

“The guidelines require that the automatic exchange of financial account information must be specifically designed with residence jurisdictions’ tax compliance in mind rather than being a by-product of domestic reporting for it to be effective,” Adeosun added.

She noted that the automatic exchange of information had become necessary to combat tax evasion and protect the integrity of tax systems.

The VAIDS, according to her, has been strengthened by the data on financial accounts, property and trusts shared by other countries.

Adeosun advised offshore asset owners to utilise the VAIDS window to regularise their taxes before the end of the amnesty programme.

“The offshore tax shelter system is basically over. Those who have hidden money overseas are being exposed and while Nigerians can legally keep their money anywhere in the world, they must first pay

any taxes due to the Nigerian government so that we can fund the needs of the masses and create jobs and wealth for our people,” she added.

El-Rufai, who disclosed that he declared his assets in 2017, commended the collaboration between the federal and state governments on tax matters.

He pledged to provide land ownership data to tax authorities at the federal and state levels as part of measures to bring more income earners and asset owners into the tax net.

The governor gave an assurance that revenue from taxes would be judiciously used in improving the lives of residents of the state through investment in infrastructure, primary health care and education.

Fowler, on his part, emphasised the need for Nigerians to join hands with the federal and state governments to improve the standard of living through compliance with tax payment.

Four Million New Taxpayers Targeted By Fg Through VAIDS – Adeosun

The Federal Government is targeting to bring a total of four million fresh taxpayers into the tax net through the implementation of the Voluntary Assets and Income Declaration Scheme,

The Minister of Finance, Mrs Kemi Adeosun, at the United Nations in New York gave the number at the ongoing Platform for Collaboration on Tax Conference.

The VAIDs programme offers a grace period from July 1, 2017 to March 31, 2018, for tax defaulters to freely pay back to government what they owe.

In exchange for full and honest declaration, the government promises to waive penalties that should have been levied and also waive the interest that should have been paid on overdue tax.

Also, those who declared their tax obligation honestly would not be subjected to any investigation or tax audit after the nine month grace period.

Adeosun explained that the VAIDS tax amnesty program was targeted at increasing the tax payer base, raising revenue and regularising the tax status of many Nigerians.

She noted that the scheme was aimed at raising at least $1bn for the government, adding that more Nigerians have indicated interest in taking  advantage of the opportunity.

She said, “We are using technology to improve the accuracy and efficiency of the programme. Project Light House is using advanced data mining and data analytics techniques to identify tax defaulters, establish their tax liabilities and send notifications.

“The system-wide computer software, which drives Project Lighthouse, aggregates data from multiple sources such as bank accounts, land registry records, company registration data, tax filings, customs’ records, asset ownership records, among others, to identify, profile and track tax evaders.

In a statement on Friday from the minister’s Media Adviser, Oluyinka Akintunde, she said the Federal Government had engaged a leading international Asset Tracing and Investigation Agency (Kroll), to trace and track illicit flows and assets.

In addition, she said Nigeria had signed the Multilateral Competent Authority on Common Reporting Standards, which allows for exchange of financial account information.

The country, according to her, is expected to effect the first exchange by 2019 as soon as the domestic legal framework was completed.

Bank Account Data Will Be Used To Expose Tax Debtors..Adeosun

The Minister of Finance, Mrs. Kemi Adeosun, has implored wealthy Nigerians to take advantage of the Voluntary Assets and Income Declaration Scheme to regularise their tax status and escape unsavoury consequences.

She said this in Enugu State when the state government hosted officials of VAIDS.

Data on property, bank accounts, shareholdings and other income sources of individuals and corporate entities has been compiled by the federal government she also said.

According to her, VAIDS was conceived to allow Nigerian companies and individuals to do what is right for the country, Enugu State and the citizens.

Adeosun said, “From our records, there seems to be a few big men and big women from this part of the country, who may need to think very carefully about making a VAIDS declaration.

“We have been compiling data on property, bank accounts, shareholdings and other sources that suggest that many people have not been paying the right taxes. VAIDS is an opportunity to regularise.”

The minister added that huge sums of money had been moved out of Nigeria without the owners paying a kobo in tax.

The event was attended by Governor Ifeanyi Ugwuanyi of Enugu State, members of the state’s executive council, legislature and traditional rulers.

The Chairman of the Federal Inland Revenue Service, Mr. Tunde Fowler, was represented at the event by the Executive Secretary of the Joint Tax Board, Oseni Elamah.

Also present were representatives of the business community in the state. They included the Enugu Chamber of Commerce, Industry and Agriculture; Nsukka Chamber of Commerce, Industry, Mines and Agriculture; bank executives; lawyers; market traders; electronic dealers; hospital owners; school owners and transport owners associations.

Meanwhile, the process of participation in the VAIDS has been made easier for new taxpayers as well as existing ones, who have not been paying appropriate taxes.

According to the VAIDS Office in the Federal Ministry of Finance, the first step for new taxpayers is to apply for a Tax Identification Number, which will be fast-tracked.

Whistle -Blowing: Two Officials Suspended, others Probed By The FG

The Federal Government on stated it had started investigation into over 200 whistle-blowing tips on tax officials and taxpayers for under-declaration of taxes as well as demand and receipt of gratification by tax officials.

It was disclosed on Sunday by the Minister Of Finance, Mrs Kemi Adeosun in Abuja while presiding over the meeting of the Whistle-blower Unit in the Federal Ministry of Finance and the Presidential Initiative on Continuous Audit.

She also affirmed the suspension of two senior tax officials in Delta and Benue states based on verified tips from whistle-blowers had been requested and secured by the ministry

Adeosun said the government through the ministry had also commenced the process of sanitising the tax administration and revenue collection system of dishonest operatives.

Adeosun, according to a statement issued by her Special Adviser on Media and Communications, Mr. Oluyinka Akintunde, said the sanitisation of the tax administration and revenue collection system was part of the government’s efforts at enhancing the willingness of the citizens to pay their taxes.

The minister stated, “The ministry is currently analysing over 200 additional whistle-blowing tips, including recordings between tax officials and potential taxpayers in which various practices designed to reduce tax payable were detailed.

“These practices include demands for personal gratification by tax officers, promises to procure backdated tax clearance certificates, and offers to conspire to reduce taxes payable.”

In order to deal with the influx of the whistle-blowing tips, the minister, the statement noted, had directed the reorganisation of the Whistle-blower Unit to fast-track reports relating to those in the revenue-generating agencies.

She said, “Encouraging our citizens to pay taxes is a matter of law but it is also a matter of trust. Those who work in our tax offices must, therefore, demonstrate the highest level of integrity. The administration of President Muhammadu Buhari understands that to reduce our reliance on oil means every citizen must pay their taxes as and when due.

“However, people will not be encouraged to pay if they believe that those involved in the assessment are not transparent or are dishonest. We will continue to sanitise the system and also improve our controls.”

Adeosun gave an assurance that the ministry would continue to root out fraudsters who compromised the integrity of the tax administration and revenue collection system.

She lauded members of the public for volunteering valuable information, including voice recordings and other evidences, to the Whistle-blower Unit in the ministry.

Adeosun enjoined members of the public to desist from the procurement of tax certificates that were not consistent with their true incomes.

She warned against reliance on such documents and advised those who might have procured such tax certificates in the past to take advantage of the Voluntary Asset and Income Declaration Scheme to regularise their tax profiles.

She added, “We have cases of procurement of tax clearance certificates with no corresponding records or assessments in the tax offices. In such cases, although payments have been made, but there are no underlying assessment. So automatically, we will flag such companies for investigation.

“The data analysis being undertaken within the Federal Ministry of Finance is readily exposing those who have obtained tax clearance certificates that are either forged or are not consistent with their true income levels.”

Officers Of Nigerian Customs Service To Get Salary Increment

The Officers of the Nigerian Customs Service (NCS) have been promised a salary increment by the Minister of Finance, Kemi Adeosun.

Adeosun promised the workers at the celebration of International Customs Day at the Customs Command and Staff College Gwagwalada, FCT on Friday in Abuja.

The theme of the event was “A secure business environment for economic development’’.

The minister was represented by the Ministry’s Director of Finance, Mrs Oladudumi Biosola.

Adeosun urged officers of the NCS to put in more efforts to rise above target in revenue drive.

She said that security of trade environment was central for business to proper, adding that security aspect of Customs role was as important as its revenue role.

“The theme of this year Customs day coincides with the current ease of doing business initiative of the Federal Government.

“We understand that the initiative is already yielding dividends based on the fact that we have improved by 24 points in the World Bank ranking system,’’ Adeosun said.

She commended the NCS for its remarkable success in ensuring national security in the past years.

According to her, seizure of arms .and ammunitions at the seaports were the possible indications that the Service is alive to its responsibilities.

The minister also pledged to give the NCS the required support to succeed.

The Comptroller-General of Customs, retired Col. Hameed Ali, said that the Service had made steady progress in automation of its processes.

The Comptroller-General said in addition to these were other reforms aimed at ensuring a secured business environment.

Ali said that other ongoing reforms in the Service were repositioning it through strategic deployment, training and automation of Customs processes.

He said that clearance process through Pre-Arrival Assessment Report (PAAR), fast track facility for compliant traders and the post clearance audit were aimed at reducing clearance time and cost.

“The minister has been working diligently on how to see the welfare of the NCS improves.

“We are presently working on the computation of figures and she is waiting for that figure.

“As soon that is made available, then, the decision between her and Mr President will determine what Customs gets.

“I assure all Customs officers that between the minister and the President, both are all ready to see that there is an improvement in welfare of NCS,’’ Ali said.

The Customs boss urged Nigerians to support indigenous businesses by patronising made in Nigeria goods to encourage local production and boost industrial base.

 

All Change!!! Nigeria Is Not An Oil Economy

By Kemi Adeosun

Descriptions of Nigeria’s economy often include such phrases as ‘Africa’s largest oil producer’ and ‘the oil-rich African nation’ but oil economies are typically characterized by low population densities and abundant oil resources. Saudi Arabia with 10 million barrels of oil per day and 30 million people, Kuwait with 2.7 million barrels of oil per day and four million people and Qatar with 1.5 million barrels of oil per day and 2.5 million people are typical of such.
These economies pursued an economic model that was built around a large government dependent almost entirely on oil revenue for funding. Such economies could afford to have low or in some cases no domestic revenue mobilization, in the form of taxes. Tax to Gross Domestic Product (GDP) ratios of less than 10 per cent against the OECD average of 34.6 per cent could be justified especially in the era of high oil prices.

For over three decades, Nigeria pursued this model. But things are changing, with the election of President Muhammadu Buhari in 2015, who was propelled into office under the mantra of ‘change’. That clamor for change, in the areas of governance, security and economy, coincided with the collapse of global oil prices and a consequent huge deficit in government revenues. These circumstances provided the ingredients for an overhaul of the entire economic model.

The first and rather numbing conclusion of that exercise was that Nigeria is not actually an ‘oil economy’. With just 2 million barrels of oil per day and over 180 million people, simple mathematics tells us that 90 Nigerians share a barrel of oil compared to 3 Saudis, 1.44 Kuwaitis and 1.69 Qataris. With oil at just 10 per cent of GDP, Nigeria simply does not fit into the mold of the traditional oil economies.

Interestingly, even nations who did legitimately fit into this narrow mold of high oil revenues and low populations, are abandoning what is now considered to be a flawed model. Thus, the imperative for Nigeria was even more urgent. Nigeria recalibrated its target peer group from the oil economies to the ‘oil plus’ economies such as Mexico and Egypt. This new peer group has diversified economies and tax to GDP ratios of 20 per cent and 16 per cent, respectively, compared to Nigeria’s 6 per cent. Consequently, the change mantra had to be urgently applied to revenue mobilization.

Analysis of the data suggests that revenue mobilization is potentially the master key to unlocking Nigeria’s huge growth potential by funding its ailing infrastructure including roads, power, and rail. A cursory look at the effective tax rates paid by the huge multinational and local operators, as well as the data on illicit financial flows, indicates a pattern of systematic tax evasion at all levels. Recent statistics released by the Federal Ministry of Finance showed that Nigeria has just 14 million active taxpayers from an economically active base of 70 million. Over 95 per cent of these are salary earners in the formal sector, just 241 persons paid personal income taxes of N20 million (US$65,573.77) in 2016.

Taxing the high net worth and Nigeria’s huge community of entrepreneurs constitutes a critical but yet attainable target. The statistics for corporate tax payment shows the debilitating effects of base erosion and profit shifting as well as abuse of an overly generous tax incentive and duty waiver system. The historical government apathy towards revenue mobilization is one of the effects of the mistaken identity that saw Nigeria perceive itself as an oil economy. This Administration is determined to correct this identity crisis and all its concomitant effects.

In that spirit, we launched an ongoing and well received, tax amnesty, ‘The Voluntary Asset and Income Declaration Scheme’ (VAIDS) is affording a nine-month window for Nigerian tax payer’s, both corporate and individual, to regularise their tax status in exchange for a guarantee of no interest, penalties, tax investigation or further audit. This amnesty follows successful initiatives in a number of countries, where tax evasion is a problem, such as Indonesia, Argentina, South Africa and India. It has been programmed to end just as the Automatic Exchange of Information, which will provide Nigerian tax authorities with unprecedented levels of information on offshore assets, becomes effective.

The initial signs suggest that Nigerians are responding positively to the new revenue narrative. Despite the emergence from a recession, tax revenues are showing early signs of growth. VAT shows 18.97 per cent year on year improvement. Over 800,000 companies, including some Government contractors, that have never paid taxes have already been identified and are being audited. This is an unprecedented initiative that entails cooperation between Federal and State Governments. The Federal Ministry of Finance has also commenced a database project that combines data from the various arms of government including bank records, property and company ownership, and customs records to create accurate profiles of those liable to pay taxes. The Ministry has also placed one of the world’s premier private investigation agencies on retainership to trace overseas assets.

Changing the Nigerian economic psyche is not an easy task. By its nature, tax mobilization risks the popularity of any Government, but the present Administration understands that the short-term lure of political expediency must give way to the long-term best interests of Africa’s largest economy. Her energetic, young and growing population are deserving of the chance to experience a truly transformed, sustainable and growing economy.

Kemi Adeosun Inaugurates NCMDF Board Members

The Minister of Finance, Kemi Adeosun has confirmed the appointment of members of the Board of Nigerian Capital Market Development Fund, NCMDF.

Mrs Kemi ADEOSUN at the Securities and Exchange Commission yesterday disclosed this, saying,

“The Commission’s mandate is to deepen the market and enhance the socio-economic development of our beloved country.”

Member of the Board are : Mounir Gwarzo – Chairman, Non-executive Commissioner of SEC – Vice Chairman, Executive Commissioner of the Securities and Exchange Commission, Mrs Olubunmi Siyanbola – Director, Home Finance, Ministry of Finance, and Dr. Faruk Umar – Chairman, Association for the Advancement of the Rights of Nigerian Shareholders Others are Mr. Sunny Nwosu – Independent Shareholders Association of Nigeria, Mr. Bayo Olugbemi – President/Chairman – Institute of Capital Market Registrars – Represented by Walter Oghogho and Ify Ejeizie – Association of Stock Broking Houses of Nigeria.

FG To Be Prudent With Foreign Borrowing – Kemi Adeosun

The Minister for Finance, Mrs. Kemi Adeosun, revealed on Sunday that the Federal Government would not be reckless with foreign borrowings as it maintains an expansionary fiscal policy.

Adeosun also revealed that the International Monetary Fund (IMF) and the World Bank Group have projected a positive outlook for higher growth for the Sub-Saharan Africa and the global economy in 2018.

Adeosun made this known in Washington D.C. at a Joint Media Briefing with the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, at the end of the 2017 Annual Meetings of the International Monetary Fund and the World Bank Group.

She stated that the Federal Government adopted an expansionary fiscal policy with an enlarged budget in order to deliver a fundamental structural change to the economy, thereby reducing the country’s exposure to crude oil.

“Why are we borrowing? Mobilising revenue aggressively was not advisable, nor indeed possible, in a recessed economy. But as Nigeria now reverts to growth, our revenue strategy will be accelerated.

“This is being complemented by a medium-term debt strategy that is focusing more on external borrowings to avoid crowding out the private sector.

“This would also reduce the cost of debt servicing and shift the balance of our debt portfolio from short-term to longer-term instruments. This Government will be very prudent around debt. We won’t borrow irresponsibly,” said Adeosun, who led the Nigerian delegation to the 2017 Annual Meetings of the IMF and the World Bank.

The Minister participated in both the International Monetary and Financial Committee (IMFC) and Development Committee (DC) meetings, the two highest decision-making organs of the Bretton-woods Institutions.

She revealed that developments in the global economy since the Spring meetings were reviewed, noting that growth had picked up in 2017 even though not even.

The Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele; Honourable Minister of Finance and Leader of the Nigerian delegation to the 2017 Annual Meetings of the IMF and World Bank, Mrs. Kemi Adeosun, and the Permanent Secretary in the Ministry of Finance, Alhaji Mahmoud Isa-Dutse, at a Joint Media Briefing at the end of the IMF and World Bank Meetings in Washington D.C. on Sunday, October 15, 2017

“Global growth is estimated to be 3.6 percent for Fiscal Year 2017, while Sub-Saharan Africa (SSA) is projected to grow at 2.6 percent and the outlook is for higher growth in Fiscal Year 2018.

“However, downside risks remain in the medium-term with high policy uncertainty, geopolitical tensions. Inflation remains subdued,” she added.

Providing further details on the IMF and World Bank meeting, Minister Adeosun said the overarching policy priorities for the entire membership was to boost potential output and improve income distribution while improving financial sector resilience.

The two Bretton-wood institutions, according to her, urged commodity exporters like Nigeria, to pursue structural policy reforms to unlock the country’s potentials and stimulate aggregate supply as well as enhance the diversification process.

On the Development Committee (DC) meeting, she said members discussed the need to enhance the capacity of the International Bank for Reconstruction and Development (IBRD) and International Finance Corporation (IFC) to meet their obligations of supporting the financing needs of client countries and to prevent a slowdown in lending.

“At the DC where I spoke on behalf of Angola, Nigeria, and South Africa, I urged the international community particularly the Bretton-wood Institutions to change the narrative on Africa which always portray the continent as Low-Income Countries (LIC).

“Indeed, there are some Middle-Income Countries represented by this constituency and so there is the need for the Bank to deploy instruments, policies, and programs that will address the peculiar needs of these countries,” she said.

Responding on the issue of investing in women, Adeosun remarked that the women remained the best investment any nation could make.

“The multiplier effect of such investment is significant. We need to make more opportunities available to our women. They are the economic drivers of our nation. We have enormous talents in Nigeria, and the Federal Government will invest in human capital,” she added.

The CBN Governor, Mr. Godwin Emefiele, who also participated in the IMF and World Bank meetings, confirmed improvement in the Nigerian economy.

“The fundamentals we are seeing show that there is a lot of stability in the foreign exchange market, and having come down from high level to the level we are now, and the currency is just fluctuating between N359/N365 to the dollar.

“We think it is good level compared to where we are coming from. We think it is important to note that as reserves get stronger, as economic fundamentals get stronger, there is no doubt that the naira will get stronger and we will see more appreciation in the currency,” Emefiele said.

He assured that the CBN would continue to focus on the banking system to ensure there were no significant threats that would affect the strategic health of the banking system.

He further said that the CBN would continue to support the Federal Government’s efforts to reduce unemployment and create jobs.

Senate Summons Adeosun, Udoma Over Economy

The Minister of Finance, Mrs Kemi Adeosun and her Budget and National Planning counterpart, Sen. Udo Udoma have been summoned by the Senate to brief Nigerians on developments in the economy. Chairman, Senate Committee on Media and Public Affairs, Sen. Sabi Abdullahi, made this known when he briefed newsmen on Tuesday in Abuja.

Abdullahi said that the invitation of the ministers was to get assurance on measures being put in place to prop-up and continuously support the economy to forestall relapse to recession.

He recalled that it was on the floor of the Senate that Nigeria was declared to be technically in recession.

According to him, we had cause to discuss the issue of recession that came up last year.

“We are glad that we have at least exited recession by virtue of the 0.55 per cent marginal growth we have recorded.”

Abdullahi, however, said that there was need for managers of the economy to explain its state to citizens, especially with the issues of recession.

He urged the economy managers to step-up their jobs in order to consolidate current gains and avert any relapse to recession.

Sukuk: What Nigeria Stands To Gain And Why UK, S’Africa, Others Embrace It

The Federal Government N100billion Sukuk offer was concluded on Friday though the brickbat it generated between the Christian Association of Nigeria (CAN) and the Nigerian Supreme Council on Islamic Affairs (NSCIA) still reverberates. SULAIMON OLANREWAJU looks at what sukuk is, its operation, upsides as well as downsides.

While Nigerians and the rest of the world await the outcome of the nation’s first N100billion offer which ended on Friday after a two-day extension, its issuance has divided the country along religious lines. In a reaction to the sukuk offer, the Christian Association of Nigeria (CAN) described the issuance as a subtle attempt by the Federal Government to Islamise Nigeria. The body, therefore, called on the government to abrogate the laws and framework behind the sukuk issuance, failing which it would seek legal redress.

In a statement signed by its General Secretary, Rev. Musa Asake, CAN noted that it “has been protesting against this aberration since the Osun State Government, under Governor Rauf Aregbesola, embarked on this violation of the constitution.

“Rather than stand in the defence of the constitution, it is disappointing to note that the Federal Government is pursuing what is an outright confirmation of an Islamisation agenda.

“The recent floating of sukuk bond by the government is not only sectional but illegal and a violation of the constitution. Every law that has been promulgated to back the sukuk issuance and promote an Islamic banking system in Nigeria is ultra vires, illegal, null and void.”

But in its reaction, the Nigerian Supreme Council for Islamic Affairs (NSCIA), accused CAN of “Islamophobia.”

In a statement signed by its Deputy Secretary General, Salisu Shehu, the body said, “CAN cannot claim ignorance about the fact that even the World Bank has been involved in issuing sukuk and the floating of sukuk bonds. Interestingly also, several non-Muslim countries across Africa, Europe and Asia have also instituted Islamic Financial System generally and Sukuk in particular. Worthy of mention here are Kenya, Tanzania, South Africa, United Kingdom, Luxembourg, Russia, China, Singapore and a number of firms in the United States.

“Less than two years ago, Britain hosted a World Conference on Islamic Banking and Finance and David Cameron, the then British prime minister, openly declared that their intention was to make UK the hub of Islamic Finance in the World.”

It added that, “It would certainly be embarrassing for CAN to be told that the first and foremost state in Nigeria to submit application for loan to the Islamic Development Bank is a Christian-dominated state in the South-East.”

NSCIA then appealed to CAN to “in the spirit of Biblical injunctions, uphold the truth for its sake and tread the path of honour and refrain from statements capable of causing disaffection and promoting disharmony that may lead to conflict in the country.”

What is Sukuk?

The essence of sukuk is to raise funds without having to bother about interest, which in Islamic parlance is known as riba. Islamic laws forbid interests on loans, hence sukuk, which encourages profit sharing rather than interest earning, is embraced by financial operators in Arab world. However, the appeal of sukuk currently transcends the Islamic world as many non-Islamic countries have now embraced it.

According to the Rules and Regulations of the Securities and Exchange Commission (SEC Rules 2013), sukuk refers to investment certificates or notes of equal value which evidences undivided interest/ownership of tangible assets, usufructs and services or investment in the assets of particular projects or special investment activity using Shariah principles and concepts and approved by the SEC.

Writing along this line, Majeed Oladunjoye, in an article published in Journal of Islamic Banking and Finance, says sukuk can be defined as “certificates of equal value representing undivided shares in the ownership of tangible assets, usufructs and services or (in the ownership of) the assets of particular projects or special investments,” adding that sukuk is more than a mere bond.

Sukuk is contrasted with conventional bond in the sense that while in the case of conventional bonds the issuer has a contractual obligation to pay to bond holders, on certain specified dates, interest and principal, under a sukuk structure the sukuk holders each hold an undivided beneficial ownership in the underlying assets.

Under a sukuk structure, returns to sukuk holders (investors) represent rights to receive payments from a trade transaction or ownership of a particular asset or business venture. However, the returns to conventional bondholders represent the right to receive interest for borrowed monies.

In other words, a sukuk holder is not just a mere investor but a part owner of the project. A sukuk investor has a common share in the ownership of the assets linked to the investment although this does not represent a debt owed to the issuer of the bond. So, sukuk is a trust certificate.

Why opt for Sukuk?

Mr Mounir Gwarzo, Director General of the Securities and Exchange Commission, while explaining the rationale behind his organization and the Debt Management Office (DMO) working together to ensure a buy-in into sukuk by the Federal Government, said, “Within the context of continued decline in the prices of crude oil in the international markets, attendant drop in both foreign exchange and government revenues as well as fragility of growth from major emerging markets like China, the need for alternative sources of capital to finance infrastructure becomes increasingly more compelling. Both government agencies (SEC and DMO) therefore agreed on the urgent need to begin mobilising capital in order to address the nation’s investment needs. Particularly, issuing a sovereign sukuk will attract significant amounts of affordable capital from the Gulf countries and other established Islamic markets around the world into Nigeria.”

Former Director General of the DMO, Dr Abraham Nwakwo, said that sukuk is part of the DMO’s 2013-2017 Strategic Plan which mentions the goal of using “non-interest debt financing instruments (such as sukuk) for investment in critical national development priorities and sectors.”

He added that the issue was “part of the plan to fast track the development of infrastructure and engage in … project-tied capital raising,” adding that Nigeria has challenges with road, railway and power infrastructure.

Gwarzo predicted that Nigeria’s maiden sovereign sukuk would be oversubscribed with enhanced participation of domestic and foreign investors.

Apart from the huge funding made available through the instrumentality of sukuk, for a country that spends a fortune on debt servicing, sukuk provides a refreshingly different alternative. According to Vitor Gaspar, International Monetary Fund’s Director of Fiscal Affairs Department, in April this year, Nigeria spends 66 per cent of its tax revenue on debt servicing. Similarly, the Emir of Kano, Muhammadu Sanusi, said the Federal Government expends 66 per cent of the country’s revenue on servicing debt interest, while 34 per cent of the revenue was used for capital and recurrent expenditures.

In his own view Dr Benedict Nwafor of the University of Lagos, said the attraction for Nigeria is its present challenge. “For Nigeria, anything that will reduce the debt burden will be welcome. If a country expends 66 per cent of her earnings on debt repayment, that country cannot experience development. The government has to develop critical infrastructure to engender development. The sukuk is an opportunity for raising funds without raising the nation’s debt profile,” he said.

According to him, although sukuk is founded in Islamic belief, it is nothing other than a financial instrument for mobilizing funds. He added that each country has its own reason for embracing sukuk.

He explained that while South Africa welcomed sukuk because of its desire to broaden its investor base and to set a benchmark for state-owned companies seeking diversified sources of funding for infrastructure development, Hong Kong adopted sukuk because “As China’s global financial centre, it is an important conduit for Mainland companies to access the international markets and the preferred offshore capital raising centre for Mainland issuers.”

Benefits of sukuk

Sukuk provides access to a vast and growing Islamic liquidity pool in addition to the conventional debt. According to Naveed Mohammed, an Islamic finance scholar, sukuk provides an ideal way of financing large projects for the public good that would otherwise not be possible.

He says, “There are many economic activities or projects that are out of reach of various developing Islamic economies and governments. In these cases, sukuk is perfect for financing these projects without falling into interest-based debt. This makes sukuk an important avenue for redistribution of wealth and achievement of social justice. The use of sukuk to fund large projects means that investors in sukuk are incentivized to help economies develop by creating and producing rather than by consuming or manipulating others. Islamic finance is based on principles of fairness and justice which are achieved by avoiding riba.”

Mohammed adds that investors on the secondary market who are looking for investments that can be liquidated easily will find thatsukuk is ideal. “Thanks to the secondary market for Islamic securities, investors can sell their securities and obtain the cost of their certificates. If the projects that back their sukukcertificates have generated profits, this results in a quick return in investment.  This means that Islamic financial instruments are well suited for fund management. Banks or institutes can use part of their funds to purchase Islamic securities and then sell them on the secondary market when liquid assets are needed.”

Sukuk’s major appeal is the removal of interest burden as well as the vast resources available to its promoters. This explains why a country like the United Kingdom has fully embraced it. The immediate past British Prime Minister, David Cameron, once said he would want London to stand alongside Dubai and Kuala Lumpur as one of the greatest capitals of Islamic Finance in the world. With that, in June 2014, the United Kingdom became the first country outside of the Islamic world to issue a sovereignsukuk. The UK government raised £200 million to fund the construction of residential buildings. Other non-Islamic countries have since keyed into sukuk as a means of raising funds. These include Hong Kong, Senegal, South Africa and Luxemburg.

Drawbacks

Sukuk is not without its drawback. The major drawback is what happens to a sukuk holder should asukuk fail. What is the status of a sukuk holder when a sukuk fails? A sukuk holder is said to be a part-owner of a project. What happens in the eventuality of the failure of the project? Can he and other owners move in and take possession of the project or does he bear the consequences of that failure by forfeiting his investment?

According to Ibrahim Warde, Professor of International Finance at The Fletcher School of Law and Diplomacy, Tufts University, it is not clear what will happen when a sukuk fails. He says, “This is an issue that has not been tested in court. In Malaysia, somesukuk issues have junk status, and two other sukuk are already in default: the Easter Cameron Gas company in the United States and Investment Dar of Kuwait. One of the unresolved questions is whethersukuk holders should stand in the line of creditors or in the line of the owners of underlying assets.”

Also expressing confusion over the status of a sukuk holder, Muddassir Siddiqui, who is both a licensed Shariah jurist and a-U.S. trained attorney, said, “Through reading many cases that have so far been litigated in courts around the world, I have found that in almost all cases, the courts have struggled to reconcile the substance and form of the contract. Was it a sale, lease, construction or partnership contract or a financing arrangement between the parties?”

Lending his voice to the complexity involving sukuk, Rodney Wilson, Emeritus Professor of Economics at Durham University in the UK, who is also Visiting Professor, Qatar Faculty of Islamic Studies and Adjunct Professor, International Centre of Education in Islamic Finance (INCEIF), Kuala Lumpur, opined that “when sukukpayments are delayed or fail, the means of redress are potentially more complex than for conventional notes and bonds because under Shari’ah, leniency towards debtors is favoured.” This will unfailingly raise moral hazard problems.

But beyond these concerns, Nwafor is of view that sukuk certificates can transfer state-owned projects to sukuk holders in case of default. According to him, “A sukuk holder is a part owner of a project until he is fully repaid. So, if a project funded by sukuk fails or is so badly managed that the investors cannot recoup their investment, the project will owned by the investors until the investors are able to get back their capital. This is one of the complications withsukuk. This grey area has to be sorted out to avoid the country and the people being short-changed. The government must come out clean on what happens to a project and the investor in case of project failure. We cannot pretend that it cannot happen. Projects fail regularly here in this country. Should that happen, what becomes of the project and those who invested in it?”

He added that the Federal Government has a lot to do in educating the public on the benefits of sukuk to ensure a buy-in. “The government must also do all it can to assure Nigerians that this scheme is not intended to favour a section of the society. I am of the view that if other non-Muslim countries can accept it, so can Nigeria but the government has to work extra hard to convince Nigerians that it means well for all Nigerians with the sukuk.”

Source: Nigerian Tribune