Business Essential Vol. 4 No 2
Dear Esteemed Members,
The big picture on Enterprise radar in 2017 is definitely the economy with its attendant implications on the competitiveness and sustainability of business. In view of the fact that the National Budget is the major driver of the economy, we will devote time to highlight of the proposed 2017 National Budget which is currently receiving due attention at the National Assembly. Closely related is the 10-Point Economic Roadmap of the present Administration which we also considered.
Our regular Labour & Employment Law and 2017 Upcoming Training programmes were also not left out.
We wish you a wonderful year ahead.
In this issue:
- Highlights of 2017 National Budget: Budget of Recovery and Growth
- Tax Alert
- Federal Government’s 10-Point Economic Roadmap
- LABOUR & EMPLOYMENT LAW: Stay of Proceedings (Mr. Aralu Steve vs. Total E.& P. Nig. Ltd and Maple Leaf Ventures Ltd) (2014) 44 N.L.L.R. Pt 138, P. 139. NIC
- Upcoming Training Programmes
Keeping employees motivated is one of the most important responsibilities of a manager. To do this, make sure you’re using the right motivational tools at the right times. Keep these guidelines in mind:
Adapted from “Match Your Motivational Tactic to the Situation,” by Juliana Schroeder and Ayelet Fishbach
HIGHLIGHTS OF PROPOSED 2017 BUDGET: Budget of Recovery and Growth
- Performance of 2016 Budget: We highlight the performance of 2016 Budget termed “Budget of Change”.
|FGN’s RETAINED REVENUE 2016 (Billions of Naira) *** as at June 2016|
|FISCAL ITEMS||2016 Approved Budget||Prorata (Jan – June)||Actual (Jan- June)||Variance|
|N’ Billions||N’ Billions||N’ Billions||N’ Billions||%|
|1||Share of Oil Revenue||717.55||358.78||406.03||47.26||13%|
|2||Share of Minerals & Mining||6.90||3.45||–||(3.45)||-100%|
|3||Share of Non-Oil||1,465.48||732.74||323.59||(409.15)||-56%|
|Share of CIT||867.46||433.73||161.97||(271.76)||-63%|
|Share of Customs Revenue||326.44||163.22||103.39||(59.83)||-37%|
|Share of Federation Account Levies||62.56||31.28||5.6||(25.62)||-82%|
|FGN’s Share of Actual Balance in Special Accounts||10.79||5.39||–||(5.39)||-100%|
|5||FGN’s Balances in Special Levies Accounts||14.38||7.19||–||(7.19)||-100%|
|6||FGN’s Unspent Balance of Previous Fiscal Year||50.00||25.00||–||(25.00)||-100%|
|7||FGN’s Share of Dividend by Companies/Investment funded by FAAC||95.55||47.77||–||(47.77)||-100%|
|8||Refund by NNPC||–||–||34.97||34.97|
|9||Receipts from LNG||–||–||14.26||14.26|
|10||Exchange rate differences||–||–||8.20||8.20|
|Refund to 1st Quarter Capital Allocation||–||–||57.85||57.85|
|FEDERAL RETAINED REVENUE||3,855.74||1,927.87||951.52||(976.35)||-51%|
- Projected revenue was N3, 855.74billion, as at end of first half, total retained revenue was N951.52billion (or 50.6% less than prorated projections). This shortfall is largely attributed to the underperformance of non-oil revenue sources as Independent Revenues and Federal Government’s share in CIT collections were significantly less than projections by N646.32billion (or 85.8%) and N271.76billion (or 62.7%) respectively. The latter may be attributed to the fact that most companies commence remittance of their income taxes from second half of the year; thus, CIT performance would pick
|FGN’s Expenditure 2016 (Billions of Naira) *** as at June 2016|
|FSICAL ITEMS||2016 Approved Budget||Prorata (Jan – June)||Actual (Jan – June)||Shortfall|
|N’ Billions||N’ Billions||N’ Billions||N’ Billions||%|
|· Service on Domestic Debt||1,307.400||653.700||567.915||(85.79)||-13.1%|
|· States deferred loan deducted||–||–||10.891||10.89|
|3||Sinking Fund (to retire maturing obligations on bonds issued to contractors)||113.440||56.720||–||(56.72)||-100%|
|· Personnel Costs (MDAs)||1,748.331||874.166||891.314||17.15||2.0%|
|· Service Wide Vote (Pensions)||226.560||113.280||69.984||(43.30)||-38.2%|
|· CRF Pensions||188.106||94.053||79.179||(14.87)||-15.8%|
|· Presidential Amnesty Programme||20.000||10.000||–||(10.00)||-100.0%|
|· Special Interventions (Recurrent)||300.000||150.000||–||(150.00)||-100.0%|
|· Other Recurrent||–||–||82.610|
|· Refund to MDAs from TSA, Banks & mopped up||–||–||301.058|
|· FGN’s (MDAs & Statutory Bodies)Capital||1,184.960||592.480||159.062||(433.42)||-73.2%|
|· Capital Supplementation||202.443||101.222||–||(101.222)||-100.0%|
|· Capital in Special Intervention||200.000||100.000||–||(100.00)||-100.0%|
Below information obtained revealed that as at 30th September 2016, positive disbursements were made:
- About N3.577trillion out of the N6.060trillion had been disbursed, which translates to a 79% performance of the prorated budget for the three quarters .
- Also, that N2.439trillion was released for Capital, Non-Debt Recurrent and Service-wide Vote Expenditure.
- 137trillion had been paid out in domestic and foreign debt service expenditures.
|2016 Capital Expenditure Performance|
|Critical Sectors Capital Expenditure||2016 Appropriation (N)||Total Capital Released as of 31st Oct,2016 (N)||%|
|Works, Power and Housing||433.4 billion||209.25billion||48.5|
|Total Capital Expenditure||1.587trillion||753.63billion||48|
- Highlights of 2017 Budget was tagged “ Budget of recovery and growth”.
Federal Government Proposed 2017 Budget Breakdown (Billion Naira)
|2017||2016 Revised||Variance (%)|
|Independent & Other Revenue||1,583||1,581.1||–|
|Non Debt Recurrent||2,980.0||2,346.4||27|
|Special Intervention Program||500||500||–|
|Capital Expenditure (excluding statutory transfers)||2,062||1,587.6||30|
|Budget Deficit (i.e Total Revenue – Aggregate Expenditure)||(2,360)||(2,204.9)||7|
|GDP Growth Rate (%)||3.0||0.4||2.6|
|Crude Oil production (mbpd)||2.2||2.2||–|
|Oil Price ($/barrel)||42.5||38.0||11.8|
|Exchange Rate (N/$)||305||197||54.8|
|Inflation rate (%)||12.9||15.1||-2.2|
|Top Capital Allocation (billion Naira)|
|Key Ministries||2017||2016||Variance (%)|
|Power, Works and Housing||529||423||25|
Conclusions from the President’s speech on the Budget:
- The Budget will drive the nation towards self-sufficiency of staple foods in the agricultural sector in order to reduce food imports
- Plans are underway to revive the Nigeria fertilizer blending plants in order to make basic inputs like NPK fertilizer locally available
- No provision for Joint Venture Cash calls in the Oil sector. A new funding mechanism which will allow for cost recovery for joint venture operations will be introduced
- To address bureaucratic processes that hinder government procurements and approvals, President will be issuing Executive Orders
- 14billion will be allocated as counterpart funding for Railway Projects. Modernization of the railway system will be a top priority in 2017.
- Government plans to partner with private sector in collaboration with global players
- Continues the plan to boost activities in priority areas like agriculture, manufacturing, solid minerals and services. Also, the mid and downstream oil sectors to reduce reliance on imported petroleum products.
- Earmarked N100billion as seed money for a new Social Housing Scheme
- N50billion was proposed for expansion and development of Export Processing and Special Economic Zones.
- To fund the budget deficit of N2.36trillion, it will be financed mainly through borrowing. N1.067trillion (46%) will be sourced externally, while N1.25trillion (54%) will be sourced from domestic market.
- Sinking fund of N177.46billion will be created for the purpose of retiring maturing bonds.
Under the Personal Income Tax Act, a taxable person was statutorily required to file a return of income for the preceding year at the expiration of 90 days from the commencement of every year…(Read More)
FEDERAL GOVERNMENT’s 10-POINT ECONOMIC ROADMAP
Following the unveiling of the Fiscal Roadmap for 2017 by the Minister of Finance, which itemised ways and means the present Administration strategized to revert the economy and set it on a path of recovery and growth, which is heading for its full first year economic contraction in 25 years.
In our opinion, the plans are good on paper and can underpin Nigeria’s economic recovery. Critical among the plans include:
- the plan to mobilise private capital to complement government infrastructure spending;
- restructuring of the Export Expansion Grant (EEG) to spur exports and rebalance public debt portfolio with increased external borrowing;
- catalysing the Micro, Small and Medium-scale Enterprises (MSMEs) by increasing business awarded to them from government contracts and improving their access to finance;
- lifting the restriction on the 41 items banned from accessing dollars at the official market, which we believe may not bring short term respite; however, it would in the long run.
Highlight of the 10-point Economic Road Map:
|S/N||Fiscal Policy Initiative|
|1||Recognise inherited debt profile after a robust audit process:
· Introduce promissory note program to finance verified liabilities
· Issue debt certificates to contractors, Ministries, Departments & Agencies (MDAs), and State Governments
|2||Mobilise private capital to complement Government spending on Infrastructure:
· Roads Trust Fund
· Family Homes Fund
· Extend infrastructure tax relief to a collective model to attract clusters of corporate entities
|3||Strengthen Fiscal/Monetary handshake:
· Replace administrative measures on list of 41-items with fiscal measures to reduce demand pressure in parallel market
· Encourage domestic food production through specific incentives e.g. accelerated depreciation on food manufacturing equipment and Zero (0%) duty on green houses
· Planned revitalisation of refineries
· Increase Diaspora remittances via participation in the buyer support scheme for the Family Homes Fund
· Restructure the Export Expansion Grant (EEG) to a tax credit system
· Rationalise tariffs and waivers in key export sectors
|5||Encourage investment in specific sectors through fiscal incentives:
· Accelerated depreciation on equipment in strategic sectors e.g. food processing, mining and power
· Rationalise tariffs and waivers in priority sectors
|6||Continue expansion of fiscal space through revenue enhancement and cost consolidation:
· Customs Single Window (being implemented through a Private Public Partnership (PPP) scheme)
· Template for non-allowable expenses for Government Agencies.
· Overhead cost control by the Efficiency Unit
· Continuous risk based audit by the Presidential Initiative on Continuous Audit
|7||Improve fiscal discipline at Sub-National level:
· Extension of efficiency unit at Sub-National level
· Fast track municipal bond issues to deepen the bond market
· Conversion to International Public Sector Accounting Standards by all State Governments.
|8||Enable and accelerate Recoveries process:
· Whistle-blower scheme
· Centralised database on recovered assets
· Asset tracing
· Professional management of recovered assets
|9||Rebalance debt portfolio to extend maturity and optimise debt service cost:
· Rebalance public debt portfolio with increased external borrowing (60:40 target)
· Extend maturity profile of public debt portfolio
· Deploy long-term debt instruments including Infrastructure and Retail Bonds
· Maximise use of concessionary loans
|10||Catalyse Micro, Small and Medium Enterprise (MSME) growth through specific measures to improve capacity and access to finance:
· Development Bank of Nigeria (US$1.3bn)
· Increase share of business awarded to MSMEs from Government contracts
· Tax harmonisation and tax incentives
· Accelerated depreciation
Implications for Organised Business
- Recognise inherited debt profile after a robust audit process:
- This will translate to appreciable improvement in cash flow of businesses,
- Improve Banks’ Non-Performing Loans (NPLs)
- Free up Banks’ balance sheet for lending to private sector
- Improve Government’s business interaction with the private sector
- We believe that the plan could be in contrast with the objectives of the proposed 2017 Budget, which identified financing of the budget deficit of N2.36trillion through domestic borrowing of about N1.25trillion – this will lead to crowding out the private sector investment/ accessing funds.
- We, therefore, advice that government should put adequate measures in place to reduce its recurrent expenditure and increase its capital expenditure in order to encourage and make conducive environment for private investment to thrive which will ensure economic growth in the short run and economic development in the long run.
- We also believe that financing of budget deficits should be done through money creation since the expansionary effect of fiscal policy is greater when the budget deficit is financed through money creation rather than through borrowing. By so doing, a reduction in external debt stock and a decrease in public debt will occur; this will encourage private sector investment in Nigeria’s economy.
- Mobilise private capital to complement Government spending on Infrastructure:
- Expand the provision of infrastructure
- Drive growth of non-oil sector.
- Drive economic growth
- Companies spend up to 40% of revenues on distributing their products, which means expenditure on road and rail will reduce distribution expense. However, we are wary of the implementation of the Road Trust Fund. The Road Trust Fund Bill, Clause 4 lists the sources of Roads Fund to include 5% of user’s charge on pump price of petrol and diesel received from petroleum products as required to meet the routine and periodic road maintenance needs; grants and loans to the Road Fund by the Federal, State or Local government, statutory corporations, any international organization; private foundation or person; gifts of land and money.
- The issue to grapple with is the calculation of the 5% user charge on pump price of petrol and diesel. This could be a 5% charge per litre of petrol or diesel per buyer, which goes to seller for further remittance to the Fund or an additional charge to the buyer for the purchase of petrol or diesel.
- Secondly, it is envisaged that the roads constructed will be potentially toll-able roads. This will amount to another form of tax for road construction/maintenance.
- Strengthen Fiscal/Monetary handshake:
- Reduce demand for US Dollars
- Increase supply of US Dollars
- The plan to replace administrative measures on the list of 41-items banned by CBN for accessing FX is a welcome development; this has formed part of our advocacy in recent past with Government. We believe that this development, though not immediate, will help to reduce the demand for US dollar.
- In a similar vein, we expect the immediate passage of the Petroleum Reform Bill (PRB), which we believe will boost investor sentiment in the Oil & Gas Sector. We advocate that a quick and decisive action should be taken on the privatization of the four (4) refineries as a means of ensuring the efficient running of the refineries and saving on the wastes associated with the turnaround maintenance.
- Incentivise exports:
Expected Impact :
- Encourage/incentivise non-oil exports
- Drive import substitution
- The Export Expansion Grant has undergone several changes over the years and is threatening the confidence of the international business community on Nigeria’s non-export policies. We welcome the initiative to restructure the EEG to a tax credit system, however, we suggest that Government should also consider diversifying the utilization of the Negotiable Duty Credit Certificate (NDCC) to include payment of other government taxes and levies to reduce the pressure on Nigeria Customs Service which is currently the only collecting agency.
- There is no doubting the possibility of a rapid development of Nigeria’s non-oil export sector to displace crude oil as a major foreign exchange earner. Growing the non-oil export sector represents the only and sustainable alternative for Nigeria, therefore, Government must understand that policy consistency will be key to the attainment of this objective, so that investors can take a longer-term view on injecting more/new/fresh investments into the Nigerian economy
- Encourage investment in specific sectors through fiscal incentives:
- Drive investment in strategic sectors (Agriculture, Mining, Solid Minerals, etc)
- Continue expansion of fiscal space through revenue enhancement and cost consolidation:
- Revenue enhancement
- Cost containment
- Improve fiscal discipline at Sub-National level:
- Improved fiscal position at Sub-National level
- Enable and accelerate Recoveries process:
- Increased efficiency of Recoveries process
- Increased budgetary funding availability from Recoveries
- Rebalance debt portfolio to extend maturity and optimise debt service cost:
- Rebalanced debt profile with improved debt service to revenue ratio
- Catalyse Micro, Small and Medium Enterprise (MSME) growth through specific measures to improve capacity and access to finance:
- Acceleration of MSME growth
- We applaud government’s efforts towards reviewing the National Tax Policy ongoing, which will reflect on harmonisation of taxes and levies collectible in the country.
- Considering the size of Nigeria and the resources at the disposal of Government at all levels, fiscal behaviour has a major impact in driving national demand. Government should, therefore, continue to support its policy on patronising Made-in-Nigeria products by monitoring the Ministries, Departments and Agencies (MDAs) to ensure compliance with the policy. We urge the full implementation of the relevant portion of the Procurement Act 2006 (that aims at boosting local production) and also call for the review of the Act to cover the State and Local Governments Functionaries.
- We believe that patronage of locally produced items would help to create employment and encourage local Manufacturers. Our expenditure in favour of imported products is detrimental to the growth of local industry as it increases employment in the country of origin and simultaneously increases poverty in our land.
- We, therefore, applaud the plan to increase share of business awarded to MSMEs from Government contracts and urge that the directive should be enforced.
LABOUR & EMPLOYMENT LAW: Employment Matters & Stay of Proceedings (Mr. Aralu Steve vs. Total E.& P. Nig. Ltd and Maple Leaf Ventures Ltd) (2014) 44 N.L.L.R. Pt 138, P. 139. NIC
- The claimant (Mr. Aralu Steve) filed his complaint claiming for the sum of N5 billion only as damages.
- The court had on 10th October 2013 delivered a ruling on two adversely competing applications. These applications were for:
- Joinder of a party by the claimant
- Defendant’s preliminary objection challenging the jurisdiction of the court
- After considering the processes filed by the parties and their arguments, the court ruled in favour of the claimant and ordered that the 2nd defendant be joined for the effectual and effective determination of the suit.
- The 1st defendant dissatisfied with the ruling appealed to the Court of Appeal and filed application for stay of proceedings.
- The application for stay was dated 22nd November 2013 and filed the same day. The application is seeking for an order staying proceedings in the suit, pending the hearing and determination of the appeal.
- Whether or not the court can grant a stay of proceedings in the suit.
On Nature of application for stay of proceedings:-
Stay of proceedings is a serious, grave and fundamental interruption on the right that a party has to conduct his litigation in the trial on the basis of the merits of his case. Consequently, the court’s general practice is that a stay of proceedings should not be imposed unless the proceedings beyond all reasonable doubt ought not to be allowed to continue.
On factors to be considered before grant or refusing an application for stay of proceedings:-
Among the factors to be considered before granting or refusing an application for staying of proceeding, the court should consider:
- Whether there is a valid right of action,
- Valid pending appeal lodged against the decision,
- Whether the pending appeal is arguable and there are chances of success,
- Competing rights of the parties,
- Whether hardship will be occasioned by the grant of stay,
- Whether there is need to preserve the ‘res’ (subject matter of the suit),
- Whether special circumstances warranting the grant of an application for stay of proceeding exist
- Whether the order which will be made by the Court of Appeal will have the effect of disposing the proceedings at the trial court
On principles guiding grant of stay of proceedings by courts:-
- Courts have an unimpeded discretion to grant or refuse a stay. In doing so, the court is bound to exercise that discretion both judicially and judiciously and not erratically.
- A discretion to grant or refuse a stay must take into account the competing rights of the parties to justice. A discretion that is bias in favour of an applicant for stay but does not adequately take into account the respondent’s equal right to justice is not judicially exercised.
- The onus is on the party applying for a stay pending appeal to satisfy the court that in the peculiar circumstances of his case a refusal of a stay would be unjust and inequitable.
- Special and exceptional circumstances that will justify a stay of proceedings will depend on the facts of each case.
On whether Appeal automatically operates as a stay of proceedings:-
It is the law that an appeal per se does not automatically operate as a stay of proceedings.
The court held that employment matters requires urgent and quick resolution and that where an interlocutory order does not finally dispose of the case, it would be wrong to stay proceedings because of an appeal lodged against it by an aggrieved party. This is so because such an order could be made the subject of an appeal if it ultimately becomes necessary following the final judgment. Accordingly, the court held that the application for stay of proceedings lacked merit and was time wasting and thereafter dismissed the application with a cost of N30, 000. It also ruled that the case would proceed for trial and be heard on the merit
It is settled in law that rules of the Courts are not made for fun but are meant to be obeyed. A court of law can indulge a party only within the confines of its rules. In other words, a court of law can indulge a party in so far as its rules permit.