Nigeria Risks Fiscal Crisis Amid Low Tax Collection

Nigeria may face a fiscal crisis following its inability to collect more taxes, a BBC report has said. The report by BBC’s Reality Check Team found that government expenditure “has doubled and debt servicing costs have grown, but revenues have missed their targets by at least 45 percent a year since 2015.” The report noted that despite increase in the number of taxpayers, there had not been a corresponding increase in the country’s tax revenue.

In 2018, for instance, the report noted that about 19 million Nigerians paid into federal or state coffers out of the country’s population currently standing at 201 million. Based on the World Bank records, the report put the country’s economically active population at 65 million, out of which 19 million paid their taxes in 2018 By implication, the report observed that even with rising numbers of taxpayers in recent years, only about 29.23 percent paid their taxes in 2018. The report noted that the federal government “has been going after individuals that it believes are liable for tax and have not been paying. “Two years ago, the country offered a 12-month amnesty for Nigerians to declare and pay taxes on all previously undeclared income and assets to avoid penalty payments and possible prosecution.” In 2018, a World Bank report said this was only partly successful with just 8 percent of the target achieved by the end of the amnesty period. However, the report noted that many Nigerians “will be reluctant to pay taxes because of concerns the money raised may be siphoned off instead of being spent on health, education and other public services.” The report cited statistics from the Organisation for Economic Co-operation and Development (OECD) that highlighted the status of ratios of tax to GDP globally. According to some estimates, Nigeria has one of the world’s lowest ratios of tax to GDP. That is the total amount of tax collected as a proportion of GDP – the value of the country’s goods and services. In 2016, for example, the report revealed that Nigeria’s tax-to-GDP ration was at 6 percent. Other African countries, according to OECD statistics, performed better than Nigeria. The tax-to-GDP ratio in South Africa was 29 percent, Ghana 18 percent, Egypt 15 percent and Kenya 18 percent. However, the report said average for OECD members, which includes all the advanced economies, was 34 percent. The report said the World Bank “uses a slightly different measurement of tax take, which does not include most social security payments. This puts Nigeria’s tax-to-GDP ratio in 2016 lower at just 3.4 percent. “In 2017, the ratio did improve to 4.8 percent, according to figures provided to us by the Nigerian authorities. “We do not have a figure for 2018, but it is worth pointing out that 15 percent is the level necessary to achieve economic growth and poverty reduction. “Many other developing countries have a low tax-to-GDP ratio and recent data indicates that about 60 countries fall below the 15 percent threshold.” An Assistant Director in the International Monetary Fund (IMF), Bernardin Akitoby, suggested useful approach to improve tax collection in the country. Akitoby recommended the need to improve the country’s tax-to-GDP ratio, saying a typical advanced country “has a tax to GDP ratio of around 40 percent.” Akitoby said there “is no one-size-fits-all solution to increase the tax take. But there are a few lessons that can be drawn from countries that have been successful in the past.” He outlined the lessons to include clear political mandate to tackle low levels of tax payment; simpler tax system with a limited number of rates and exemptions; using taxes on goods and services and boosting tax collection by using new technology In its case, the IMF canvassed more comprehensive tax reform in Nigeria, which it believed, could help increase the tax-to-GDP ratio by about eight percentage points.


Source: Daily trust