Tax experts and industry stakeholders have advised the federal and state governments to increase the tax net, regulate illegal mining, improve tax collection in the informal sector and enhance personal income tax collection, if they are desirous of improving Nigeria’s financial conditions.
Nigeria’s highest tax revenue in the last five years was the N8.80 trillion collected in 2019 before the COVID-19 pandemic broke out.
Available tax revenue data showed that the country’s tax revenue rose by 38 percent from N4.89 trillion in 2017 to N6.74 trillion in 2018. It further increased by 30.5 percent to N8.802 trillion in 2019 but fell significantly to N5.08 trillion in 2020. With an increase of 26.1 percent, the tax revenue rose to N6.40 trillion in 2021.
When split between oil and non-oil revenue sources, the non-oil tax revenue contributed an average of 72.4 percent to the total tax revenue from 2017 to 2021. In 2017, 81.4 percent of tax revenue or N3.98 trillion was generated from non-oil taxes. The proportion of non-oil taxes to total tax revenue was 60.5 percent in 2018; it declined to 51.1 percent in 2019, rose to 94.4 percent in 2020, but slid to 74.4 percent in 2021.
According to Muhammad Nami, chairman of the Federal Inland Revenue Service, 41 million Nigerians, out of over 85 million taxable Nigerians within the country’s labour force, paid taxes as of October 2021.
The low tax base affects the country’s tax revenue to GDP ratio, which currently stands at 8 percent, putting it among the countries with the lowest ratios in Africa and across the world.
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According to World Bank data, Namibia, South Africa and Botswana were the top three countries with the highest ratios of tax revenue as a percentage of GDP in 2020. In Namibia, the ratio increased from 29.18 percent in 2018 to 30.35 percent in 2019 and 31.22 percent in 2020.
For South Africa, it was 24.92 percent in 2018, 24.96 percent in 2019, but slightly declined to 23.45 percent in 2020, reflecting the impact of the pandemic as the country was heavily impacted by COVID-19.
The tax revenue-to-GDP ratio was 21.89 percent in 2018 for Botswana, 21.14 percent in 2019, and 22.32 percent in 2020. Namibia, South Africa and Botswana, in 2020, were trailed by Mozambique, which had a tax revenue-to-GDP ratio of 21.84 percent; Mauritius, 21.62 percent; Morocco, 21.18 percent; and Lesotho, 18.31 percent.
The majority of the tax experts and industry stakeholders agreed that Nigeria must increase its tax net to shore up its non-oil revenue for it to successfully navigate the fiscal headwinds it currently faces.
“The percentage of taxable Nigerians paying tax is very low. It is incumbent for the government to increase its tax net, so as to capture taxable entities and individuals in the informal sector. Government should also regulate mining activities because presently, the country loses a huge amount of revenue to illegal mining activities,” Lawal Ekun, a tax consultant, said.
Taiwo Oyedele, fiscal policy partner and Africa tax leader at PwC Nigeria, disagreed with the suggestion that the government should abolish state income tax in favour of state sales tax.
According to him, personal income tax has the potential to generate more money, as demonstrated in South Africa, than the revenue to be realised from sales tax, suggesting that sales tax will make goods and services more expensive.
“Personal Income Tax (PIT) has the potential to generate the highest tax revenue for the government. South Africa generated over N14 trillion equivalent from PIT alone in the last fiscal year which is more than all the taxes collected by all levels of government in Nigeria,” Oyedele said.
He said in addition to more revenue from PIT, socio-economic data of the taxpayers would be built simultaneously with tax collection, which will provide a better planning tool for governments at all levels, adding that sales tax has a cascading effect that would increase the cost of living.
Tunde Abidoye, head of research at FBNQuest, said governments should eliminate or reduce the roles of non-state actors in tax collection, as on many occasions, accountability is poor in their involvement in tax collection.
“The best way to increase tax revenue is to eliminate or reduce the activity of non-state actors in tax collection, i.e, National Union Road Transport Workers (NURTW),” Abidoye said.
In 2021, an independent research by the International Centre for Investigative Reporting found out that in 2020, NURTW in Lagos State generated N123.08 billion as revenue from road taxes. That was far higher than the N12.14 billion road taxes revenue officially announced by the state government, which implies that the state is underutilising revenue potential from road taxes with the involvement of non-state actors.
