• Monday, June 24, 2024
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BusinessDay

FIRS’ record high 2021 revenue can’t fund half of Nigeria’s budget

FIRS leverage technology to capture informal sector in tax net

Despite the N6.40 trillion all-time high tax revenue collections by the Federal Inland Revenue Service (FIRS) recorded for 2021, analysts say the economic impediments have made it difficult for taxes to fund even half of Nigeria’s budget expenditure.

FIRS, an agency saddled with the responsibility for assessing, collecting and accounting for tax and other revenues accruing to the Federal Government collects almost 80 percent of taxes in Nigeria.

According to BusinessDay analysis of the FIRS revenue and Budget expenditure data, the share of FIRS revenue relative to the budget reduced to 47.1 percent in 2021 when compared with 73.6 percent in 2015, showing that tax collection cannot keep up with budget spending.

The percentages were obtained by using N6.40 trillion and 13.6 trillion for the 2021 budget and for 2015, N3.74 trillion revenue and N5.08 trillion for the 2015 budget.

“The budget is growing at a disproportionate rate compared to the tax revenue which may account for why our debt volumes are growing at a higher rate,” Moses Ojo, a Lagos-based economic analyst said.

Ojo further said that the high level of tax evasion and industries not growing as expected are the reasons why the tax revenue can’t fund half of the budget.

“The budget is increasing at a high rate but when you look at the country’s GDP growth over the last five years, we have just been growing at 2-3 percent on average in the last five years. So, if GDP is growing at 2.5 percent in a year, companies’ revenue will also mimic GDP growth,” He added.

A breakdown of the analysis also showed that although the 47.1 percent was higher than 46.7 percent recorded in 2020, it is still the second-lowest when compared with 54.6 percent, 55.2 percent, 58.3 percent and 59.0 percent in 2016, 2017, 2018 and 2019 respectively.

Read also: FG’s N3trn subsidy bill nears yearly revenue as oil prices soar

Gbolahan Ologunro, a senior research analyst at Cordros Securities noted that it would be inappropriate to discount the efforts that FIRS has done to expand revenue generation in the last four years.

“The issue has always been the faster growth in expenditure over the years than the increase in revenue. That is why the government is still introducing additional taxes on items that were excluded just to improve revenue generation,” Ologunro said.

Tax revenue is a major source of funding for any country’s budget, thus stressing its importance to a country’s growth and development. Nigeria has a tax collection rate of roughly 6.0 percent of GDP, lower than its regional peers.

Research has shown that tax revenues provide developing countries with a stable and predictable fiscal environment to promote growth and to finance the needed social and physical infrastructures.

For Africa’s biggest economy, the shortages in revenue, increased public spending and additional borrowing have become unavoidable, especially from the impact of Covid-19. According to data from the Debt Office of Nigeria, the country has nearly tripled its debt profile to N39.6 trillion as at December 2021, from N12.6 trillion in the same period in 2015.

But this appears not to be enough as Nigeria has become the poverty capital of the world, according to the Brookings Institution, with about 40 per cent of the population living below poverty.

Tax revenues come from two sources namely oil and non-oil. For Nigeria, oil had been the largest contributor until a plunge in global oil prices in 2016 and 2020 which impacted revenues making the Federal Government shift its attention to non-oil revenue.

Some of the ways in which the government increased revenue is by introducing the Finance Act in 2019 and increasing the sales tax rate from 5.0 percent to 7.5 percent.

The Finance Act 2019, which was signed into law on January 13, 2020, contains various tax changes with effect in that same period. The Act seeks to expand the tax net to include businesses operating in Nigeria. Examples of some of those taxes are stamp duties, companies’ income tax, capital gains tax, excise duties etc.

On what the country can do to increase tax revenue especially non-oil, Taiwo Oyedele, a West Africa Tax Leader at PwC Nigeria advised that Nigeria should shift its attention towards growth and prosperity by removing impediments to doing business in the country.

“When an economy is prosperous, companies make more money resulting in an increase in tax revenues. Also using data for intelligence to capture people who are trying to avert will help,” Oyedele added.