Nigeria may be in for another hard year as the weak economic outlook for 2021 signals that expected tax receipts may fail to meet projections.
BusinessDay’s analysis of the average growth rate predicted by the World Bank, IMF and Renaissance Capital shows that Nigeria is projected to grow by the least of the major economies in sub-Saharan Africa at 1.2 percent compared to Kenya and Tanzania tipped to grow at 5.2 percent and 4.8 percent, respectively.
Given the non-oil tax revenue projection of N1.48 trillion in 2021, it is expected that the government will pursue tax income from Value Added Tax (VAT), Company Income Tax (CIT), Customs and Levies, but this might not be attainable if growth rate is weak.
The level of taxes collected is dependent on economic activity and projections for a slowly-growing economy translate to subdued tax receipts.
“The non-oil projection for 2021 is quite ambitious, given the high unemployment rate we are likely to experience in 2021 on the back of the Covid-19 pandemic,” Yinka Ademuwagun, a research analyst at United Capital, said.
Nigeria recorded its highest unemployment rate in the second quarter of 2020, at 27.1 percent, its highest in six years.
With the figures projected to expand in 2021, this means there would be less people paying tax, making it difficult for the government to achieve its target.
“The history speaks for itself, considering past performances, the non-oil revenue has always performed poorly,” Ayodeji Ebo, head, Research and Strategy, Greenwich Merchant Bank, said.
Nigeria’s non-oil revenue obtained in 2020 stood at N1.27 trillion and with the pandemic still raging, and the growth projections, 2021 might not be better.
“The highest non-oil tax Nigeria has achieved was in 2019, when it recorded N1.5 trillion but this was before Covid-19, hoping to achieve a N1.48 trillion growth in 2021 is rather too optimistic,”Ademuwagun said.
“The government has not put much in place to ensure that they meet up with the revenue target. So, it is very unlikely that they achieve that projection,” Ebo said.
Nigeria is still struggling to exit its second recession in five years with many worsening economic and social indicators. Inflation has been rising for 16 straight months at 15.75 percent with food prices soaring monthly.
The World Bank has also estimated that additional 20 million people would be plunged into poverty in 2022.
Companies are not spared the brunt of Nigeria’s weak economy with many declaring losses in the first half of 2020.
If this continues in 2021, it would affect their ability to pay Company Income Tax, which is necessary to augment non-oil revenue.
“The inability to meet its revenue projection means that the government will have to borrow to meet budgetary obligation,” Ebo said.
“The impact of the excessive borrowing would impact on debt serving, which is currently over 80 percent relative to actual revenue and that calls for concern,” he said.
Analysts say Nigeria would need to do more in the coming years to achieve its revenue projections.
According to Ademuwagun, Nigeria needs to create an enabling environment to attract more investments.
“We have an environment where capital is being controlled by the CBN such that foreign investors cannot exit the country when they like,” he said.
