Nigeria’s dismal tax revenue to GDP ratio consanguineous of oil dependence

Nigeria’s tax revenue to GDP ratio place on the bottom strip among African countries surveyed. This is despite the potential it has to shift the country’s absolute reliance of crude exports for earning and economic sustainability.

According to the Nigerian minister of budget and national planning, Udoma Udo Udoma, “Our tax to GDP ratio is 6 per cent, whereas the average in Africa is about 16 per cent.
“The Federal Government is targeting 15 per cent tax contribution ratio of Gross Domestic Product (GDP) through improved tax collection strategies and this target would be achieved through Voluntary Assets and Income Declaration Scheme (VAIDS) that promotes voluntary tax compliance”
“We don’t want to increase our tax rate but we want to increase tax collection to achieve the desired growth”
“We need to increase our revenues and government is working hard to increase revenues so as to be able to fund our expenditure without having to rely too heavily on borrowing”, he said.
The International Monetary Fund’s regional director, Africa in an interview with BusinessDay said “The ERGP has identified a broad set of tax policies and administrative reforms that need to be pursued; I think making strong progress on that front is imperative”
“To get from the current 6 percent to the 15 percent will take time; so you need a steady framework which allows you get there. How you do that is up to the government, parliament and civil society. There’s a broad range of option, property taxes could be one of them, this is one option we have not exploited well enough in this country, reviewing exemptions you have on corporate income tax could be another option, VAT could be another option and these are choices that the society and political systems will have to make but I cannot stress enough how vital they are” he concluded.
An analyst BusinessDay spoke with on phone said, “Our tax revenue to GDP ratio should be in the region of 20 to 22 percent, where we are now is not reflective of our actual capability as a nation when you talk of tax revenue generation”
The country’s dismal performance on the revenue front in the last 2 years as a result of dwindled oil revenue stresses the need for higher non-oil revenue mobilization to foster diversification and essentially reduce reliance on oil revenues.
Recall that the Nigerian economy was plunged into recession in 2015, a situation occasioned by the unprecedented and unanticipated fall in international crude price from $96.29 2014 to $49.49 in 2015. The crisis reached its echelon in 2016 when prices fell to $40.6
Daily production also dropped significantly owing to hostility in the country’s crude exploration hub, the Niger Delta

As detailed in the Q1 2018 GDP report released by the National Bureau of Statistics, the nation recorded an average daily oil production of 2.0 million barrels per day (mbpd),higher than the daily average production recorded in the fourth quarter of 2017 by 0.05 mbpd and Real growth of the oil sector was 14.77% (year-on-year) in Q1 2018.
This represents an increase of 30.37% points relative to rate recorded in the corresponding quarter of 2017. Quarter-on-Quarter, the oil sector grew by 13.24% in Q1 2018. The Oil sector contributed 9.61% to total real GDP in Q1 2018, up from 8.53% and 7.35% recorded in the Q1 2017 and Q4 2017, respectively.
Crude export accounts for about 75 percent of total government revenue and about 90 percent of total exports and even though it’s just 10 percent of output.
Nigeria continuous reliance on crude exports have continue to impede the revenue generation aspiration of the country as the volatility in international price for crude coupled with problems on the production have proven to have adverse consequence for revenue to meet government obligation.
Finding alternative revenue sources to stand the essential curb dependence on oil that will provide government with resources to invest in critical infrastructure in sectors such as; power, transport, agriculture, health and education to further engender the industrialization drive of the country.

 

Olalekan Ipele