BusinessDay
Nigeria's leading finance and market intelligence news report.

World Bank offers Nigeria path to generate extra N10trn revenue

Rationalisation of generous concessions, expenditure, implementation of other tax reforms, and increasing tax base can help cash-strapped Nigeria raise as much as N10 trillion, according to the World Bank.

With the additional revenue Nigeria could generate from the areas cited by the Washington-based bank, Africa’s most populous nation could offset its projected 2022 budget deficit of N6.26 trillion and would be left with an extra revenue of N3.74 trillion.

“In the next three years, such measures can raise the tax-to-GDP ratio to about 7 percent and bring in as much as N10 trillion,” the World Bank said.

Breaking down the measures, the international lender said Nigeria would need to “increase ‘sin taxes,’ rationalising tax expenditures, removing loopholes in tax laws, and improving tax compliance with more disciplined revenue administration.”

Estimated at 4.3 percent in 2020, Nigeria’s tax-to-GDP ratio remains way below that of peers like South Africa, Kenya, and Ghana, at 26.7percent, 15.9 percent, and 12 percent, respectively.

Read also: Low-Income Country debt rises to record $860bn in 2020 says World Bank

As Nigeria tries to “build back better” after the COVID crisis through its 2022 “Budget of Economic Growth and Sustainability”, the World Bank said a more strategic approach to revenue mobilization will also be necessary: “not just taxing more, but taxing better; not just how much to collect, but how to collect, what to collect, and from whom.”

The head of the Federal Inland Revenue Service (FIRS) pointed out during the public budget presentation on Monday that despite the country’s huge tax base of 41 million taxpayers, Nigeria generated less than N1trn in tax revenue in 2020.

Nigeria’s tax revenue compares poorly to South Africa’s, which has a tax base of around 4 million people, yet produced N13trn in revenue last year.

“That latter appears understated: newswire reports indicate that South Africa actually earned c.USD85bn (cNGN35trn) in the fiscal year ending Mar ’21,” FBN Quest analysts said Tuesday.

In the longer term, fundamental reforms of the tax system will be necessary to stimulate post-pandemic investment and economic growth, the World Bank said in its latest update report for Nigeria.

Analysts believe now may be the right time for Nigeria to cut its cost on less impactful expenditure, especially as the COVID-19 pandemic has impacted the already weak economy.

“The COVID-19 pandemic has added more pressure on already subdued domestic revenue and threatens to push Nigeria further into deficit,” the World Bank said.

While Nigeria’s projected 2022 budget deficit of N6.26 trillion is larger than the country’s entire 2016 budget, analysts believe the funding gap could be higher if Nigeria sticks to its expenditure plan.

This is because if the projected revenue of N10.13 trillion follows the trajectory of previous targets, the country could end up with less. In the last five years, Nigeria has attained an average of 55 percent revenue performance, the reason why analysts have criticized the government for raising the bar each year despite obvious challenges in attaining revenue targets.

If the case is the same next year, Nigeria could be looking at a revenue of about N5.57 trillion and a budget deficit of about N10.82 trillion at the end of the fiscal year, almost the size of the country’s entire budget in 2020.

Though on the rise, the successive drop in oil and gas revenue, especially at the peak of the pandemic, in addition to the adverse impacts on other revenue streams which forced households to consume less, corporate profits to report decline will likely reduce VAT collections and corporate income tax (CIT)—two of the largest sources of non-oil revenue, the lender said.

“The pandemic has also reduced the scope for tax administration enforcement actions, and minimal use of automation in tax administration precluded any leveraging of technology to improve compliance,” it added.

While COVID-19 wrought many challenges, the World Bank said “it also brings about a rare opportunity to make changes that could give revenues a major boost in the long run. Further pressure on oil prices and diminished demand.”

Whatsapp mobile

Get real time updates directly on you device, subscribe now.