The World Bank has urged Nigeria and other member countries of the International Development Association (IDA) to increase domestic tax collections to grow their revenues.
The global body made the call in its recent report titled, ‘The great reversal: Prospects, risks, and policies in International Development Association countries.’ The bank noted that average tax revenues in IDA countries account for just 11.9 percent of their GDP, which it stated was below the 15 percent assessed as the minimum ratio necessary to finance basic public services and development needs.
The Federal Inland Revenue Service, (FIRS) seeks to achieve an 18 percent tax-to-GDP ratio by 2026, up from 10.86 percent recorded in 2021.
According to the World Bank report, addressing informality in the economy and enhancing tax administration are two of the ways revenues can be enhanced; they are often complex tasks for IDA countries, linked closely to institutional strength
“Increasing tax capacity can facilitate the provision of essential public services and the building of fiscal buffers. Stronger revenue collection can also improve the potential redistributive power of taxation and the financing available for social protection systems, thus facilitating poverty reduction.
“Progress is possible among IDA countries if reforms are well designed. Reforms could focus on broadening tax bases, strengthening tax administration, and enhancing tax efficiencies. Shift in incentives through the tax system can also play an important role, helping to meet multiple objectives, reinforcing complementary objectives: for example, the elimination of fossil fuel subsidies, together with the introduction of carbon taxes, can incentivise investment in energy-efficient technologies while also enhancing revenues,” the bank stated.
The report also stressed that enhancing expenditure efficiency and reallocating existing resources towards more growth-enhancing sectors and supporting the most vulnerable were critical, as spending efficiency in IDA countries is weak compared to other countries.
The bank hinged progress partly on strengthening institutional frameworks ‘because corruption and weaker law and order are associated with less efficient spending practices.’ It added that the recent signs of inflation remaining high in advanced economies, and the possibility of global interest rates remaining higher for longer than previously expected, could also put pressure on IDA countries.
“Monetary and financial sector policies containing inflation remain an important priority in IDA countries. While average headline inflation has halved from its mid-2022 peak, it remains elevated, and progress has been uneven among countries, with price pressures persisting in many,” the bank noted.
The report revealed that Nigeria, Cameroon, Democratic Republic of Congo, Republic of Congo, Ethiopia, Ghana, Lao People’s Democratic Republic, Maldives, Mali, Mozambique, Niger, Nigeria, Pakistan, Solomon Islands, Sri Lanka, and Zambia have weak credit ratings for sovereign bonds. It added that countries with weak credit ratings have been particularly marginalised in global capital markets.
