At five percent, Nigeria sits at the foot of countries with the lowest tax to GDP ratio globally. In October 2016, Kemi Adeosun, Minister of Finance said Nigeria was targeting a tax to Gross Domestic Product (GDP) ratio of seven percent by 2019 and ten percent by 2021, as recounted in a teleconference organised by investment firm, FBN Quest, this lags African peers.The target for 2019 and 2021 would bring Nigeria within 15 and 11 spots respectively, from West African peer, Ghana, where government officials rake in 21 percent of total GDP in tax revenue, according to World Bank data.
In recent report, African countries are steadily improving their tax revenue collections, according to Revenue Statistics in Africa 2017, a new report released recently at a meeting of tax and finance officials from 21 African countries.
The average tax-to-GDP ratio for the 16 African countries covered in the second edition of the report was 19.1 percent in 2015, an increase of 0.4 percentage points compared to 2014. Every country has experienced an increase in its tax-to-GDP ratio compared with 2000, with an average rise of five percentage points.
Revenue Statistics in Africa 2017 includes revenue data for twice as many countries as the first edition, providing comparable data on tax and non-tax revenues for 16 participating countries: Cabo Verde, Cameroon, Democratic Republic of Congo, Côte d’Ivoire, Ghana, Kenya, Mauritius, Morocco, Niger, Rwanda, Senegal, South Africa, Swaziland, Togo, Tunisia, and Uganda.
The average tax burden, at 19.1 percent of GDP, is lower than the average tax-to-GDP ratios for Latin America and the Caribbean (LAC) and the Organisation for Economic Corporation and Development (OECD): 22.8 percent and 34.3 percent, respectively. The average tax structure of the African countries resembled that of the LAC region, except that social security contributions are a more significant component of revenues in the latter.
In 2015, taxes on goods and services were the largest contributor to total tax revenues in the African countries (57.2 percent on average), mostly in the form of value-added taxes, followed by taxes on income and profits (32.4 percent). Kenya, South Africa, and Swaziland were outliers in this respect, obtaining about half of their tax revenues from taxes on income and profits in 2015.
Tax-to-GDP ratios in 2015 ranged from 10.8 percent in the Democratic Republic of the Congo to 30.3 percent in Tunisia. Between 2014 and 2015, all featured countries except Kenya, Tunisia, and Morocco increased their tax-to-GDP ratios. On average, they increased their tax-to-GDP ratios by 0.4 percentage points, a slightly lower increase than for the LAC average (0.6 percentage points) but above the OECD average (less than 0.1 percentage point).
In Nigeria, improving tax revenue is in line with boosting non-oil revenue following the collapse in oil prices from which the country generates 70 percent of total revenue.
Gregory Kronsten, head of fixed income research at FBN Quest says “Nigeria’s target is achievable given the on-going reforms in the finance ministry to drive tax compliance.
“For example, the new policy where you must show proof of tax payment to get government contracts will encourage compliance. A similar policy worked and aided South-Africa in growing its tax to GDP ratio,” Kronsten said in a recent conference hosted by the investment bank.
With crude is holding sway as the main source of state revenue, tax enforcement was lax in Africa’s most populous country and people showed little interest in what those in power did with the funds.
Now that the country is unable to finance its budget due to falling oil prices, it is counting on ramped up borrowing and taxes to fill the gap.
But Taiwo Oyedele, head of tax and regulatory reforms at PriceWaterhouseCoopers says “the target is not ambitious enough.”
“If we are able to implement some reforms such as creating a more robust tax amnesty policy, which can cover six years and give tax payers one year rather than less than 12 months, there is no reason we cannot achieve 20 percent tax to GDP ratio in the next four to five years,” Oyedele adds.
STEPHEN ONYEKWELU with Agency Report