Nigeria’s 6% tax-to-GDP ratio seen not sustainable

by Iheanyi Nwachukwu

March 7, 2018 | 12:33 am
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Nigeria’s lowly 6 percent tax-to-GDP ratio with attendant dependence on rents from natural resources for government finances is not sustainable and requires significant improvement, said Ben Akabueze, Director-General, Budget Office of the Federation.

Akabueze spoke in Lagos at the seminar on the 2018 budget organised by the Chartered Institute of Taxation of Nigeria (CITN).

Also in his presentation titled “Budget, Tax Reforms and Fiscal Projections” at the seminar, Taiwo Oyedele, partner West Africa tax leader, PricewaterhouseCoopers (PwC) said “Nigeria is currently not doing well in terms of Tax-to-GDP ratio”.

“Nigeria’s Tax to GDP ratio can improve but not significantly in the immediate to medium term for the following reasons: low tax administrative capacity, lack of data (harmony), large informal sector not captured in tax base, and trust deficit,” Oyedele noted.

Nigeria’s 2018 budget is designed to consolidate on the achievements of the 2016 and 2017 budgets, and advance delivery of the goals of the Economic Recovery & Growth Plan (ERGP) 2017-2020.

The 2018 Federal Government spending estimated at N8.61 trillion exceeds Fiscal Year 2017 projection by 16percent. At N2.01 trillion, debt service is 23percent of planned spending (about same as in FY2017).

Akabueze noted is not only a source of revenue to Government but also a means of income redistribution, as well as a fiscal policy tool for development of strategic sectors.

Before the collapse of oil price in June 2014, previous governments in Nigeria at all levels had mostly paid very little attention to taxation as a veritable fiscal policy tool to promote economic development.

The Nigerian economy lapsed into recession in second-quarter (Q2) 2016 triggered by oil price slump from mid-June 2014, without sufficient fiscal buffers following years of inappropriate policies, fiscal leakages and inefficient spending, the Budget Office DG added.

The Federal Government has embarked on key reforms initiatives to improve revenue which include tax administration improvement initiatives to positively affect collection efficiencies across various tax categories. Example is tax amnesty programme (Voluntary Assets and Income Declaration Scheme (VAIDS) and deployment of electronic devices.

He noted that taxation, not rents from natural resources, is the principal source of budgetary funding for governments around the world; “Nigeria cannot be different”.

Taxation plays a critical role in the finances of any government; it is indeed the principal way by which modern governments are funded.

“Taxation will therefore continue to play a major role in the actualisation of Government’s fiscal policy and development objectives. Achieving the key initiatives outlined and others in the 2018 Budget will depend largely on sustainable funding especially from taxes. We would like to encourage tax practitioners to support the efforts of tax authorities (FIRS as well as States Inland Revenue Services) to improve the efficiency of Government’s tax administration”, Akabueze noted in his presentation titled “the 2018 FGN budget and key imperatives for economic development”.

Iheanyi Nwachukwu

by Iheanyi Nwachukwu

March 7, 2018 | 12:33 am
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