‘Why Nigeria’s tax revenue remains low’
Citing continued trade mispricing, dependence on oil revenue, corruption and a weak tax administration system, the African Development Bank (AfDB) and the Chartered Institute of Bankers of Nigeria (CIBN) have stated that the nation’s tax revenue will remain low, if identified challenges are not addressed.
Specifically, the agencies noted that at seven per cent of the nation’s Gross Domestic Product (GDP), Nigeria lags behind emerging markets’ average of 20 per cent, noting that the seven per cent is made up of 5 per cent from oil revenue of and 2 per cent from the non-oil sector.
Indeed ,the agencies noted that facts from the FIRS, show that there is a potential non-oil tax gap of $11 billion that can be captured, therefore leaving a window of opportunity of 2.2 per cent of the GDP to be harnessed if we the tax system is properly implemented.
Speaking at this year’s edition of CIBN’s investiture programme tagged, “Diversifying the revenue base of the Nigerian economy: Strategy options”, the agencies recommended an urgent policy development framework to address the challenges mitigating against the growth of the nation’s tax revenue as well as the need for a strong political will and an improved business environment in the country.
Chief Country Economist, AfDB, Zerihun Alemu while speaking on the theme stated that over $83 billion has been lost to illegal financial flows, noting that the AfDB survey showed that trade mis-pricing through over- invoicing and under-invoicing accounted for the ugly trend.
Alemu explained that the high illicit financial flows were recorded due to the high level of corruption in the country, while stressing the need to raise the capacity of the Federal Inland Revenue Service (FIRS) to curb the menace.
“This is more about corruption. We are recommending that there should be a serious policy implementation to deal with corruption and there is also a strong need for a political will and an improved business environment. These are crucial in diversifying the economy’s revenue base.”
“If we look at what is happening in Nigeria and its necessary conditions for economic diversification therein, the nation’s economy has been growing except for 2015. For the past 10 years, the economy has been growing at the rate of more than 6 per cent than the 5 per cent continental average. This growth has been coming from diversified sources, but despite the growth from diversified sources, the country still relies about 70 per cent for its revenue from oil,” he said.
He noted that according to the AfDB reports, the federal government’s revenue is declining due to sectors that should have contributed significantly with oil revenue, not living up to expectation as a result of the low tax effort administration in the country.
“Looking at the non-oil revenue to non-oil GDP ratio in Nigeria currently, it is about 4.6 per cent compared to 15 per cent of low income economies and 19 per cent economies. The tax net in Nigeria is not wide, estimates from the FIRS shows that about 75 per cent of the Small and Medium Enterprises (SMEs) are not in the tax system. This means that there is a potential to expand the tax base. Nigeria and other countries in the continent need to improve the tax administration system. We are suggesting a tax reform just for non-oil revenue mobilisation. There is also a need for a wide public consultation because at the end of the day, it is the public that will pay to get the revenue. Our recommendation to Nigeria is to raise Value Added Tax (VAT) to 10 per cent from its current level of 5 per cent. Even at 10 per cent it will be lower compared to other African countries,” he advised.
Also, the President and Chairman of Council, CIBN, Mrs. Debola Osibogun, said the theme of the event is apt in dealing with the current development and state of the nation’s economy.
“Over the years, the economic importance of diversifying the revenue base of the country has dominated our national discourse. However, pragmatic measures have not been taken by succeeding governments at all levels to frontally address this challenge which imperatively is now urgently required given the drastic fall in oil prices which is the major revenue source of the Nigerian government,” she said.
She pointed out that the crash in oil prices has led to the shortfall of the government revenue, increase in the prices of goods and services as well as inflation, stressing that it is sad to note that non-oil revenue declined by 34 per cent at the end of the third quarter of 2015 after reaching its over time high of $3 billion in 2011.
“The effort of the present government to address this challenge is most important, however, it is imperative that corporate organisations, professional bodies and other relevant stakeholders urgently joins hands with the federal government to come up with realistic and strategic framework for the diversification of the economic revenue base with a view to achieve sustainable economic development,” she said.