Nigeria’s tax-to-GDP ratio rises to 10.9 per cent

The Federal Inland Revenue Service (FIRS) said Nigeria’s tax-to-GDP ratio which, in the last 12 years, hovered between five and six per cent rose to 10.86 per cent by the end of 2021.

Tax-to-GDP ratio is a measure of a nation’s tax revenue relative to the size of its economy as measured by gross domestic product (GDP).

The ratio is used to assess the health of a country’s tax system and underscore its tax potential. It is the ultimate measure of the effectiveness of a nation’s tax system compared to other countries.

FIRS gave the disclosure in a letter signed by the Statistician-General of the Federation, Adeyemi Adeniran, following a joint review by the National Bureau of Statistics (NBS), the Federal Ministry of Finance and FIRS, using data from 2010 to 2021.

It said the revision took into account revenue items previously excluded in the computations, particularly relevant revenue collected by other agencies of government.

In a statement announcing the new tax-to-GDP ratio, the Executive Chairman of FIRS, Muhammad Nami, explained that sources, which previously put the country’s tax-to-GDP ratio at between five and six per cent did not consider tax revenues accruing to other government agencies in their computation.
This included those collected by customs and state internal revenue agencies.

He said this situation was peculiar to Nigeria as most other countries operate harmonised tax systems with single-point tax revenue reporting. Hence, he noted, that all relevant tax revenues are included in the computation of the tax-to-GDP ratios of those countries.

“To correctly state the Tax-to-GDP ratio, the FIRS initiated a review and re-computation of the ratio for 2010 to 2021. In re-computing the ratio, key indicators that were previously left out were taken into account. This resulted in revised tax-to-GDP ratio of 10.86 percent for 2021 as against six percent hitherto reported,” the statement noted.

Nami noted that Nigeria’s tax-to-GDP ratio should ordinarily be higher than 10.86 per cent but for certain economic and fiscal policy factors, including tax waivers and leakages occasioned by the country’s fragmented tax system.

“It is important to note that the tax-to-GDP ratio for Nigeria should be higher, but for the impact of tax waivers contained in our various tax laws (including exemptions to micro, small and medium enterprises brought-in by Finance Act, 2019), low tax morale, leakages occasioned by the country’s fragmented tax system and the impact of the rebasing of the GDP in 2014”, he explained.