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Revenue growth: Widen tax base, increase VAT compliance, IMF tells FG again

By Michael Eboh
Mission Chief and Senior Resident Representative of the International Monetary Fund, IMF, in Nigeria, Mr. Amine Mati, Tuesday, called for an urgent review of the country’s tax policies, with emphasis on taxing the richest three per cent of the country’s population, widening the tax base and increasing compliance on Value Added Tax, VAT.

Speaking at a panel session on ‘Leveraging Dom

Amine Mati

estic Resource Mobilisation for Sustainable Development,’ at the 2018 Nigerian Economic Summit, NES, in Abuja, Mati noted that these measures would help bring about a significant increase in Nigeria’s revenue base.

He bemoaned the fact that there was  a lot of leakage in the country’s tax system, noting that by widening the tax base the country can increase its revenue.

He stated: “In terms of non-oil revenue, at four to five per cent of GDP, this is very low. Though, it is important to note that the government is working to improve on this. There used to be an excise on fuel products in 2009, which used to bring quite a lot and that had been discontinued since 2009.

“One interesting thing about excise for quick revenue generating measure, in changing the rate, you do not need to go through parliament and the whole process; this is an executive decision that can be made. In Nigeria, excises only bring 0.1 per cent of GDP. This is one of the easiest sources of revenue to get. 0.1 per cent of GDP compared to three per cent of GDP compared for ECOWAS and most other countries.

“In terms of proper tax collection, excise in Nigeria is only 2.3 per cent. This tells you how much potential there is in trying to get revenue up. Some of the recommendations here is to have specific excise — such as excise in fuel products, excise on luxury goods, including on airtime fees. We just need some small simulation on that. That would give you 0.8 per cent of GDP within a year; that is money you can spend on import and development spending.”

The IMF country chief disclosed that the active tax population in Nigeria is six per cent, while 97 per cent of VAT filers represent three per cent of the VAT revenue.

He said, “Compliance in Nigeria is low, about 20 to 25 per cent. If you were to double compliance to 50 – 60 per cent, you would double VAT collection. Again, each percentage point increase in VAT rate would get you 0.4 per cent of GDP, but that doubles once you get the compliance up.

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“Increasing VAT and at the same time putting some social transfer, you can have some net revenue gain that would be important and would not worsen poverty.    To increase revenue, tax policy is necessary, but revenue administration, in both tax and custom administration measures are essential, they need to accompany that.

“The active tax population in Nigeria is six per cent, whether you look at it from the Company Income Tax,CIT, or VAT or others. Now there is the taxpayers’ registration database that needs to be improved, while the weaknesses in the compliance risk management base. It is important to increase the base.”

Also speaking, Chairman of the Nigerian Economic Summit Group, NESG, Fiscal Policy Roundtable, Mr. Doyin Salami, insisted that Nigeria must go back to a meaningful, established and reliable budget cycle.

He noted that the country needs fiscal governance philosophy that would help grow the economy in a inclusive manner, ensure effective and efficient collection of resources and utilization of the resources in a judicious manner.

He added that Nigeria needed to move away from emphasis on macro data in our budget preparation process and focus more on data from the micro level.

“Whilst there might be macro data, there is certainly no micro data. Work that we have been doing suggest to us that the tax collectors really do not know who their customers are. We do not have data about households, data about corporate, data about sectors; all of these is missing and make it very difficult to get budget or fiscal governance in any meaningful shape,” he argued.

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