May 31, 2023

Nigeria’s Tax-To-GDP Ratio rises to 11%

New tax tribunal rule may kill businesses, cause job losses ― Expert

Emma Ujah, Abuja Bureau Chief

Nigeria’s Tax-to-GDP (Gross Domestic Product) ratio rose to 10.86 percent in 2021.

This was contained in a May 25, 2023 letter by the Statistician-General of the Federation, Prince Adeyemi Adeniran, to the Federal Inland Service (FIRS).

The new ratio followed a joint-review of 2010 to 2021 data by the National Bureau of Statistics (NBS), FIRS and the Federal Ministry of finance, according to a statement by Johannes Wojuola, the Special Adviser on Media and Communication to the Chairman of the FIRS, Mr. Muhammad Nami, this afternoon.

Recall that in the last 12 years, Nigeria’s Tax-to-GDP hovered between 5% to 6%.

Tax-to-GDP ratio is a measure of a nation’s tax revenue relative to the size of her economy as measured by Gross Domestic Product (GDP).

The FIRS boss was quoted as saying, “The revision took into account revenue items hitherto not previously included in the computations; particularly, relevant revenue collected by other agencies of government.”

He explained that sources which previously put the country’s Tax-to-GDP ratio at between 5% and 6% did not consider tax revenue accruing to other government agencies in their computation.

Particularly, the chairman said that revenues collected by agencies other than the FIRS, Customs and States Internal Revenue Service were excluded.

“In order 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 into a revised Tax-to-GDP ratio of 10.86% for 2021 as against 6% hitherto reported,” he said.

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

His words, “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.”

The FIRS boss urged the government to consider reviewing its policies on tax waivers thereby guarantying increased revenue to prosecute its programmes and positively move the needle of the country’s tax-to-GDP ratio.

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