Personal income tax is a viable source of revenue that has the potential of boosting Nigeria’s economy. Hence, the government must take advantage of it. This is according to the International Monetary Fund (IMF).
In a report titled, ‘Personal Income Tax Has Untapped Potential in Poorer Countries,’ IMF explained that personal income tax which is a tax levied on wages, salaries, and other income could be used to cushion the effect of COVID-19, and offer lasting economic recovery solutions from the pandemic.
The report read: “In the two decades preceding the pandemic, income tax revenue more than doubled in low-income countries, rising from the equivalent of 1% of GDP to 2.1%, while emerging markets saw an increase from 2.1% to 3.1%.
“These were also reflected in the share of tax in overall tax intake, which went from 5% to 8% of total tax revenue in low-income countries and from 9% to 11% in emerging markets.
“In examining the progress of the personal income tax in developing countries, we distinguish between observable tax policy changes and broader economic changes. Policy changes have targeted top and bottom statutory rates as well as the level of exempt income.
“Remarkably, we find that this hasn’t contributed much to the increase in revenue in low-income countries.
“And in emerging market economies, this shift has sometimes actually reduced revenue. This is the case in part because many emerging markets have introduced flat tax systems with low rates and those with progressive schedules have reduced rates over the last two decades.
“Economic variables, on the other hand, played a very important role. We looked at increases in per capita incomes and the size of the public-sector wage bill and the reduction in the size of the informal sector, as measured by the share of self-employed workers in the labour force and the share of agriculture in the economy.”
