The Federal Inland Revenue Service (FIRS) Executive Chairman, Mr. Muhammad Nami, revealed yesterday that the nation’s tax-to-GDP ratio climbed to 10.86% in 2021 from roughly 6% over the previous 12 years.
Using data from 2010 to 2021, he claimed that the ratio was shared with the FIRS via a letter signed by Mr. Adeyemi Adeniran, Statistician-General of the Federation and Chief Executive of the National Bureau of Statistics (NBS), after a joint review by the two organizations and the Federal Ministry of Finance.
This occurred as the World Bank and the Nigeria Customs Service (NCS) cooperated to encourage compliance with trade laws and considerably lower the cost of transporting goods and charges at Nigerian ports.
Muhammad, however, maintained his plea for the federal government to rethink its tax waiver policy in order to ensure more money is available to fund development programs.
Muhammad noted in a statement released by his Special Assistant on Media and Communication, Mr. Johannes Wojuola, that the change took into account revenue items that were previously not included in the calculations, particularly important revenue collected by other government agencies.
In essence, the tax-to-GDP ratio assesses a nation’s tax collection in relation to the size of its GDP-based economy.
The ratio can be used to evaluate a nation’s tax system’s health and to show how much tax revenue is available given the size of the economy.
It is the most accurate indicator of how well the tax system works internationally.
Muhammad continued by saying that data used to calculate the country’s tax to GDP ratio, which was previously estimated to be between 5% and 6%, did not include tax money that accrued to other government entities.
He claimed that earnings gathered by organizations besides the FIRS, Customs, and States Internal Revenue Service were not included.
According to him, Nigeria’s situation was unusual because many other nations have harmonized tax systems in which all or most tax revenues are collected by a single government agency, with single-point tax revenue reporting allowing all relevant tax revenues to be included in the calculation.
Mohammad stated, “The FIRS launched a reassessment and re-computation of the ratio for 2010 to 2021 in order to accurately report the tax-to-GDP ratio. Key indicators that were previously ignored were taken into account when recalculating the ratio. As a result, the tax-to-GDP ratio for 2021 was changed to 10.86% from the previously announced 6.0%.
Nigeria’s tax to GDP ratio, according to him, should typically be greater than 10.86%, but for certain economic and fiscal policy considerations, such as tax exemptions and leakages brought on by the country’s disjointed tax structure.
“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 caused by the country’s fragmented tax system, and the impact of the GDP rebasing in 2014,” the FIRS chairman said.
However, Adeniran framed the evaluation in his letter to the service as a facelift for the nation’s tax-to-GDP ratio in comparison to other nations.
He added that the NBS had “carefully and diligently reviewed the methodology used for computing the revised estimates, as well as the various items that have been included in the new computation,” and that the NBS had adopted the new Tax-to-GDP computation as a result of its review and meetings with FIRS.
Under the Accelerating Revenue Mobilization Reforms Program (ARMOR), NCS has started the procedures for transitioning from the Fast Track Regime to Fast Track 2.0 (FT 2.0).
Abdullahi Maiwada, a spokesperson for customs, noted in a statement that the system admits traders based on their adherence to rules and contribution to trade in Nigeria in order to reward compliance and ease trade.
He stated that the introduction of Fast Track 2.0 would allow the service to shorten trade processes, increase compliance, and provide a more efficient and rewarding environment for traders.
When fully functional, the system, according to Maiwada, should incentivize traders to abide by customs laws and regulations.
“The potential for significant cost reductions associated with cargo handling and demurrage at the ports is one of the main advantages,” he said.