The Federal Inland Revenue Service (FIRS) says Nigeria’s tax-to-GDP ratio rose from six per cent to 10.86 per cent by the end of 2021.
This is contained in a statement issued on in Abuja by Mr Johannes Wojuola, Special Assistant on Media and Communication to the Executive Chairman of FIRS, Mr Muhammad Nami.
Nami was quoted as saying that the new ratio was communicated to FIRS by the Statistician-General of the Federation, Prince Adeyemi Adeniran, on May 25.
Nami said that the figure followed a joint review by the Nigerian Bureau of Statistics (NBS), in collaboration with the Federal Ministry of Finance and the FIRS, using data from 2010 to 2021.
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 ratio is a useful tool for assessing a country’s tax system and highlighting its tax potentials relative to the size of the economy.
Nami, explained that sources which previously computed Nigeria’s tax-to-GDP ratio at between five per cent and six per cent did not consider tax revenue accruing to other government agencies.
“Particularly, revenues collected by agencies other than the FIRS, Customs and States Internal Revenue Service were excluded.
“This situation was peculiar to Nigeria as most other countries operate harmonised tax system with single-point tax revenue reporting.
“As such, all relevant tax revenues are included in the computation of the tax-to-GDP ratio.
“Nigeria’s tax-to-GDP ratio, which in the last 12 years, hovered between five per cent to six per cent rose to 10.86 per cent by the end of 2021.
“The revision took into account revenue items hitherto not previously included in the computations; particularly, relevant revenue collected by other agencies of government,’’ Nami said.
He further said that to correctly state the tax-to-GDP ratio, the FIRS initiated a review and re-computation of the ratio for 2010 to 2021.
“In recomputing 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 per cent for 2021 as against six per cent hitherto reported,” the FIRS boss said.
He said that that Nigeria’s tax-to-GDP ratio should 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.
“Others are low tax morale, leakages occasioned by the country’s fragmented tax system and the impact of the rebasing of the GDP in 2014,” he said.
Nami 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.