Nigeria has reportedly unveiled a plan to increase its tax-to-GDP ratio to a minimum of 18% within three years, aiming to reduce its dependence on borrowing for public expenditure, according to a statement released by the presidency on Friday.
The largest economy in Africa is currently pursuing an ambitious reform agenda, which includes eliminating a popular but costly petrol subsidy and implementing restrictions on foreign exchange trading. These measures are part of President Bola Tinubu's strategy to stimulate sluggish economic growth and reset the country's economy.
To achieve its goals, the Nigerian government has established a committee to reform the tax system, addressing issues such as high levels of tax evasion, enhancing collection efficiency, and removing barriers that hinder business growth. The objective is to expand the tax base and reach the targeted tax-to-GDP ratio.
Zacch Adedeji, a presidential adviser on revenue, emphasized the government's intention to make changes to the tax system in a way that supports sustainable development and attains a minimum tax-to-GDP ratio of 18% within the next three years, while still encouraging investment and economic growth. He acknowledged several challenges faced by the tax collection process, including multiple taxes and revenue collection agencies, widespread tax evasion, a complex tax system, and inadequate accountability in the utilization of tax revenue.
Currently, Nigeria has one of the lowest tax collection rates in the world, standing at around 10.8% of the GDP. However, tax receipts experienced a significant increase of 56% in 2022, reaching a record 10 trillion naira ($13 billion). Nevertheless, only 47% of the budget for this year will be covered by revenues, with the remainder relying on borrowing.
Apparently, the previous President Muhammadu Buhari left behind a 77 trillion naira ($167 billion) debt owed to local as well as foreign creditors. Presently, 96% of the government's revenue is allocated to servicing debt, raising concerns that the country's financial constraints could worsen without generating additional revenue.
Adedeji acknowledged that while some progress has been made in increasing tax collection over the years, the impact on revenue has not been substantial enough.