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Home Spotlight

In Taxation, Nigeria Performs Worse Than War-Torn Countries – PWC

Editor by Editor
November 24, 2015
in Spotlight
In Taxation, Nigeria Performs Worse Than War-Torn Countries – PWC
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Nigeria does so badly in tax revenue collection, that if it covers lost grounds, tax revenues could rival that from oil.

In the 1970s, non-oil sources made up 80 percent of the Federal government’s income, while oil was 20%. Fast forward to 2015, the trend has been completely reversed. Non-oil is 20%, while oil is 80%.

According to PWC’s Tax and Regulatory Services Leader for West Africa, Taiwo Oyedele; in collecting taxes, Nigeria performs even worse than wore-torn countries. Afghanistan, with a smaller economy and population collects more taxes than Nigeria’s government.

“Before the GDP was rebased, Nigeria had a tax-to-GDP ratio of 12%, contrary to reports cited from the Ministry of Finance, which put the figure at 20%”.

“It wasn’t exactly correct because the calculation was done using all the inflows into the Federation account, and we know that not all revenues that go into the Federation account comes from tax. What we did was to isolate the revenue from tax from others”, Oyedele said. 

The revenue from crude oil sales, for instance, is not tax.

As a proportion of the rebased GDP, government taxes to GDP has now dropped to 8% (2014). Included in the 8% was tax revenues that the government did not expend much effort in collecting, because they were already easy to collect like oil.

It appears that even oil tax collection, in which Nigeria seems to do well in, is actually quite poor, when properly analyzed.

According to PWC, for every dollar that goes into the Federation account, 45 cents i.e. 45% is oil royalties and petroleum products tax combined. The rest 55% is crude oil sales, i.e., the revenue that comes from government selling its own share of crude oil.

Isolating the GDP of the oil sector, from that of the non-oil GDP, and deriving the tax generated from both sectors showed that oil sector tax-to-GDP was 27%. PWC said it discovered that the tax-to-GDP from the non-oil sector was actually an awful 4%.

“At 4%, Nigeria is lower that many countries that have no income taxes at all. Nigeria’s tax generation is lower than countries that are fighting war as we speak”.

This figure places Africa’s largest economy, Nigeria, at 4th poorest in the world, and the 2nd poorest in Africa, where it claims to be the largest.

“It is inconceivable that we continue to rely on this. This is an invitation for the country to become bankrupt. So we have to do something differently this time”.

All this is despite the fact that we have all manner of taxes in Nigeria. The list of taxes from the federal, state and local government level is very long.

For the non-oil revenue part, Company Income Tax (CIT) accounts for 37%, VAT is 33% and Customs and Excise Duties is just 21%, while Independent sources of revenue accounts for 9%.

By collection, FIRS accounts for 74% of taxes accruing to the government. Customs accounts for 13%, States’ Inland Revenue Service (all 36 states combined) account for 10%, and the Local governments account for just 3%, according to PWC estimates.

The most interesting part of the above statistic is what the Customs service generates.

“I’ve always been concerned by the amount of money the customs service generates. Nigeria is an import dependent economy. If you imagine the size of this economy, and the size of what we import, how come the only thing the government gets from customs is less than N1 trillion?

“It is unbelievable for me”, PWC’s Tax and Regulatory Services Leader said.

It is one of the quick wins for the Nigeria – reforming the Customs service, and blocking its corruption and leakages.

Even if it means allowing people to import their products legally, rather than smuggle them in and bypass customs.

Editor

Editor

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