The International Monetary Fund has said that Nigeria’s revenue is still not where it needs to be, noting that the country collects the least amount of revenue at about 7 to 8% of GDP among all emerging economies.
Ari Aisen, IMF country representative to Nigeria said this at the American Business Council economic update where experts explored opportunities and imperatives for businesses in the country. According to him, for a country such as Nigeria which records below 12% revenue to GDP ratio, it is very difficult to make attempt on such economic indicators and it is difficult to get improvement on social indicators with such with low level of revenue to GDP ratio.
He, therefore, recommended that strengthening tax administration, increasing tax compliance supply using digitalization, broadening the tax base, are essential to raising the rate to levels that are around the regional average which are useful strategies to reduce smuggling that is seen through the porous borders.
Read: IMF projects Nigeria to spend 92% of revenue on interest payments in 2022
What the IMF is saying
Aisen hinted that policy reforms that are more oriented to create a conducive environment for the private sector is very important such as higher access to credit, higher access to foreign exchange, more predictable, feasible horizon for macro-economic stability and with less volatility can contribute a lot together with advantages of the AfCFTA which translates to different trade policies, more tariffs, less protectionist and betting on the ability of the private sector to take advantage of the huge economies of scale in Africa.
Speaking on policy frame of the IMF and the federal government of Nigeria, Aisen pointed out that both parties share the same view in some areas and also have diverse views in other areas. He said, “We share the goals with the authorities in terms of generating roads, creating employments but in terms of the instruments to get there, we do not same instrument that we would use to achieve these.”
On the point of difference, he said, “For example the foreign exchange market, we see the main agent for growth being the private sector and accessibility of foreign exchange to import by the private sector is fundamental by restricting foreign exchange access dealing with shortage with the current foreign exchange regime, we think that this constraint will probably discourage that.”
Read: IMF urges Nigeria to abandon official exchange rate, fuel subsidy
What you should know
- According to OECD report, the tax-to-GDP ratio in Nigeria decreased by 0.3 percentage points from 6.3% in 2018 to 6.0% in 2019.
- In comparison, the average for the 30 African countries increased by 0.3 percentage points over the same period, and was 16.6% in 2019. Since 2010, the average for 30 African countries increased by 1.8 percentage points, from 14.8% in 2010 to 16.6% in 2019. Over the same period, the tax-to-GDP ratio in Nigeria decreased by 1.3 percentage points, from 7.3% to 6.0%.
- The highest tax-to-GDP ratio in Nigeria was 9.6% in 2011, with the lowest being 5.3% in 2016.