Nigeria’s tax-to-GDP ratio rises 5 percentage points
By Jeph Ajobaju, Chief Copy Editor
Tax-to-GDP (Gross Domestic Product) ratio rose to 10.86 per cent in 2021, as contained in a letter federal Statistician General Adeyemi Adeniran wrote to the Federal Inland Revenue Service (FIRS) dated 25 May 2023.
Tax-to-GDP ratio is a measure of a country’s tax revenue relative to the size of its economy as measured by the GDP.
Nigeria’s tax-to-GDP ratio hovered between 5 per cent and 6 per cent in the 12 years before 2021.
The new 10.86 per cent ratio followed a joint review of 2010 to 2021 data by the National Bureau of Statistics (NBS), the FIRS, and the Ministry of Finance, according to a statement issued by Johannes Wojuola, Media Adviser to FIRS Chairman Muhammad Nami.
“The revision took into account revenue items hitherto not previously included in the computations; particularly, relevant revenue collected by other agencies of government,” the statement quoted Nami as saying.
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Adjusted calculation of tax-to-GDP ratio
Nami explained sources which previously put tax-to-GDP ratio at between 5 per cent and 6 per cent did not consider tax revenue accruing to other government agencies in their computation, per reporting by Vanguard.
He listed the revenue collection agencies excluded to include the Customs and state Internal Revenue Services.
“In order to correctly state the tax-to-GDP ratio, the FIRS initiated a review and re-computation of the ratio for 2010 to 2021,” he said.
“In re-computing 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% for 2021 as against 6% hitherto reported.
“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 occasioned by the country’s fragmented tax system and the impact of the rebasing of the GDP in 2014.”
Nami urged the government to consider reviewing policies on tax waivers raise revenue to executive programmes and positively move the needle of tax-to-GDP ratio.