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Dwindling Revenue: Nigeria facing existential threat, World Bank warns

The General News by The General News
August 11, 2022
Reading Time: 5 mins read
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Dwindling Revenue: Nigeria facing existential threat, World Bank warns

The World Bank on Wednesday warned that Nigeria might be facing an existential threat, saying that if the country failed to optimise its tax system and pay attention to other areas to boost its revenue, its already low revenue will continue to drop.

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The warning by the international financial institution is coming as Nigeria’s revenue continues to dwindle, especially as a result of the payment of trillions of naira on fuel subsidies by the government.

At a virtual pre-summit, with the theme ‘Critical Tax Reforms for Shared Prosperity’, organised by the Nigerian Economic Summit Group on Wednesday, the Senior Public Sector Specialist, Domestic Resource Mobilisation, at the World Bank, Mr Rajul Awasthi, said despite the rise in the price of oil in the international market, Nigeria is not reaping the benefits because of the huge amount spent on fuel subsidy.

He said Nigeria would have to eliminate the subsidy regime eventually.

Recall that the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, recently said that the government might spend a whopping N6.72tn as fuel subsidy in 2023 or pay N3.36tn up to mid-2023 if the subsidy regime would end in May 2023.

The comment by the minister came after the Federal Government earlier earmarked about N4tn for subsidy payment in 2022.

A slide Awasthi, in a slide he shared during his presentation, showed Nigeria’s Development Update. Speaking on that, the World Bank Senior Public Sector Specialist, explained that between 2015 and 2019, Nigeria’s non-oil revenues were among the lowest in the world and as a result the second lowest in spending and that oil revenues were also falling even when oil prices were higher.

He said, “Nigeria has the largest economy in Africa and the largest country in Africa by population, so it is critical to Africa’s progress. There is no doubt about that. But the government of Nigeria, from the public finance perspective, is really facing an existential threat. Let’s not downplay the situation. That is the actual reality.

“Nigeria is 115th out of 115 countries in terms of the average revenue to Gross Domestic Product ratio. Despite the oil prices rising the way they have been, net oil and gas revenues have been coming down because of the tremendous impact of the subsidy.

“So, what is going to happen in 2022? The federation’s revenues are going to be significantly lower. They are already very low, and Nigeria is already the lowest in the world out of 115 large countries and this year, it’s really going to be lower than what it was in 2020 because of the debilitating impact of fuel subsidy.”

On how to get out of the woods, Awasthi said that in the non-oil sector, Value Added Tax compliance gaps were immense and they needed to be breached as well as rationalise tax expenditures.

Citing the tax expenditure statement of the Budget Office in 2020, he said, “The VAT gap in 2019 was over N3.1tn whereas the collection was N1.2tn. Of that gap, about two-thirds, which is about N2tn, came from compliance gaps. That’s a serious issue that needs to be addressed. It’s because of this that we have a low tax base and a lot of people feel they are being overtaxed.”

Speaking further, he stressed the need for technology deployment in tax administration and data sharing between the Federal Inland Revenue Service and the states’ Internal revenue services to boost the revenue from personal income tax. He also called for an increase in the tax levied on certain goods, like wine, cigarettes and beer.

Awasthi said, “Property taxes at the state and local government levels are also critical. Nigeria has tremendous potential, with about 50 million households, taxable properties and there are many rich people who need to be paying property taxes. There is a tremendous opportunity there.

“Also, I think there is a huge opportunity to raise excise on goods like beer, wine, spirit and cigarettes. There is a very tiny tax that has been introduced on them and this could be higher. These are the kinds of things that across the world there is a consensus that these rates should be higher because they are supposed to attack and address the negative externalities of these products.

“There is also a need to reform the fuel subsidy regime, moving towards its full elimination at least by 2024. Nigeria needs to roll back the PMC subsidies and adopt the free market price. This is critical for this country. There is also the need to improve revenue from cross-border transactions and other international tax measures.”

He called for increased enlightenment of the taxpayers, noting that tax laws needed to be modernised and strengthened for a better outcome.

“Going forward, the approach to revenue mobilisation has to be more strategic. We need to be more strategic and it’s not just about taxing more, Nigeria needs to tax better. We need to review the collection system and not just about what to collect and from who. There have been discussions about how the tax system has to be progressive and efficient in terms of compliance and making sure we are targeting the right tax bases,” he added.

Speaking, the Director-General of MAN, Mr Segun Ajayi-Kadiri, represented by the Director of Mr Oluwasegun Osidipe, said it was obvious Nigeria needed money but that the government must exercise caution in introducing more taxes.

According to him, the government should expand the tax base, ensure the inclusion of more people in the informal sector and make the tax system progressive such that the rich would pay more than the poor.

“MAN’s expectation is that, though we need more revenue, the tax system should be structured to take more resources from the rich than the poor. Also, more taxes should be targeted at ostentatious goods and luxury goods. Those who earn more income one way or the other should pay more.

“There is a need for us as a nation to sit at a table and agree that we need to develop a comprehensive and integrated framework that would facilitate the intentional movement of operators in the informal sector to the formal sector and that would make us bring in more revenue for the government through tax.

“Whether we like it or not, huge sums of money in transactions are taking place in the informal sector, and we need to integrate them into the tax system rather than overburden the already compliant companies. If you look at the gamut of taxes levied on companies, they are huge. There are over 12 and additional ones are still coming. There is a need for that framework.

“We need to widen the tax net rather than increasing the burden on existing taxpayers. We need to promote harmonisation of taxes and there is a need for more consultation among stakeholders. Nigeria is at a crossroads but all hands must be on deck, especially looking at Nigeria’s low tax to GDP ratio,” he said.

Some participants at the event, in their submission, called for an improved tax system that would ensure that those outside the tax net were integrated into the net so that those in the net are not excessively burdened.

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Tags: Dwelling economyrevenue
The General News

The General News

TGnews is a tripod of (The General) News,articles, Journals, opinion and adverts to millions of people accessing the internet. Serving the common interest not personal or sectarian or Religion interest that are in conflict with the national goals and aspirations of building a united ,peaceful and progressive Nigeria and the World at Large.

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