The National Bureau of Statistics (NBS) has reported that Nigeria’s Tax-to-GDP ratio, which has been hovering between 5% to 6% in the past 12 years, rose to 10.86% by the end of 2021.
The Statistician-General of the Federation/Chief Executive Officer of the Bureau, Prince Adeyemi Adeniran, gave these figures in a letter dated 25th May this year to the Federal Inland Revenue Service (FIRS).
The letter indicated that the release of the latest Tax-to-GDP ratio was sequel to a joint review by the Bureau, in collaboration with the Federal Ministry of Finance, Budget and National Planning and the FIRS, using data from 2010 to 2021.
According to the Statistician-General, the revision took into account revenue items hitherto not previously included in the computations, particularly, relevant revenue collected by other agencies of government.
In a statement issued on Wednesday on the new Tax-to-GDP ratio, the Executive Chairman of FIRS, Mr. Muhammad Nami, explained that sources which previously put the country’s Tax-to-GDP ratio at between 5% and 6% did not consider tax revenue accruing to other government agencies in their computation, particularly revenues collected by agencies other than the FIRS, Customs and States Internal Revenue Service were excluded.
The tax administrator stated that the situation was peculiar to Nigeria as most other countries operate harmonized tax system with single-point tax revenue reporting, thereby making it possible to capture all relevant tax revenues in the computation of the Tax-to-GDP ratio.
He said: “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. 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.”
The FIRS’ boss noted that Nigeria’s Tax-to-GDP ratio should ordinarily be higher than 10.86% but for certain economic and fiscal policy factors, including tax waivers and leakages caused by the country’s fragmented tax system.
He further expatiated: “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.”
The FIRS’ boss urged the government to consider reviewing its policies on tax waivers with a view to guaranteeing increased revenues for the implementation of its policies and programmes and by so doing, increase the country’s Tax-to-GDP ratio.
In his letter to Nami, the Statistician-General described the revision as a facelift to the Tax-to-GDP ratio for Nigeria in comparison with other countries.
Adeniran said that the national statistics coordinating agency had “carefully and diligently reviewed the methodology used for computing the revised estimates, as well as the various items that have been included in the new computation.”
He clarified that the Bureau, as an outcome of its review and meetings with the Federal Ministry of Finance, Budget and National Planning and the FIRS, adopted the new Tax-to-GDP computation to arrive at the latest ratio for the country.
A country’s Tax-to-GDP ratio is a measure of its tax revenue relative to the size of the economy as measured by GDP and it is a useful tool for assessing the “health” of a country’s tax system, and highlighting its tax potentials relative to the size of its economy.
