Nigeria’s Tax-to-GDP ratio, which hovered between 5 percent and 6 percent over the last 12 years, rose to 10.86 percent by the end of 2021, the Nigerian Bureau of Statistics (NBS) has reported.
The new ratio was communicated to the Federal Inland Revenue Service (FIRS) through a letter dated May 25, 2023 signed by the Statistician-General of the Federation, Adeyemi Adeniran.
The NBS said this followed a joint review it conducted in collaboration with the Federal Ministry of Finance and the FIRS, using data from 2010 to 2021.
The Statistician-General said the revision took into account revenue items previously not included in the computations, particularly relevant revenue collections by other agencies of government.
Tax-to-GDP ratio is a measure of a nation’s tax revenue relative to the size of her economy as measured by Gross Domestic Product (GDP), which is the aggregate value of goods and services in the country’s economy over a certain period.
The NBS said the ratio, which is a useful tool for assessing the “health” of a country’s tax system, highlights the country’s tax potentials relative to the size of the economy.
It is the ultimate measure of the effectiveness of a nation’s tax system compared to other countries.
The Chairman of FIRS, 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 computations.
Nami said revenues collected particularly by agencies other than the FIRS, like the Nigerian Customs Service and States Internal Revenue Service were usually excluded in past computarions.
He said this situation was peculiar to Nigeria as most other countries operated harmonised tax systems, as all or most tax revenues are collected by one agency of government, with single-point tax revenue reporting.
With that arrangement, he said all relevant tax revenues were included in the computation of the Tax-to-GDP ratio.
“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 recomputing the ratio, key indicators that were previously left out were taken into account. This resulted in a revised Tax-to-GDP ratio of 10.86% for 2021 as against 6% hitherto reported,” Nami said.
Furthermore, he said 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 occasioned by the country’s fragmented tax system.
“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 (MSMEs) brought-in by the 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”, he explained.
The FIRS boss implored the government to consider reviewing its policies on tax waivers, to guarantee increased revenue to prosecute its programmes and positively move the needle of the country’s tax-to-GDP ratio.
The Statistician-General of the Federation, Adeyemi Adeniran, in his letter to the Executive Chairman of FIRS, described the revision as a facelift to the Tax-to-GDP ratio for Nigeria in comparison with other countries.
He said the NBS had “carefully and diligently reviewed the methodology used for computing the revised estimates, as well as the various items that have now been included in the new computation,” adding that the NBS as an outcome of its review and meetings with FIRS has adopted the new Tax-to-GDP computation.
