The International Monetary Fund, IMF has disclosed that if Nigeria is to increase revenue generation and make tax collection more efficient, the country needs to improve its audit capacity and update its tax registry.
This, the Fund said should be the focus of the government rather than the proposed raising of the tax rate.
IMF Mission Chief to Nigeria Jesmin Rahma made this known in a virtual conference, recently while warning that raising taxes is inappropriate at this time as it could increase the strain on corporate profits and a fragile economy tipped to contract by 5 percent this year.
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“Before you go about raising taxes, we need to first make sure that we collect everything that is collectible. At the moment, Nigeria has a very low tax efficiency rate,” Rahman said.
At around 7 percent, Nigeria has one of the lowest tax to Gross Domestic Product, GDP ratio among peers. The government raised Value Added Taxes (VAT) rate to 7.5 percent in February from 5 percent in an effort to increase its tax income amid dwindling oil revenues.
Nigeria can however increase its comparatively low VAT rate once the crisis passes, according to Rahman, while working to derive new excise duties and overhaul its oil and gas sector.
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In a related development, Nigeria projects oil revenue to decline by as much as 80 percent this year as the Coronavirus pandemic and lower global oil prices eat into the government’s biggest revenue source.
Low revenue is making Nigeria’s debt servicing worrisome because it is expected to gulp down most of government’s revenue this year, Rahman said.
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“Even though the debt level itself is not a concern for sustainability, its servicing capacity is severely constrained and requires a close watch. Nigeria’s public debt was at 29 percent of GDP in 2019 in our definition of all known liabilities like the Central Bank of Nigeria (CBN) financing of the budget, financing of the power sector, Asset Management Corporation of Nigeria (AMCON) debt and everything came to 29 percent of GDP. We project this to increase to 36.5 percent this year, which is a jump and then stay around 38 percent of GDP in the medium term,” she said.
Recall that Nigeria’s debt service to revenue ratio hit a record 99 percent in the first quarter of 2020, according to data from the Debt Management Office (DMO).
