Tax-to-GDP Ratio Increases to 10.86% in 2021: In a letter dated May 25, 2023, the Statistician-General of the Federation, Prince Adeyemi Adeniran, informed the Federal Inland Revenue Service (FIRS) that Nigeria’s Tax-to-GDP (Gross Domestic Product) ratio rose to 10.86 percent in 2021. This revised ratio was a result of a joint review of 2010 to 2021 data conducted by the National Bureau of Statistics (NBS) , FIRS, and the Federal Ministry of Finance, takes into account previously unconsidered revenue items and other government agency collections.
Johannes Wojuola, the Special Adviser on Media and Communication to the Chairman of FIRS, Mr. Muhammad Nami, released a statement on behalf of the FIRS, highlighting the significance of the revised Tax-to-GDP ratio. This ratio serves as a crucial measure of a nation’s tax revenue relative to the size of its economy, as measured by the GDP.
The new ratio of 10.86% indicates a substantial increase compared to the previously reported figure of around 6%. The revision considered revenue items that were previously excluded from the computations. Sources that estimated the country’s Tax-to-GDP ratio at a lower percentage did not include tax revenue collected by other government agencies, excluding their contributions to the overall tax revenue.
“The revision took into account revenue items hitherto not previously included in the computations; particularly, relevant revenue collected by other agencies of government,” explained Mr. Nami. This joint review aimed to accurately determine the Tax-to-GDP ratio by incorporating key indicators that were previously overlooked, resulting in a more comprehensive assessment.
Nigeria’s Tax-to-GDP ratio, even after the revision, is still considered below its potential. Mr. Nami attributed this shortfall to several economic and fiscal policy factors, including tax waivers and leakages caused by the fragmented tax system. Additionally, the impact of the rebasing of Nigeria’s GDP in 2014 has influenced the ratio. Ideally, the Tax-to-GDP ratio should be higher, reflecting a more effective tax collection system and improved tax morale among citizens.
Mr. Nami emphasized the importance of addressing these challenges and suggested that the government review its policies on tax waivers. By reevaluating and potentially reforming tax waivers, Nigeria can increase its tax revenue, ensuring sufficient funds to support government programs and initiatives. Addressing tax leakages and improving the country’s fragmented tax system are also crucial steps toward maximizing revenue generation.
The revised Tax-to-GDP ratio of 10.86% in 2021 indicates progress for Nigeria in terms of tax collection relative to its economic output. However, it also highlights the need for sustained efforts to streamline the tax system, improve tax compliance, and curb leakages. These measures are vital for maximizing revenue generation and enhancing Nigeria’s overall economic stability.
A higher Tax-to-GDP ratio can provide the government with increased resources to invest in essential public services such as education, healthcare, infrastructure, and social welfare programs. Furthermore, a more robust tax collection system will help reduce the country’s reliance on external funding and support its long-term economic independence.
As Nigeria works toward achieving sustainable economic growth, maintaining an optimal Tax-to-GDP ratio will play a crucial role in supporting the government’s fiscal objectives. It will enable the funding of vital public services, drive socioeconomic development across the country, and contribute to the overall well-being of its citizens.
With Nigeria’s Tax-to-GDP ratio rising to 10.86% in 2021 following a joint review by the NBS, FIRS, and the Federal Ministry of Finance. The revision incorporated previously unconsidered revenue items and other government agency collections, resulting in a higher percentage. However, there is still room for improvement as the country’s potential Tax-to-GDP ratio exceeds the current figure. By addressing challenges such as tax waivers and leakages, Nigeria can enhance its tax collection system, generate more revenue, and support its economic growth and development goals.