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Nigeria’s Struggle To Collect Non-Oil Revenue

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Wednesday, May 03, 2017 9:52 AM / FBNQuest Research 

Kemi Adeosun, the federal finance minister, reminded a faith meeting in Lagos on Monday that federally collectible revenue, expressed as a proportion of GDP, was among the lowest in the world.  

CBN data imply a ratio for last year of just 5.6% for total revenue (net, after the deduction of collection costs), which can be compared to the minister’s estimate of 15% for Ghana.  

The ratio of non-oil revenue on the same basis is just 2.9%. Until recently, the authorities made little effort to collect taxes from the non-oil economy.  

They have stepped up their efforts but were frustrated by the recession last year. Non-oil collection declined from N3.08trn to N2.98trn in 2016 despite several initiatives by the FGN 

The success of the FGN’s expansionary fiscal agenda will rest upon its ability to release funds for capital programmes. Adeosun acknowledged that non-oil revenue is not at a level to cover such programmes and that the FGN has therefore increased its external borrowing. Nonetheless the target in the president’s 2017 budget speech of N1.37trn for the FGN looks hopeful. 

With the exception of luxury items, the ministry is reluctant to raise the 5% standard rate of VAT, preferring to focus its attention on coverage. We hope that it hikes rates and broadens coverage (Good Morning Nigeria, 11 April 2017), and so brings acceptable collection ratios that much closer. 

 

In the same speech the minister noted that just 214 individuals paid tax above N20m. Clearly, there are more than a few gaps in the list of large taxpayers. Under the “progressive” systems in developed economies, the wealthy shoulder most of the burden. In the UK, for example, 10% of taxpayers provide 90% of income tax receipts. 

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