Total Revenue Collected by FIRS a Little Below Budget in 2020


Tuesday March 16, 2021 / 02:23 PM / by FBNQuest Research / Header Image Credit:  The Guardian NG


Total revenue collected by FIRS, Nigeria's pre-eminent tax authority, fell NGN130bn short of the budget of NGN5.08trn in 2020. (The first FGN budget last year, approved by the National Assembly before the emergence of the COVID-19 virus, set FIRS a target above NGN8.0trn.) The shortfall was not larger because the take from petroleum profits tax (PPT) of NGN1.52trn far exceeded the budget of NGN0.28trn. This must be particularly difficult to forecast because it was the third time in five years that the take from PPT overshot the budget by a substantial margin. In contrast, the service's collection of non-oil taxes in 2020 was far below target (NGN3.43trn vs NGN4.79trn). The underlying GDP growth assumption was too optimistic and the expected efficiency gains were blunted by the virus.


The FIRS' non-oil take has steadily risen in recent years, adding NGN1.29trn since 2016. That said, the total take by FIRS and the other agencies (the Nigeria Customs Service, above all) is far below the FGN's capital spending needs and is consumed largely by debt service. It did raise the VAT rate from 5.0% to 7.5% in February 2021 but the FGN's focus generally is on coverage and compliance rather than tax rate hikes.


In its latest Article IV consultation with the FGN, IMF staff suggest a package of fiscal measures designed to have a cumulative impact equivalent to 7.1% of GDP through to 2025. The largest single step, estimated at 2.2% of GDP, is an increase in the standard rate of VAT to 10.0% by end-2022 and again to a minimum of 15% by end-2025. Other measures are a tightening of the pioneer status system and a full review of custom waivers and other tax exemptions.


Several analysts would say that South Africa has passed the peak in terms of the Laffer curve, i.e collection falls as tax rates rise. We doubt that this is the case with Nigeria because collection of non-oil taxes has been steadily increasing. Non-payment is a combination of 'won't pay' and 'can't pay', which tells us that the intelligent use of the carrot and the stick could boost the take for the FGN.


We see from the chart that FIRS exceeded its budget through to 2014 but has since fallen short. The present administration, first elected in 2015, has adopted a more expansionary fiscal stance than its predecessor.


Tax collection by FIRS (NGN trn)

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Sources: Federal Inland Revenue Service (FIRS); FBNQuest Capital Research


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