The Federal Inland Revenue Service (FIRS) announced that Nigeria’s tax-to-GDP ratio has increased to 10.86% from the 6% reported earlier in 2021. FIRS Executive Chairman, Muhammad Nami, relayed that this information was communicated to the FIRS by the Statistician General of The Federation. Nami added that the review of the Nigerian Bureau of Statistics (NBS) in collaboration with the FIRS and the Federal Ministry of Finance, using data from 2010 to 2021, has led to the revised tax-to-GDP ratio.
The tax-to-GDP ratio compares a nation’s tax revenue to the size of the Gross Domestic Product (GDP). This tool is used to assess a country’s tax system and demonstrate their tax potentials concerning the size of the economy. Nami said that computing Nigeria’s tax-to-GDP ratio involved excluding tax revenue accruing to other government agencies, particularly those collected by agencies other than the FIRS, Custom, and State Internal Revenue Services.
Nami further explained that most countries operate a harmonized tax system with single-point tax revenue reporting, while Nigeria’s peculiar tax system excluded vital revenue sources from its computations in the last 12 years. He said that the new ratio took into account revenue that was previously not included in the computations, particularly those collected by other government agencies.
According to Nami, Nigeria’s tax-to-GDP ratio should be higher than 10.86%, which is affected by economic and fiscal policies such as tax waivers and leakages resulting from Nigeria’s fragmented tax system. The FIRS boss, therefore, called on the government to consider reviewing its policies on tax waivers to increase revenue for government programs.
In conclusion, the improved tax-to-GDP ratio is a significant accomplishment for the government of Nigeria and the FIRS, as it reveals an increase in tax revenue collection, which can boost the economy’s growth. However, more needs to be done to ensure that Nigeria’s tax system harmonizes all revenue sources and reduces revenue leakages to increase tax revenue.
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