#IMF to #FIRS: Focus on Tax Collection Efficiency
The International Monetary Fund (IMF) has urged Nigeria to focus on improving tax collection efficiency, rather than raising taxes, as the country seeks to boost weak revenues caused by the global pandemic that has affected economic activity.
The IMF at a virtual conference said 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.
“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.
“To increase revenue and make tax collection efficient, Nigeria has to improve its audit capacity and update its tax registry,” IMF Mission Chief to Nigeria, Jesmin Rahman, said.
At around 7 percent, Nigeria has one of the lowest tax-to-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.
According to Rahman, Nigeria can, however, increase its comparatively low VAT rate once the crisis passes, while working to derive new excise duties and overhaul its oil and gas sector.
Nigeria projects oil revenues 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 revenues is making its debt servicing “worrisome” because it is expected to gulp down most of government revenue this year.
“Even though the debt level itself is not a concern for sustainability, it’s 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,” Rahman said.
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).