Nigeria’s Federal Inland Revenue Service, FIRS, revealed that as of the end of 2021, Nigeria’s tax-to-GDP ratio grew to 10.86% from 6%, accounting for tax revenues from other government agencies apart from the FIRS.
This was disclosed in a statement by the FIRS on Wednesday afternoon, after the new ratio was sent to the Federal Inland Revenue Service (FIRS) via a letter signed by the statistician-General of the Federation, Prince Adeyemi Adeniran on the 25th of May 2023.
Tax to GDP is a measure of a nation’s tax revenue relative to the size of its economy as measured by Gross Domestic Product. It is a useful tool for assessing the health of a country’s tax system, and highlighting its tax potential relative to the size of the economy and also an ultimate measure of the effectiveness of a nation’s tax system compared to other countries.
Ratio Increase
In the statement, the FIRS stated that Nigeria’s Tax-to-GDP ratio in the last 12 years hovered between 4-6% and rose to 10.86% by the end of 2021.
The Agency added: “The new ratio was communicated to the Federal Inland Revenue Service(FIRS) via a letter signed by the statistician -General of the Federation, Prince Adeyemi Adeniran on the 25th of May 2023 following a joint review by the Nigerian Bureau of Statistics, using data from 2010 to 2021.
“The revision took into account revenue items hitherto not previously included in the computed, particularly relevant revenue collected by other agencies of government.”
Improved tax computation
FIRS Chairman, Muhammad Nami added that sources that previously put Nigeria’s Tax to GDP at less than 6% did not consider tax revenue accruing to other government agencies in their computation, including revenues collected by agencies other than the FIRS, Customs, and state Internal Revenues Services were excluded.
He added that this situation was peculiar to Nigeria as most other countries operate harmonised tax systems with single-point tax revenue reporting, as such, all relevant tax revenues are included in the computation of the tax-to-GDP ratio.
“To correctly state the Tax to GDP ratio, the FIRS initiated a review and re-computation of the ratio for 2010 to 2021. In re-computing the ratio, key indicators that were previously left out were taken into account.
“This resulted in a revised tax-to-GDP ratio of 10.86% for 2021 as against 6% hitherto reported.
Nami further stated that Nigeria’s tax-to-GDP ratio should ordinarily be higher than 10.86% but for certain economic and fiscal policy factors, including tax waivers and leakages occasioned by Nigeria’s fragmented tax system.
He added that the FG will consider reviewing its policies on tax waivers thereby guaranteeing increased revenue to prosecute its programmes and positively move the needed for Nigeria’s Tax to-GDP ratio.
What you should know
Nigeria’s Federal Inland Revenue Service (FIRS) announced the highest tax revenue in its history, collecting N10.1 trillion in tax revenues in 2022.
A statement shows the FIRS earned N4.09 trillion in oil revenues (41%) and N5.96 trillion in non-oil revenues (59%). This is against a target of N10.44 trillion set for the year.
“Companies Income Tax contributed N2.83 trillion, Value Added Tax N2.51 trillion, Electronic Money Transfer Levy N125.65 billion and Earmarked Taxes N353.69. Non-Oil taxes contributed 59% of the total collection in the year, while oil tax collection stood at 41% of the total collection,” the statement explained.
