As the debt of the nation rises, revenue generation in Nigeria has remained a source of worry. For the past seven years, the nation has consistently fallen short of its yearly revenue goal. Nairametrics previously stated that only N6.1 trillion of the N8.1 trillion in projected revenue for 2021 had actually been generated.
Nigeria’s total public debt was estimated to be N67.6 trillion as of September 2022, or 35.2% of GDP.
Over the years, Nigeria’s main source of income has been oil profits. However, almost all of the profits from oil sales have been devoured by the rising subsidy payment. Additionally, pipeline theft (underproduction) and a lack of infrastructure have significantly decreased oil revenues.
The nation urgently needs additional revenue sources to supplement what is already being produced. However, is taxation a viable option?
Nigerian taxation: The Federal Inland Revenue Service (FIRS) is the organization in charge of collecting taxes in Nigeria and ensuring compliance with tax laws. Additionally, a company collects taxes on behalf of each state in the union. The Federal Inland Revenue Service (FIRS), which can be found here, is in charge of collecting various taxes in the nation.
Nigeria did not fully consider taxation as a source of revenue generation in the 1980s, claim Adegbite and Fasina (2019). (during the oil boom). The country didn’t start looking at taxation as a solution until 2014, when the global recession forced the country to find a way out to save states.
The FIRS reported in 2022 that it had earned N10.1 trillion in revenue, the most ever in the history of the nation. An additional breakdown showed that oil made up N4.07 trillion and non-oil N5.96 trillion. The agency also disclosed that it missed its annual goal of N10.44 trillion. The N7.2 trillion in revenue in 2022 exceeded the N6.4 trillion in revenue in 2021.
The Organization for Economic Co-operation and Development (OECD) estimates that Nigeria’s tax-to-GDP ratio will be 5.5% in 2020. Nigeria is rated poorly compared to the other 30 African nations in the report, while Tunisia is rated highly (32.5%). Additionally, Nigeria’s tax-to-GDP ratio is far below the 16% average for African nations set by the OECD.
Taxes in the UK and the USA: According to The Commons Library, the UK collected over £915 billion in taxes and other revenue in the fiscal year 2022–2022. Value Added Tax (VAT) and National Insurance Contributions (NICs), which together raised about £530 billion, were the main sources of income. The UK, an OECD member, has a tax-to-GDP ratio of 33.5%, placing it 23rd out of 38 countries in 2021. It falls just short of the OECD member average of 34.1%.
Individual Income Tax was the main source of the $4.90 trillion in taxes the USA collected in 2021. With a 26.6% tax-to-GDP ratio for 2021, the nation was ranked 32nd out of 38 OECD members.
The use of taxes could have a significant impact on Nigeria’s ability to reach its revenue goals. According to the World Bank, 15% of a nation’s GDP in tax revenue is a critical component of economic growth and, ultimately, poverty reduction.
It’s interesting that the possibilities exist. Nigeria must now thoroughly explore them. Out of an estimated 200 million Nigerians, according to a previous report from Nairametrics, only 41 million pay taxes. Despite the countries’ much lower populations than Nigeria, Nigeria’s revenue generation is significantly lower than that of other African superweights.
nations with population densities far lower than Nigeria’s.
A testament to Nigeria’s ability to rely on taxes as a significant source of income in the face of low or nonexistent revenue from oil sales and the nation’s mounting debt is the FIRS revenue generation projected for 2022. However, the FG must see to it that certain measures are in place to boost tax revenues in the nation and guarantee compliance.
To ensure that there is tax transparency in the nation, the FIRS must work with the FG and pertinent agencies like the EFCC. The general public must also have access to public services funded by tax revenues. The FIRS should launch awareness campaigns to educate the public about the value of paying taxes and the services in order to increase tax revenues.
