Nigeria, Africa’s largest economy and most populous nation, has set an ambitious target to increase its tax revenue by 57% in 2024, as it seeks to improve its fiscal position and fund its development goals.
The Federal Inland Revenue Service (FIRS) forecasts revenue to rise to 19.4 trillion naira ($20.3 billion) this year, compared with 12.4 trillion naira in 2023, according to a document seen by Bloomberg. The projected revenue will comprise 9.96 trillion naira from oil taxes and 9.45 trillion naira from non-oil taxes, the document shows.
The revenue boost is expected to result from a series of tax reforms that the government has implemented or plans to implement in 2024, following the passage of the Finance Act 2023. The reforms include:
- Expanding the tax base by capturing more informal businesses and digital transactions
- Introducing excise duties on single-use plastics and certain categories of vehicles
- Increasing the value-added tax (VAT) rate from 7.5% to 10%
- Reducing import duty rates on some manufacturing items to encourage local production
- Rationalizing tax incentives and exemptions to curb revenue leakages
- Enhancing tax administration and compliance through automation and enforcement
The tax reforms are part of Nigeria’s efforts to diversify its revenue sources away from oil, which accounts for about half of the government’s income and 90% of its foreign exchange earnings. The country has one of the lowest tax-to-GDP ratios in the world, at around 6%, compared with the average of 15% for sub-Saharan Africa.
The low tax revenue has constrained the government’s ability to provide adequate public services and infrastructure, as well as to reduce its fiscal deficit and debt burden. Nigeria’s budget deficit widened to 6.6% of GDP in 2023, while its public debt rose to 35.5% of GDP, according to the International Monetary Fund (IMF).
The IMF, which approved a $3.4 billion emergency loan for Nigeria in 2020 to cope with the impact of the COVID-19 pandemic, has urged the country to increase its tax revenue and rationalize its spending to restore fiscal sustainability and enhance economic growth.
The Nigerian government has also committed to increasing its tax revenue as part of its medium-term economic recovery and growth plan, which aims to achieve a GDP growth rate of 7% by 2025, up from 2.3% in 2023. The plan also envisages improving the quality of life of Nigerians by investing in human capital development, social protection, and infrastructure.
However, achieving the revenue target will not be easy, as Nigeria faces several challenges, such as a weak economic recovery, high inflation, insecurity, and social unrest. The country also has to contend with the resistance of some taxpayers and stakeholders, who may perceive the tax reforms as burdensome or unfair.
Therefore, the government will need to adopt a holistic and inclusive approach to tax reform, which involves engaging with the public and private sectors, civil society, and development partners, to ensure that the reforms are well-designed, well-implemented, and well-communicated. The government will also need to demonstrate that the tax revenue will be used efficiently and transparently to deliver public goods and services that benefit all Nigerians.
By doing so, the government can foster a culture of tax compliance and trust, and ultimately achieve its vision of a prosperous and sustainable Nigeria.
Source: Bloomberg
