Tesah Capital: Nigeria’s tax-to-GDP ratio expected to fall to 7.5% by 2027
Nigeria, Africa’s largest economy, is facing a concerning challenge in terms of its tax revenue collection. A recent report released by Tesah Capital sheds light on Nigeria’s deteriorating tax-to-GDP ratio. The report reveals that the International Monetary Fund (IMF) projects Nigeria’s Tax-to-GDP ratio to fall to a mere 7.5% by 2027. This distressing forecast places Nigeria’s tax collection efficiency at the bottom among 31 African countries, highlighting the country’s struggle to convert its tax capacity into actual tax revenues.
Nigeria’s Tax-to-GDP Ratio in Comparative Perspective
When examining Nigeria’s tax performance in comparison to its African counterparts, the findings are worrisome. The Tesah Capital report underscores the significant gap between Nigeria’s tax collection and its potential, as measured by its tax capacity. With the Tax-to-GDP ratio expected to decline further, it becomes evident that Nigeria’s ability to harness its tax resources effectively is hampered by a weak actual tax collection system.
IMF’s Recommendation for Developing Countries
Recognizing the importance of tax revenue for economic development, the IMF has established a benchmark for developing countries. According to the Tesah Capital report, the IMF suggests a minimum Tax-to-GDP ratio of 15% for these nations. This recommendation reflects the IMF’s belief that achieving this threshold is crucial for governments to generate sufficient revenue to invest in the future and sustain long-term economic growth.
Nigeria’s Total Revenue-to-GDP Ratio
In addition to the dire Tax-to-GDP ratio, Tesah Capital’s analysis reveals another concerning aspect of Nigeria’s fiscal landscape. Nigeria’s total revenue (tax and grants) to GDP ratio for 2022 stands at a meager 8.4%, which places the country among the lowest globally. This alarming statistic highlights Nigeria’s struggle not only in tax collection but also in diversifying its revenue streams to boost economic growth.
Declining Revenues over the Past Decade
Examining the long-term trend, Tesah Capital’s report discloses a disheartening revelation. Nigeria’s revenues, when measured against GDP, have experienced a consistent decline over the past decade. This downward trajectory indicates a sustained weakness in revenue generation, which raises concerns about the country’s ability to fund critical sectors, meet public expenditure needs, and stimulate economic progress.
Impact on Economic Growth and Development
The persistently low tax revenues and declining revenue-to-GDP ratio pose significant challenges to Nigeria’s economic growth and development prospects. Insufficient tax revenue limits the government’s ability to invest in infrastructure, education, healthcare, and other vital sectors necessary for sustainable development. The resulting resource constraints hinder job creation, impede poverty alleviation efforts, and hinder the overall progress of the nation.
Addressing the Challenge and the Way Forward
Recognizing the urgency of the situation, Nigerian authorities must take decisive steps to address the issues plaguing tax collection and revenue generation. Strengthening tax administration and enforcement mechanisms, enhancing taxpayer education and compliance, and implementing anti-corruption measures are essential steps towards improving tax collection efficiency. Furthermore, diversifying the revenue base beyond oil dependency and exploring innovative revenue streams can help bolster Nigeria’s overall revenue generation.
Nigeria’s alarmingly low tax-to-GDP ratio, as indicated by the Tesah Capital report, presents a significant obstacle to the country’s economic growth and development aspirations. With the IMF emphasizing the importance of achieving a minimum 15% Tax-to-GDP ratio, Nigeria must prioritize efforts to enhance tax collection efficiency and broaden its revenue sources. Overcoming these challenges will not only provide the government with the necessary resources to invest in critical sectors but also contribute to building a resilient and prosperous economy for the future.
