The International Monetary Fund (IMF) has told the Federal Government to point its laser-sharp focus on improving tax collection rather than raising the Nation’s taxes. This is in a bid to ease entrepreneurs off the harsh economic realities, given the current economic situation.
Jesmin Rahman, the IMF Mission Chief to Nigeria and Senior Resident Representative, who spoke at a virtual conference said, “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,” Rahman said.
According to experts, Nigeria’s tax-to-GDP ratio is one of the lowest in the world at about 7 percent. Recall, that the Federal Government raised Value Added Taxes (VAT) from 5 percent earlier this year to 7.5 percent, and still hasn’t had a significant impact on our tax-to-GDP ratio. Also, this just further validates the fact that Nigeria isn’t efficient enough in its tax collection model.
However, it is true that a large number of Nigerians are not paying taxes and this is due to the bottlenecks and the third party intricacies around tax collection. Therefore, Rahman said the nation’s low revenue is weighing on its ability to service debt and sustain infrastructural growth despite having a low debt to GDP ratio.
Nigeria’s Public Debt
“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.
“Even though the debt level itself is not a concern for sustainability, its servicing capacity is severely constrained and requires a close watch,” she said.
“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,” she said.
However, according to the Debt Management Office (DMO), Nigeria’s debt service to revenue ratio rose to 99 percent in the first quarter of 2020.
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