The World Bank says certain revenue reforms over the next three years can raise the tax-to-GDP ratio to about seven per cent and bring in an additional N10 trillion.
Rajul Awasthi, a senior public sector specialist at the bank, said this in a ‘Domestic Revenue Mobilisation’ presentation at a virtual media parley in Abuja on Thursday.
He explained that fundamental reform of the tax system was needed to stimulate post-pandemic investment and economic growth in the long term.
According to him, coordinated policy reforms combined with revenue administration enhancements are essential to achieve revenue potential.
“As Nigeria tries to build back better after the COVID-19 crisis, the approach to revenue mobilisation needs to be more strategic. Not just taxing more, but taxing better; not just how much to collect, but how to collect, what to collect, and from whom,” said the World Bank specialist.
CBN Governor, Godwin Emefiele (credit: Bloomberg)
He stated that the economy and revenue sources had been further hit hard by COVID-19, and in 2020 Nigeria recorded its deepest quarterly contraction since the 1980s but exited the recession in the fourth quarter of that year.
However, mitigating the impact and laying the foundation for a strong recovery requires several policy responses, including mobilising revenues.
Recommending some measures, he said that managing the COVID-19 pandemic was important while enhancing macroeconomic management to boost investor confidence.
He added that safeguarding and mobilising revenues were necessary but needed to be designed so that investment, growth, and jobs do not suffer.
Also, reprioritising public spending to protect critical development expenditures and supporting economic activity and access to basic services, and providing relief for poor and vulnerable communities were essential.
Finance Minister Zainab Ahmed (Credit: Twitter)
Mr Awasthi said there were key areas of reform to improve revenue mobilisation as they could raise N4 to N6 trillion. The areas include excise reforms through policy measures, property tax reforms by updating/completing property records and value-added tax (VAT) administration, and plugging compliance gaps.
Others are personal income tax (PIT) revenue-raising measures and access to data and rationalising tax expenditures in corporate income tax (CIT). According to him, revenue mobilisation can be sequenced into the immediate, medium, and long term.
He also said the government should intensify internally generated revenues (IGR) to improve states’ collection of PIT and other taxes such as the property tax.
Mr Awasthi added that the federal government should address policy and compliance gaps in VAT, pointing out that the country has greater revenue potential from VAT than currently achieved, adding that total additional VAT potential could be N3.1 trillion or more.
He, however, noted that for all tax categories, enhancing data management was essential to develop and maintain robust tax expenditure analysis, adding that these estimates would be needed to understand the fiscal impact.