Nigeria’s Tax-to-GDP Ratio Surges to 10.86%

The revised tax-to-GDP ratio for 2021 was found to be 10.86%, higher than the previously reported 6%.

The Chairman of the Federal Inland Revenue Service (FIRS), Muhammad Nami, announced that Nigeria’s tax-to-GDP ratio increased to 10.86% in 2021, compared to around 6% in the past 12 years.

This information was conveyed to the FIRS in a letter from the Statistician-General of the Federation and Chief Executive of the National Bureau of Statistics (NBS), Adeyemi Adeniran, following a joint review by both agencies in collaboration with the Federal Ministry of Finance, using data from 2010 to 2021.

In other news, the Nigeria Customs Service (NCS) and the World Bank have joined forces to reward compliance with trade regulations and reduce costs associated with handling cargo and demurrage at Nigerian ports.

Nami emphasised the need for the federal government to reconsider its policies on tax waivers to increase revenue for developmental programs. He explained that the revised tax-to-GDP ratio took into account revenue that was previously excluded from the calculations, particularly revenue collected by other government agencies.

The tax-to-GDP ratio measures a country’s tax revenue in relation to the size of its economy. It is a useful tool for assessing the effectiveness of a country’s tax system compared to others.

Nami clarified that previous calculations of Nigeria’s tax-to-GDP ratio did not include tax revenue collected by agencies other than the FIRS, Customs, and States Internal Revenue Service. He highlighted that this situation is unique to Nigeria, as most other countries have a centralised tax system where all or most tax revenues are collected by a single government agency.

The FIRS conducted a review and re-computation of the tax-to-GDP ratio for 2010 to 2021, considering previously excluded indicators. The revised ratio for 2021 was found to be 10.86%, higher than the previously reported 6%.

Nami attributed the relatively low tax-to-GDP ratio to factors such as tax waivers, leakage in the fragmented tax system, and the impact of the GDP rebasing in 2014. He emphasised that Nigeria’s ratio should ideally be higher.

The Statistician-General, Adeniran, described the review as an improvement to Nigeria’s tax-to-GDP ratio compared to other countries. The NBS reviewed the methodology and included additional items in the computation of the revised estimates, adopting the new tax-to-GDP computation.

On a different note, the Nigeria Customs Service, in partnership with the World Bank, has initiated the migration from the Fast Track Regime to Fast Track 2.0 (FT 2.0) under the Accelerating Revenue Mobilisation Reforms Program (ARMOR).

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