World Bank, Nigeria’s low tax to GDP ratio

The World Bank and its main affiliate, the International Monetary Fund (IMF), have developed an incurable habit of swallowing Panadol for someone else’s headache. Three weeks ago the bank did what governments of many developing countries now regard as nauseating meddlesomeness.

The World Bank warned that Nigeria’s tax to gross domestic product (GDP) ratio of nine per cent was too low to cover the country’s vociferous appetite for luxury among government officials.

Nigeria’s tax revenue ranks among the lowest in the world when measured against its GDP. Ironically, the World Bank appears to be more worried about the problem than the federal government of Nigeria.

In the Economic Community of West African States (ECOWAS), Nigeria parades the lowest tax to GDP ratio. The average tax to GDP ratio in the impoverished sub-region is 17 per cent.

Nigeria lumbered along with 6.5 per cent until Muhammad Nami, the immediate past chairman of the Federal Inland Revenue Service (FIRS) toiled to raise it to the current nine per cent.

Nigeria’s menacingly low tax revenue may be partially responsible for the delay in floating the eco as currency of the regional body ECOWAS.

One of the requirements for joining the proposed eco monetary zone was that each applicant must muster tax to GDP ratio of 15 per cent. When the benchmark was set by the regional body, Nigeria’s tax to GDP ratio was lagging behind at a miserable 6.5 per cent.

Successive governments of the federation have been comfortable borrowing to fund the ostentatious life style of its officials rather than beefing up tax revenue. That is why the nation’s debt profile now stands menacingly at N87 trillion, up from a modest N47 trillion in the closing days of 2022.

Even with abominably low tax revenue to GDP ratio, the federal government has maintained the ostentatious life style that governments of many developed countries abhor. The president’s fleet of armoured limousines is to be replenished at a princely sum of N5 billion.

The presidential air fleet has more aircraft than Aero Contractor, Nigeria’s oldest airline still operating scheduled commercial flights. After the Babel of voices calling for a draw down on the presidential fleet, only one miserable low profile aircraft has been offered for sale.

Aircraft in the presidential fleet are so grossly abused that during the closing years of Muhammadu Buhari’s clueless rule, there were complaints that one of his daughters was flown to a wedding in a northern city by an aircraft in the presidential fleet. If a U.S. president tries that, he would have to pay for the operating cost of the flight from his pocket. Nigeria is impoverished by the indefensible ostentation of government officials.

Nigeria’s low revenue is a seemingly incurable plague because successive governments treated the huge leakages with levity. The good thing now is that President Bola Tinubu appears willing to dance where his predecessors feared to tread.

For many years this columnist has called on the federal government to set a meaningful revenue target for the Nigeria Customs Service (NCS). No one cared to listen. Sometime last year I complained that the NCS was insulting Nigeria by rolling out the drums to celebrate the attainment of N1 trillion as total imports duty revenue for the year when in reality, its officials had pocketed five times what was remitted into the federation account.

I warned that the federal government should set a revenue target of N6 trillion for the NCS and allow it to use 15 per cent of its collected revenue for its services. No one listened to me.

Now, President Tinubu has broken the jinx in NCS revenue target. The president ordered the NCS to meet a target of N6 trillion as import duty revenue for 2024. The interesting thing about the president’s new target is that the comptroller general of NCS openly assured that the target was attainable.

For the NCS to accept a target of N6 trillion at a time when the disorderly retreat of the naira exchange rate in the foreign exchange market has forced a drastic drop in the volume of imports, it therefore follows that at the best of times when imports were congesting the ports in Nigeria, the NCS would have been raking in anything from N7 trillion in imports duties only to chip in N1 trillion to the federal government.

Tinubu’s new target will address that merciless rip off by NCS officials. Henceforth, the tenure of the comptroller general of the NCS should be predicated on meeting the N6 trillion annual revenue target.

Any NCS comptroller general that misses the target should pay with his job.

Tinubu is obviously on the right path to address Nigeria’s dwindling revenue. He has picked the right person to halt Nigeria’s shameful outing in tax revenue. Zacchaeus Adedeji as FIRS new chairman has promised to raise Nigeria’s miserable tax revenue to 16 per cent in the short term with the view of hitting 18 per cent in the next four years.

With Nigeria’s GDP at $501 billion, 18 per cent tax to GDP ratio would rake in $90.1 billion annually.

Adedeji must take a critical look at Nigeria’s unwieldy informal sector. That is where horrendous losses in tax revenue are recorded. Nigeria has no data on the informal sector. That is why it cannot collect tax from the millions of millionaires there.

Millions of people in the informal sector rake in millions daily and pay no tax. Nigeria’s tax burden is borne disproportionately by federal, state and local government employees and a handful in the organised private sector.

In Lagos state, an employee with a take-home pay of N600,000 pays monthly tax of N110, 000. Those frying akara (beans cake) on the road sides make daily turnover of N20,000.

That is something close to N600,000 in a month. They pay no tax. Nigeria’s tax to GDP ratio will hit the 20 per cent mark when the informal sector is appropriately taxed.