The revenue generated by the Federal Inland Revenue Service (FIRS) has been growing slower than the expenditure of the Federal Government in the last seven years, journalists learnt.
Although FIRS’ revenue collection hit an all-time high of N6.40 trillion in 2021, analysts say economic impediments have made it difficult for taxes to fund even half of Nigeria’s expenditure.
FIRS is a government agency saddled with the responsibility for assessing, collecting and accounting for tax and other revenues accruing to the Federal Government.
According to BusinessDay analysis of the FIRS revenue and Federal Government’s actual expenditure, the share of FIRS revenue relative to the expenditure reduced to 50.8 percent in 2021 from 77.1 percent in 2015.
FIRS revenue rose to N6.40 trillion last year from N3.7 trillion in 2015, while the Federal Government’s actual expenditure surged to N12.6 trillion from N4.8 trillion. The 2021 budget was N13.6 trillion, up from N5.08 trillion in 2015.
“The budget is growing at a disproportionate rate, compared to the tax revenue, which may account for why our debt volumes are growing at a higher rate,” Moses Ojo, a Lagos-based economic analyst, said.
According to Ojo, the high level of tax evasion and industries not growing as expected are the reasons why the tax revenue cannot fund half of the budget.
“The budget is increasing at a high rate but when you look at the country’s GDP growth over the last five years, we have just been growing at 2-3 percent on average in the last five years. So, if GDP is growing at 2.5 percent in a year, companies’ revenue will also mimic GDP growth,” he added.
A breakdown of the analysis also showed that the 50.8 percent was higher than the 49.5 percent recorded in 2020, but lower than the 63.9 percent, 70.7 percent, 61.5 percent and 75.1 percent in 2016, 2017, 2018 and 2019 respectively.
Gbolahan Ologunro, a senior research analyst at Cordros Securities, said it would be inappropriate to discount the efforts that FIRS had made to expand revenue generation in the last four years.
“The issue has always been the faster growth in expenditure over the years than the increase in revenue. That is why the government is still introducing additional taxes on items that were excluded just to improve revenue generation,” Ologunro said.
Tax revenue is a major source of funding for any country’s budget. Nigeria has a tax collection rate of roughly 6.0 percent of GDP, lower than its regional peers.
Tax revenues come from two sources, namely oil and non-oil. For Nigeria, oil had been the largest contributor until a plunge in global oil prices in 2016 and 2020, which impacted revenues, made the Federal Government to shift its attention to non-oil revenue sources.
Some of the ways in which the government increased revenue is by introducing the Finance Act in 2019 and increasing the Value Added Tax rate from 5.0 percent to 7.5 percent.
The Finance Act 2019, which was signed into law on January 13, 2020, contains various tax changes with effect in that same period. The Act seeks to expand the tax net to include businesses operating in Nigeria. Some of those taxes are stamp duties, companies’ income tax, capital gains tax, and excise duties.
On what the country can do to increase tax revenue especially non-oil, Taiwo Oyedele, West Africa tax leader at PwC Nigeria, advised that Nigeria should shift its attention towards growth and prosperity by removing impediments to doing business in the country.
“When an economy is prosperous, companies make more money resulting in an increase in tax revenues. Also using data for intelligence to capture people who are trying to avert will help,” Oyedele added.
Research has shown that tax revenues provide developing countries with a stable and predictable fiscal environment to promote growth and to finance the needed social and physical infrastructures.
For Africa’s biggest economy, the shortages in revenue, increased public spending and additional borrowing have become unavoidable, especially from the impact of COVID-19. According to data from the Debt Office of Nigeria, the country has nearly tripled its debt profile to N39.6 trillion as at December 2021 from N12.6 trillion in the same period in 2015.
BusinessDay
