When Nigeria publishes the preliminary rebased gross domestic product (GDP) figures due out on December 10, 2013, the results may show the size of the economy jumping by 40 percent, but one data will stick out like a sore thumb: the nation’s low tax base which will get even much slimmer.
“An upward adjustment to (GDP) could lower consolidated government revenue to 17-22 percent of GDP, according to our estimates, which is lower than the average for sub-Saharan Africa (SSA) and that of the SSA oil-exporting countries,” said Yvonne Mhango, Renaissance Capital analyst, in a research note released last year.
“This implies that pressure on the government to mobilise additional fiscal revenue, particularly beyond the oil and gas sector, is likely to increase following this revision. The government is also likely to be urged to grow its non-tax revenue.”
Total government revenues were equivalent to 26 percent of GDP in Kenya and 28.3 percent for South Africa for year-end 2012, according to IMF data.
The Nigerian government can use tax revenue to diversify the economy and stimulate economic growth rather than relying solely on proceeds from oil revenue or issuing new debt, analysts say.
Rufus Ajeigbe, a chartered tax practitioner and member of the Chartered Institute of Taxation, says government can increase tax revenue by restructuring tax policies and minimising double taxation.
“If the administrative cost of collecting the tax is minimised and the economic cost is at moderate level, this will boost the purchasing power of the people, increase consumption, and government will rake in more money via value added tax, education tax, and companies’ income tax,” he says.
Nigeria’s current tax laws – characterised by multiple/inefficient taxation – often discourage local trade and investment, increase the cost of doing business and give a negative perception of the Nigerian business environment to foreign investors, Ngozi Okonjo-Iweala, finance minister, said at the inaugural meeting of the Ministerial Implementation Committee on National Economic Council Resolutions on the Harmonisation of Taxes and Levies across the Federation.
The Federal Government gets only about 30 percent of its budget from non-oil taxes and the rest (70 percent) from oil earnings.
The tax administrator, Federal Inland Revenue Service (FIRS), generated N5.0007 trillion for the Federal Government in the 2012 fiscal year, with the non-oil taxes accounting for N1.806 trillion, according to data from the agency.
“Nigeria’s single commodity dependence is a long-running problem, which tends to get less focus in good times, compared with bad times,” said Razia Khan, regional head of Research, Africa, at Standard Chartered Bank. “Our concern is that the amount of spending that Nigeria has seen continues to increase, leaving Nigeria vulnerable to any shortfall in oil earnings, whether that is due to oil theft, or a long-term price decline due to more structural factors.”
For Nigeria to attain economic growth and development, the country must generate enough revenue to meet the challenges of expenditure in terms of provision of social amenities and running the cost of government, according to a research report by a team led by Onaolapo Adekunle of the Department of Management and Accounting, Ladoke Akintola University of Technology, Ogbomosho (LAUTECH), Oyo State.
“We still recommend that the value added tax bases be widened to bring the informal sector into the value added tax net so as to stem possible evasion even by those faithfully complying under the old rate,” the report added.
The National Bureau of Statistics (NBS) is seeking to change the calculations of Nigeria’s GDP using a new base year of 2010 to give a better indication of the size and composition of its economy.
Most governments overhaul GDP calculations every few years to reflect changes in output and consumption, such as telecoms, financial services and internet usage. Nigeria has not done so since 1990 (about 22 years), suggesting that the previous GDP framework underestimated economic activity.
The GDP rebasing is expected to increase the estimated size of the Nigerian economy by 40 percent, which would boost the economy from about $273 billion to about $382 billion. That is expected to take it neck to neck with South Africa’s GDP, which is estimated at $385 billion.
By: PATRICK ATUANYA & BALA AUGIE