Experts shut down ambitious ERGP tax to GDP ratio target

June 3, 2019
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Financial and economic development experts have described the federal government’s efforts to raise the country’s tax to Gross Domestic Product (GDP) ratio from six to 15 percent within the next one year as a desirable but practically unattainable target in view of the prevailing situation in the nation’s economy.

The Federal Government had set the 15 percent tax to GDP ratio as one of the key fiscal objectives of its economic blueprint document, the Economic Recovery and Growth Plan (ERGP), launched about a year ago.

Commenting on the target, a leading financial analyst and banking expert, Boniface Chilean said that the projection to grow Nigeria’s tax to GDP ratio from 6 to 15 per cent by 2020, remained somewhat unrealistic.

While doubting whether the target was given very thoughtful analysis before it was arrived at, Chizea explained that going from six to 15 percent is like increasing the underlining parameters almost three times in one year and almost everyone knows that is not possible.

He said: “I would normally argue that there is nothing wrong in setting ambitious targets which are meant to stretch all concerned and that targets are simply a focus to be bench marked to assess progress, but it is damaging to the zeal for concerned persons for an unrealistic target to be set as that would influence the mind-set with which the target is approached.

“Most other countries of the world have ratios way above what we have targeted. For instance the ratio for Algeria is a massive 64%, Angola 10.3, Ghana 20.8, South Africa 26.9 while Kenya is 18.4% and therefore even achieving this target still leaves us trying to catch up.

“Well, I suppose what must have informed this target is the recent gains made by the Federal Inland Revenue Service that recorded massive increase in revenue from taxation. So, with that in mind it might still be possible to achieve such a target. What I often like to do is to give those in charge the benefit of the doubt as they have a bird eye’s view of things; and I am still prepared to do so in this regard.

“It is better to assume that they must have done some critical analysis before arriving at such a target which to us, the uninformed and unexposed to critical issues, would appear unrealistic. One of the factors which IMF has complained about regarding the growth prospects in this country is the low level of tax to GDP ratio and the sooner we make desired progress in this respect the better for all concerned”, Chizea added.

In his remarks, Sola Aliu, a university professor, pointed out that the goal of the ERGP in the Tax-to-GDP ratio remained very desirable, pointing out that while the target may be feasible, it is definitely not achievable, given the time frame and the prevailing economic climate in Nigeria.

Aliu, a former consultant to the UNDP, who critically appraised variables responsible for national GDP with specific indices on Nigeria’s sectorial contributions to the GDP, cautioned that the issue of raising tax rates, even though attractive as a myopic route to short-term achievement of the set goal, needed to be critically analyzed by the fiscal authorities in order to avert its negative consequences in the economy.

According to him, the most feasible option for Nigeria to boost her GDP is for the country to actively join the Entrepreneurship Revolution that advanced economies have used to drive production activities and upscale productivity.

He expatiated: “The myopic route of increasing tax rates may take us nearer the goal in the short-term, but will have a long-term adverse effect on national socio-economic well-being. It will definitely cause hardship to citizens, majority of whose income barely keeps them above poverty level.

“It is my considered opinion that the best route to achieving the set ERGP goal is a vigorous national pursuit of entrepreneurship development and an enabling environment for investment.

“This route will get more youths engaged in value and wealth creation that will improve local and municipal economic well-being. When such a fit is achieved, tax revenue increase will emanate from all the three tax sources. Thus, even if the set goal is not achieved in 2020 it is highly feasible and achievable by 2024”, Aliu added.

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