FIRS says Nigeria’s tax-to-GDP ratio rises to 10.9 per cent

• Nigeria‘s revenue agency, the Federal Inland Revenue Service (FIRS) said Nigeria has hit a new tax milestone
• The agency revealed that the country’s tax-t0-GDP increased to 10.86% in two years
• The agency stated that it recalculated the ratio by including previously banned items in the computations

According to the Federal Inland Revenue Service (FIRS), Nigeria’s tax-to-GDP ratio, which has drifted between five and six per cent increased to 10.86% by the end of 2021.

The tax-to-GDP ratio measures a nation’s tax revenue relative to the size of its economy as measured by gross domestic product (GDP).

What tax-to-GPD means in a country’s economy

It is also used to ascertain the health of a country’s tax system and highlight its tax potential.

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It is the leading measure of the effectiveness of a nation’s tax system compared to other countries.

The tax body disclosed the information in a letter signed by the SatisticiaN-General of the Federation, Adeyemi Adeniran, following a joint review of the National Bureau of Statistics (NBS), the Federal Ministry of Finance and FIRS, using 2020 to 2021 data.

The tax body said the revision considered the revenue items previously banned in the computations, especially relevant revenue collected by other government agencies.

Announcing the new achievement, the Executive Chairman of FIR, Mohmmad Nami, stated that sources that previously placed the country’s tax-to-GDP ratio at between five and six per did not take into account revenues accruing to other government agencies in their calculations, including those collected by Customs and state revenue agencies.

Nigeria operates multiple tax system

Nami said the situation was peculiar to Nigeria because other countries operate harmonized tax systems with single-point tax revenue reporting.

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He noted that all relevant tax revenues are included in the calculations of the tax-to-GDP ratios of those countries.

He said this situation was peculiar to Nigeria as most other countries operate harmonised tax systems with single-point tax revenue reporting. Hence, he noted, that all relevant tax revenues are included in the computation of the tax-to-GDP ratios of those countries.

The FIRS Chairman said:

“To correctly state the Tax-to-GDP ratio, the FIRS initiated a review and re-computation of the ratio for 2010 to 2021. In re-computing the ratio, key previously left out indicators were considered. This resulted in a revised tax-to-GDP ratio of 10.86 per cent for 2021 as against six per cent hitherto reported.”

Guardian reported that Nami noted that Nigeria’s tax-to-GDP ratio should ordinarily be higher than 10.86 per cent, but for certain economic and fiscal policy factors, including tax waivers and leakages occasioned by the country’s fragmented tax system.

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“It is important to note that the tax-to-GDP ratio for Nigeria should be higher, but for the impact of tax waivers contained in our various tax laws (including exemptions to micro, small and medium enterprises brought in by Finance Act, 2019), low tax morale, leakages occasioned by the country’s fragmented tax system and the impact of the rebasing of the GDP in 2014”, he explained.

FIRS debuts portal for easy tax clearance certificate in 24 hours

Legit.ng reported that Nigeria’s Federal Inland Revenue Service (FIRS) has said that taxpayers can now get their tax clearance certificate in a single click via its TaxPro Max solution.

It is a tax administration module presented by the FIRS in June 2021 as a one-stop shop for taxpayer registration, tax returns, tax revenue filings, payment, and tax clearance certificate, among other functions.

Vanguard reports that the special assistant to the executive chairman of FIRS on media and communications, on Monday, January 2, 2023, said the tax clearance certificate which used to take two weeks to obtain is now available in a single click.

Source: Legit.ng