Assessing Nigeria’s revenue generation strategy
Nigeria has generated 4.18 trillion naira in revenue as at October this year according to the Federal Inland Revenue Service.
Wed, 25 Nov 2020 11:32:31 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- The importance of deepening the tax system beyond collection efforts to improve voluntary compliance and reduce administrative costs.
- The need for strategies tailored to capture the informal sector and simplify tax compliance processes for small and medium-sized businesses.
- Drawing lessons from successful tax revenue models in countries like Ghana to inform Nigeria's approach to expanding the tax net and boosting economic growth.
Nigeria's revenue generation strategy has been under the spotlight as the country aims to double its tax to GDP ratio from 6 percent to 15 percent in the next four years. According to Adeyemi Adediran, Associate Director at Andersen Tax, Nigeria, efforts have been significant despite the challenges posed by the COVID-19 pandemic and recent protests. The Federal Inland Revenue Service (FIRS) has managed to generate over 4.12 trillion Naira in revenue as at October this year, a commendable feat considering the circumstances. However, in order to meet the target of 5.76 trillion Naira by the year's end, the FIRS needs to focus on generating around 800 billion Naira in November and December.
Adediran emphasizes the importance of deepening the tax system beyond just collection efforts. While the FIRS has invested in technology to enhance tax collection efficiency, there is a need to improve voluntary compliance and reduce the cost of administration. Low usage of technology platforms by taxpayers indicates a lack of awareness and understanding, highlighting the necessity for education and revisiting the social contract between taxpayers and the government.
In light of the looming recession and potential impact on tax collection, Adediran suggests a shift towards focusing on indirect taxes like VAT and excise duties. Developing effective mechanisms for recovering these taxes would be crucial in maintaining revenue streams amidst economic challenges.
One of the significant challenges Nigeria faces is its low tax base, with over 50% of taxpayers operating in the informal sector. Adediran points out that capturing this segment of the economy is essential for boosting tax revenue. The FIRS has initiated awareness campaigns to encourage compliance, but there is a need to develop user-friendly strategies tailored to the local context. Simplifying compliance processes for small and medium-sized businesses, especially in a technology-challenged environment, is crucial for increasing tax compliance.
Lessons can be drawn from Ghana, where innovative approaches such as allowing for tax payments at transaction points have proven successful in increasing revenue collection. Nigeria can leverage its vast population and business base to expand the tax net and enhance revenue streams. Adediran emphasizes the interconnectedness of economic development and tax compliance, highlighting the importance of a thriving economy in supporting tax revenue generation.
As Nigeria navigates its revenue generation challenges, fostering a culture of tax compliance through effective communication, simplified processes, and economic growth will be key to achieving its ambitious tax revenue targets. The road ahead may be challenging, but with strategic focus and adaptive measures, Nigeria can pave the way for sustainable revenue generation and economic prosperity.