Nigeria Aims to Double Tax Collection: Introduction
Nigeria Aims to Double Tax collection. The former chairman of the Federal Inland Revenue Service (FIRS), Mr. Muhammad Nami, had projected a significant increase in Nigeria’s tax collection for the coming years. Despite having one of the lowest tax collection rates in the world, the Federal Government is determined to enhance its non-oil revenues to reduce reliance on oil sales, which account for a substantial portion of foreign exchange receipts.
The government aims to achieve this through increased tax collection efforts, especially from small businesses that are often unregistered. The administration under Bola Tinubu is committed to boosting tax revenue, and recent half-year collections showed positive results. The deployment of an automated tax administration system has significantly contributed to the improvement in tax collections.
Tax Collection Overview:
In the first half of 2023, Nigeria’s tax receipts reached N5.5 trillion, marking the highest-ever collection in a six-month period. Non-oil tax collection contributed N3.76 trillion, while the oil sector accounted for N2.03 trillion during this period. This impressive progress in tax collection has been attributed to the adoption of an automated tax administration system, which streamlined tax processes and improved efficiency.
Challenges in Tax Collection:
Nigeria has faced several challenges in boosting tax collection. Historically, the country has struggled to achieve its non-oil revenue targets, leading to increased reliance on borrowing for public spending. One of the significant challenges has been the large number of unregistered small businesses, making it difficult to bring them into the formal tax system. Additionally, past governments’ efforts to increase tax revenue have fallen short of expectations.
The Current Administration’s Approach:
Under the Bola Tinubu administration, there is a renewed commitment to enhance tax collection in Nigeria. The government aims to leverage technology and collaboration with relevant stakeholders to achieve its tax revenue targets. The recent partnership between FIRS and the Market Traders Association of Nigeria (MATAN) is one such effort. By working together, they aim to collect and remit Value Added Tax (VAT) from traders in the informal sector, which will contribute to increased tax revenue for the three tiers of government.
Impact of COVID-19 and Recession:
The outbreak of COVID-19 and subsequent lockdowns in 2020 had a detrimental impact on Nigeria’s tax collection, causing a decline to N4.95 trillion. However, Nigeria has shown resilience in its recovery, with tax receipts increasing to N6.4 trillion in 2021 and further jumping by 56 per cent to N10.1 trillion in 2022.
Future Projections:
The FIRS Chairman, Mr. Muhammad Nami, has set ambitious targets for tax collection. He projects a target collection of N7.5 trillion for the second half of 2023 and a massive increase to N25 trillion for the year 2024. The introduction of the new automated tax administration system and collaborations with stakeholders, such as MATAN, are expected to play a crucial role in achieving these targets.
Conclusion:
Nigeria’s efforts to double tax collection by 2024 reflect the government’s determination to reduce reliance on oil revenues and improve non-oil revenue streams. The adoption of technology and collaborative initiatives are expected to drive the success of these efforts. However, challenges remain, especially in bringing informal businesses into the formal tax system. The outcome of the government’s tax collection drive will have significant implications for funding infrastructure and social amenities in Nigeria.
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Olatunji is the founder Taxmobile.Online and Managing Partner/CEO of AOA Professional Services. Prior to this, Olatunji worked as Director, Tax & Regulatory Services at Nolands Nigeria Professional Services, Senior Manager -Tax, Regulatory & Advisory Services at Saffron Professional Services.
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