Addressing Nigeria’s revenue mobilization challenges

The Nigerian government has been grappling with the challenge of domestic revenue mobilization, but recent data shows some positive traction. The 2021 Finance Act has come into effect, leading to a 24% increase in VAT collection year-on-year. Michael Ango, Partner at Andersen Nigeria, recently shared his perspective on the latest numbers and strategies to boost revenue. The National Tax Dialogue revealed impressive results with total tax collection reaching 6.4 trillion Naira, the highest in the history of the Federal Inland Revenue Service. Despite these figures, there is still a long way to go to meet the revenue needs of the government, especially considering the revenue sharing across different levels of government. The Federal Allocation Committee (FAC) results showed a slight drop in January but an uptick in February, indicating some progress. With the increase in VAT from 5% to 7.5%, there are expectations of improved revenue generation across various tax types. However, there is a significant challenge in capturing the informal sector which constitutes about 70% of businesses in Nigeria. Michael Ango emphasized the need for financial inclusion and formalization in bringing informal sector businesses into the tax net. Technology can play a vital role in this process, but it must be integrated into a broader ecosystem for effective tax compliance. While expanding the tax net to include the informal sector is crucial, the focus should also be on companies operating in Nigeria, including foreign entities. Recent regulatory changes such as the Significant Economic Presence rules and turnover tax rules aim to capture non-resident companies' turnover derived from Nigeria. The discussion also touched on the possibility of further expanding personal income tax drive. While there are calls for reforms and expansion, caution is advised due to the current economic challenges facing Nigerians, such as inflation and increased cost of living. Instead of immediate tax rate hikes, the focus should be on increasing tax compliance and showcasing the benefits of taxation to encourage voluntary participation. Initiatives like the presumptive tax, implemented in some states like Ogun and Lagos, offer a starting point for gradual tax compliance. In conclusion, while fiscal policies and reforms are essential to improve revenue mobilization in Nigeria, a balanced approach that considers the economic realities of citizens is crucial for sustainable progress.