The World Bank has advised the federal government to focus on low-hanging and revenue-yielding fruits in order to achieve substantial gains, grow Nigeria’s tax-to-GDP ratio to about seven per cent and rake in about N10 trillion revenue in the next three years.
Specifically, the bank advised the government to increase ‘sin taxes,’ charging fees for electronic money transfers, rationalising tax expenditures, removing loopholes in tax laws, and improve tax compliance with more disciplined revenue administration.
The advice formed part of the bank’s ‘Nigeria Development Update’ released recently.
The report titled: ‘Resilience through Reforms,’ noted that tax revenues were necessary to run essential services, provide security to citizens, help tackle hunger and poverty, and deliver critical health and education services.
It pointed out that Nigeria may be Africa’s biggest economy but at just four per cent, it has Africa’s lowest tax-to-GDP ratio.
Furthermore, the Washington-based institution stated that the COVID-related economic slowdown and the steep fall in oil prices in 2020, brought into clear focus the need to increase non-oil revenue in Nigeria, even when investment, jobs, and growth also needed to increase.
“This calls for a carefully calibrated set of policy and administrative measures that can grow revenues without discouraging investment.
“That rules out any increases in traditional ad valorem taxes like the value-added tax but it does afford an opportunity to fully apply tax policies already adopted and reform tax administration to seal compliance gaps.
“In the longer term, fundamental reforms of the tax system will be necessary to stimulate post-pandemic investment and economic growth. As Nigeria tries to “build back better” after the COVID crisis, a more strategic approach to revenue mobilisation will also be necessary: not just taxing more, but taxing better; not just how much to collect, but how to collect, what to collect, and from whom,” the bank added.
It also noted the continuing effects of the COVID-19 crisis on welfare and work.
According to the World Bank, the pandemic has continued to profoundly affect employment and household welfare in Nigeria.
It revealed that data collected in the February 2021 COVID-19 National Longitudinal Phone Survey had indicated that the number of people working in February 2021 was similar to the number in September 2020—much higher than would be expected if employment were following typical seasonal patterns.
“The higher share of people working was more concentrated among women and people from poorer households, which indicates an ‘added worker effect,’ more members take on work to help the household to cope with economic shocks.
“Moreover, the commerce and service sectors have expanded beyond what would be expected given previous seasonal patterns, especially for women.
“Accompanying these labor market shifts, incomes for some households have increased since before the crisis, although this is far from universal. Yet even if incomes are stabilising, households are feeling the impact of rising prices, which erodes their purchasing power and means that food insecurity is still widespread,” the report added.
According to the report, uncertainty about the trajectory and duration of the COVID-19 pandemic would continue to influence household consumption and private investment.
“The COVID-19 crisis is far from over, and while the second wave of cases appears to have peaked and receded, how the pandemic will evolve is still unclear. Indeed, the December 2020 Business Expectation Survey Report and the CBN Consumer Expectations Survey for Q4 of 2020 reveal high, though easing, uncertainty and risk aversion among consumers and firms,” it added.
The bank stated that the rollout of vaccines would likely impact the pace of the recovery, adding that immunisation in Nigeria was not expected to be widespread in 2021.
In 2021, it stated that elevated inflation rates were expected to further exacerbate poverty and dampen growth.
High inflation is expected to frustrate Nigeria’s economic recovery and erode the purchasing power of households, which will increase both the poverty rate and the number of people living below the poverty line, the bank added.