The very essence of taxation is nation building. As per the ethos of a progressive tax system, the rich and middle class need to contribute a bit more for nation building and for social protection of the vulnerable citizens, this is how the Honourable Minister of Finance, Budget and National Planning, Zainab Shamsuna Ahmed, rounded off her key note speech during the recently held PricewaterhouseCooper’s (PWC’s) executive session in Lagos on the Nigerian Finance Bill, 2019 and tax strategy.

In talking about three key areas of concerns, ‘Diversifying revenues in line with economic diversification drive; Fiscal sufficiency and buoyancy for sustainable development; The much-needed reforms for fiscal sustainability’, the Finance Bill 2019 had again made the bedrock of the session. In this vein, Ahmed did not only solicit the collective support of the people of Nigeria in the reform journey, but glaringly stated: “I must admit, the reform journey will not be entirely easy but necessary and timely.”

Extensively speaking on diversifying revenues in line with economic diversification drive, Ahmed noted that the Nigerian economy is characterised by structural challenges that limit the country’s ability to sustain economic growth, create more jobs and achieve significant poverty reduction. One of the biggest challenges of all is, according to her, the high dependence on oil for economic activities, fiscal revenues and foreign exchange earnings.

In 2016, Nigeria fell into recession due to its vulnerability to oil. Although the oil and gas sector accounted for just about 10 percent of Gross Domestic Product (GDP), it represented 94 percent of export earnings and 62 percent of government revenues (Federal and States) in 2011-2015.  This narrative, given obvious indices and efforts, is changing “but we still have much more to do to get to our desired revenue to GDP ratio of 15 percent by 2023, which we anticipate to come from non-oil revenues. We must grow our tax to GDP ratio from the current six percent as at 2018.”

In the same vein, the oil revenue accounted for about 63 percent of total Federal Government’s revenue in 2014, which informed the concerted effort to diversify the earnings along with the economic diversification drive as outlined in the Economic Recovery and Growth Plan (ERGP). The performance for 2018 has revealed a lot of improvement with a recorded 45 percent non-oil revenues to the total revenue (up from 37 percent in 2014).

“Based on the non-oil revenue performance as at June 2019, we are on track to further improve our tax to GDP ratio. Although we are improving, we are way below the Sub-Sahara Africa (SSA) average of about 19 percent. Ghana, for example, has revenue to GDP ratio of about 14 percent (2018), whereas other African Peers, including Cameroon and Kenya, recorded 16 percent and 18 percent (2018) respectively.”

Considering the fiscal sufficiency and buoyancy for sustainable development, like any other developing nation, Ahmed stated that Nigeria needs a lot of resources to actualise the ERGP and other development plans, which are at risk of being underfunded. “Regarding the 2019 Budget, as at 30th June, the actual aggregate revenue as per our fiscal accounts was N2.04 trillion, indicating a revenue shortfall of 42 percent, attributable to underperformance of both oil and non-oil revenue targets.

“Similarly, revenue shortfalls have been experienced since 2017, when the ERGP was launched, resulting in serious deviations from our targeted revenue and expenditure projections. The infrastructure master plan alone requires about $3triillion over the next 30 years to sufficiently address our infrastructure deficit, she said.”

In view of the much-needed reforms for fiscal sustainability, the Honourable Minister believes that “to achieve our developmental goals, we need fiscal sufficiency and buoyancy, which must come through Domestic Revenue Mobilization (DRM) for it to be sustainable. This brings up very important questions: Why do we keep punching below our weight? Why is it difficult to mobilise domestic resources from our large economy to adequately invest in key developmental levers in social and physical assets such as human capital and infrastructure?”

Simply put, Nigeria has very low tax collection efficiency, archaic tax laws that are not evolving at commensurate pace with businesses. There are other challenges such as leakages in the revenue generation, low tax compliance rates, high level of evasion and poor tax morale, to mention a few. Fixing these issues require robust, tough, well-coordinated and multi-faceted reforms. “One of the reforms is to update our archaic tax laws which have not been reviewed in over a decade, with the most recent amendments being the amendment of CITA in 2007 and PITA in 2011. Whereas businesses and the commercial environment continue to evolve, our tax laws remained static.”

The Nigerian tax system was built on a progressive tax system. But, over the years, some of the laws have become regressive at some instances. More so, it is best practice to accompany budgets with a finance bill that outlines how the budget will be funded, and the reality is, Nigeria must move away from relying on financing budgets from oil revenues.

On the finance bill, which has five strategic objectives, the major views arise from when Mr. President submitted the Finance Bill, 2019 on the 14th of October 2019 to accompany the 2020 Executive Budget Proposals and 2020 Appropriation Bill, which proposes to introduce tax reforms that will help government achieve its revenue projections for the 2020 Budget (N8.155trillion).

“To break away from static laws, Ahmed stated: “The finance bill will henceforth be an annual exercise, with a window to consider feedbacks from ongoing dialogue with key stakeholders, including the private sector. I encourage each and everyone of you to engage in the dialogue process to provide constructive feedback that will enable us to build a tax regime that stabilizes the economy, promotes equity, drive economic growth and protects our vulnerable citizens and businesses.”

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