IMF to Nigeria: Prioritize tax collection efficiency over raising taxes

OBINNA EZUGWU

The International Monetary Fund (IMF) has urged Nigeria’s federal government to focus more on improving the efficiency in tax collection as opposed to raising taxes amid the Coronavirus pandemic.

IMF Mission Chief to Nigeria, Jesmin Rahman who gave the advice at a virtual conference on Thursday, noted that raising taxes is inappropriate at this time and would only increase the strain on corporate profits in a fragile economy.

“Before you go about raising taxes, we need to first make sure that we collect everything that is collectible. At the moment, Nigeria has a very low tax efficiency rate,” she said.

The Nigerian government raised Value Added Taxes (VAT) rate to 7.5 percent from 5 percent in February in an effort to increase tax revenue.

But for Rahman, it makes more sense to make tax collection efficient through the improvement of audit capacity and update of tax registry.

He said Nigeria can, however, raise its relatively low VAT rate when the Covid-19 crisis is over, but that now is not the time to do so.

Nigeria projects oil revenues to decline by as much as 80 percent this year as the Coronavirus pandemic and lower global oil prices eats into the government’s biggest revenue source.

Low revenues is making its debt servicing worrisome because it is expected to gulp down most of government revenue this year, according to her.

“Even though the debt level itself is not a concern for sustainability, it’s servicing capacity is severely constrained and requires a close watch,” she said.

“Nigeria’s public debt was at 29 per cent of GDP in 2019 in our definition of all known liabilities like the Central Bank of Nigeria (CBN) financing of the budget, financing of the power sector, Asset Management Corporation of Nigeria (AMCON) debt and everything came to 29 per cent of GDP.

“We project this to increase to 36.5 per cent this year, which is a jump and then stay around 38 per cent of GDP in the medium term,” she said.