Nigeria announces ambitious tax collections plans as it aimed to generate N9trn from Vat

NIGERIA'S federal government has announced ambitious plans to step up tax collection over the next few years with aspirations to generate about N9trn ($18.57bn) in value added tax (Vat) between 2023 and 2025.

At the moment, Nigeria has one of the lowest tax-to-gross domestic product (GDP) ratios in the world with the figure standing at a mere 6%. Even by African standards this is very low as the continental average is 26%, while the Organisation for Economic Cooperation and Development average is about 35%.

According to the World Bank, tax revenues above 15% of a country’s GDP are a key ingredient for economic growth and, ultimately, poverty reduction. This level of taxation ensures that countries have the necessary capital to invest in the future and achieve sustainable economic growth.

Eager to fill this void, Nigeria is looking to spread its tax net further, particularly as the government enjoyed a recent big boost when there was an 84.3% rise in Vat collection during the second quarter of 2022. Generated revenue rose to N600.15bn from N327.2bn from the same period in 2020.

This came about partly because the government increased the Vat tare to 7.5% from 5% in February 2020 as part of the tax reforms included in the 2019 Finance Act. The government’s revenue projection was based on the assumption that the consumption expenditure on which Vat is charged will average N35trn in 2023, N40trn in 2024 and N45trn in 2025.

This means that over the three year period, the government expects N120trn as total consumption expenditure of Nigerians. The projections were made in the final draft of the 2023 to 2025 Medium Term Expenditure Framework and Fiscal Strategy Paper prepared by the Budget Office of the Federation.