Achieving Tax Yield Growth In A Turbulent Economy

KPMG Nigeria


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Amidst the high cost of living in Nigeria, increasing cost of doing business, high and accelerating inflation, increasing borrowing cost and debt profile of the country...
Nigeria Tax
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Amidst the high cost of living in Nigeria, increasing cost of doing business, high and accelerating inflation, increasing borrowing cost and debt profile of the country, the Federal Inland Revenue Service (FIRS or "the Service") announced a revenue target of N19.4 trillion for 2024. This was following a remarkable achievement where the Service exceeded its prior year's target by 7% by collecting N12.4 trillion. From the result shared by the FIRS, the greatest contributors to the tax revenue in 2023 were Companies Income tax (CIT), Value Added Tax (VAT) and Petroleum Profit Tax (PPT). Each contributed 36%, 28% and 26%, in that order.

In 2022, the FIRS had set a target of N11.56 trillion and achieved 107% of its budget. However, the prevailing circumstances behind the performance for both 2022 and 2023 fiscal years appear to be different from that of 2024, considering the challenging situation in the country. For instance, companies in the manufacturing sector have been faced with myriad of issues. This includes, but not limited to increasing energy costs, reduced purchasing power, unprecedented level of foreign exchange rate of the naira and cost of capital. In a report published in Trading Economics, Nigeria's economic growth declined in 2023 as the country recorded 2.74%, which was 12% lower than 3.10% achieved in 2022.

One cannot but take note of efforts being made by the Federal Government of Nigeria (FGN) to address the issue. This includes aggressive and more transparent method of managing foreign exchange rate of Naira, improving the quality and accessibility of physical infrastructure, adopting market-based foreign exchange rate regime to allocate scarce foreign exchange reserves among contending needs, among other initiatives being implemented by the government. While it is expected for the FGN to fund its budget, there is a need to generate appropriate tax revenue, one may however wonder if the huge tax collection aspiration of the FIRS is realistic in a period of serious economic upheaval.

Considering the above, government may need to consider the following in its bid to generate about 150% of the prior year's tax revenue:

1. Broaden the tax base:

Due to the narrow tax base, it may seem as evident, from the myriad of tax audits and reviews conducted by the FIRS, that only a few major companies are saddled with series of reviews/audits. This may appear to be a case of the FIRS flogging the goose that lays the golden egg instead of looking for other geese that can also lay golden eggs, by broadening its tax base through intelligence gathered from data analytics, taxpayer education and enlightenment and other compliance strategies to boost tax compliance.

2. Focus on taxing the informal economy:

According to the International Monetary Fund (IMF), the informal economy comprises activities that have market value and would add to tax revenue and GDP if they were recorded. Based on the IMF's findings, the informal economy employs approximately 5.5 million people in Lagos State alone and over 80 percent of the Nigerian population work in the informal sector. Thus, it is important that this sector, which remains largely untaxed, is brought into the tax base as the continued ineffective taxation of the sector is unsustainable. The government would have to strategically adopt policies that incentivizes formalization and responsible tax practices.

3. Provide amnesty to businesses to reduce severe impact of government policies/current economic challenges:

In a period of economic downturn, the government's strategy /focus should include providing relief to businesses and individuals. Some countries' strategies have included reforms, and targeted tax cuts that are integral to economic growth, job creation, and fostering a business-friendly environment. For instance, the UK's tax reforms have included tax break for investments in IT equipment, plant, and machinery, expanded the VAT threshold for registration and deregistration, etc. Also, Kenya reduced the corporate income tax rate for companies that are manufacturing vaccines to 10% as against the 30% corporate tax rate. These reforms aim to provide businesses with certainty and stimulate economic recovery and growth in these regions.

4. Shore up capacity in tax administration:

In focusing on the above, it is necessary for the government to build and enhance the capacity of the tax administrators who are tasked with the responsibility of driving/achieving the tax yield growth. This can be achieved through recruitment of economic/tax specialists and experienced tax officials, continuous investment in digital infrastructure and technology to boost the efficiency of the processes and systems, collaboration with the international community and tax agencies on knowledge and experience sharing, training and sensitization of tax officials to curb corrupt and sharp practices.

5. Build and sustain efficiencies in the Nigerian tax system by:

  1. Deliberate and visible actions by the government to rebuild and regain taxpayers' trust: The Government holds itself accountable to the people. Thus, it should be transparent in its dealing and communicate clearly to the citizens the funds being generated by the country and how this is being used towards social and economic development. This would enable taxpayers have a clear understanding of how taxpayers' funds are being used, the nature of the developmental projects and impact on the social wellbeing of the populace, the Government's responsibilities and contributions towards sustainable growth and development from funds generated by taxpayers (i.e., public funds). Also, the government needs to curb its administrative expenses and channel these towards more critical public services geared towards social and economic development.
  2. Simplifying tax compliance processes: Although there have been recent reforms by the FIRS, such as, automated tax clearance certificate application and processing, tax filing and payment via the TaxPro-Max, self-registration for taxes, etc., a lot more could be done to ease the compliance processes and network/connectivity downtime experienced during peak filing season as well as synchronization of taxpayers data.
  3. Automating the tax audit and resolution processes: The tax audit process is still largely a manual process despite the automation of the tax compliance and payment process. For efficiencies in the tax audit and resolution processes, reduction of the duration of the audit exercise and objection process, elimination of multiple reviews being conducted by the tax authorities and a scope creep by the various agencies of government and sub-teams/units within the same agency of government, the tax audit process should be automated. From the selection of companies to be audited, the notification to taxpayers, the FIRS' review process and approach to be selected/adopted based on the evaluation of the taxpayer's business, industry analysis and macro-economic factors impacting the business as well as internal factors, should be systems automated. Having the appropriate Information technology (IT) infrastructure and building on existing capacity and digital assets is crucial.
  4. 6. Explore other non-oil revenue sources instead of focusing majorly on tax revenues:

These include sale of idle government assets and increase public-private participation in joint ventures, etc.


As Nigeria grapples with widening budget deficits and revenue crisis, it is clear from the 2024 budget pronouncements and FIRS targets for the year that revenue from taxes is expected to fill the gap. Although questions may be raised on whether the FIRS' target for 2024 is feasible or impracticable, what is essential is that the current tax system is structured to take cognizance of the recent Nigeria economic reforms (removal of fuel subsidy, a shift to a unified, market-reflective foreign exchange (FX) rate, etc.) and its impact on businesses operating in the country.

The opinion expressed in this article is solely personal and does not represent the views of any organization or association to which the authors belong.

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