ARTICLE
1 September 2021

An Overview Of The Economic Impact Of The Coronavirus Pandemic In Nigeria

KN
KPMG Nigeria

Contributor

KPMG Nigeria is a member firm of KPMG International. We provide Audit, Advisory and Tax & Regulatory services, across various industries, to national and multinational companies. Our purpose is to inspire confidence and empower change. We have a relentless focus on delivering quality and excellent service to clients. We, therefore, provide insights and innovative ideas to clients to help them achieve their corporate objectives.
In December 2019, just as the country was seeking to take a break from the many unpleasant news headlines and enjoy the upcoming Christmas season, a shocking topic caught the nation's attention...
Nigeria Tax

Introduction

In December 2019, just as the country was seeking to take a break from the many unpleasant news headlines and enjoy the upcoming Christmas season, a shocking topic caught the nation's attention; the news of the rapidly spreading Coronavirus in Wuhan, China. While some Nigerians believed the pandemic was too far away to get into the country, or that if it did, like the Ebola virus, it would not survive; others believed that because Nigeria had long-standing travel and trade links with China, the pandemic would inevitably get into the country. Finally, in late February 2020, Nigeria reported its first verified case in Lagos, following which it spread to other states of the country.

Prior to the pandemic, the Nigerian economy was unstable, as the country was already dealing with non-COVID-19 related insecurity, falling oil prices, trade restrictions, and public deficit issues, on top of long-standing development challenges like inadequate fiscal economic policies, unemployment, and inflation. The government's regulatory attempts to prevent the spread of the virus exacerbated the country's already precarious economic situation. As a result, the GDP growth rate fell below 4% in early 2020, to 1.87 and -6.10 percent in the first and second quarters respectively, reflecting a drop by 0.23 and 8.22 percentage points below the 2.10 and 2.12 percent recorded in 2019, Q1 and Q21. The economy eventually recovered by the third quarter of 2020, but was immediately sent into a tailspin by the end of the fourth quarter, when the country was hit by the second wave of the pandemic, which proved to be more lethal than the first. Total GDP in 2020 was reported at 432.29 billion from 448.12 billion in 2019. In the first quarter of 2021, GDP was recorded at 0.51 percent, The Q1 2021 growth was slower than the 1.87% growth rate recorded in Q1 2020 but higher than 0.11% recorded in Q4 2020, indicating a gradual but steady growth1. Based on the premise of projected recovery in crude oil output and price levels, real GDP growth in 2021 is expected to increase to 2.5 percent and will only return to its pre-pandemic level in 2022, according to the IMF.

Events of the previous year have altered the present and future landscape of the local business environment. As a result, this article examines the impact of the pandemic on select sectors of the Nigerian economy, investigate fiscal measures adopted by governments in other countries to alleviate the economic and social burden of the pandemic, analyze the tax authorities' response to the pandemic, and methods adopted to raise revenue for the country, as well as proffer solutions to revenue generation issues.

Sectoral Analysis – The Oil and Gas Industry

The Oil and Gas industry has earned the title "gold mine" of the Nigerian economy, because of the country's exclusive reliance on the sector for revenue from crude oil sales, which accounts for approximately 10% of the country's GDP, 70% of government revenue and more than 83% of the country's foreign exchange earnings. The Oil and Gas industry just before the pandemic was bedeviled by a global oil price war between Russia and Saudi Arabia, as well as insecurity caused by vandalism and terrorist actions. The shock impact of the COVID-19 pandemic hit the industry hard, resulting in a significant reduction in demand for products, as well as plummeting prices and income. In Q4 2020, the industry contributed 5.87 percent to total real GDP, down 19.81 percent from the previous quarter's contribution of 7.32 percent. The industry's contribution to GDP has progressively decreased from Q1 2020 to Q4 2020, at 9.50, 8.93, and 8.73 percent, respectively. Finally, in Q1 2021, the oil sector's contribution to the country's GDP increased to 9.25 percent.

During this time, crude oil prices plummeted. In the first quarter of 2020, the average price of a barrel of crude oil was 33.91 US dollars. The decline in income caused by the flooring of crude oil prices finally resulted in a reduction in federation revenue for all units, including the federal, state, and local governments. This had a direct impact on the government's ability to fulfil its obligations while simultaneously pursuing growth and development objectives.

The average price of crude oil 42.47Bbl in Q4 2020 increased by 25.22 percent compared to the average price in Q1 2020. In January 2021, Crude Oil prices improved to 52.20bbl, up 17.82 percent from the December 2020 price of 48.52 Bbl. Prices soared to about double the average monthly of the previous year to 73.47 Bbl in June 2021, amidst discussions between OPEC and its partners, known as OPEC+, as the energy alliance attempted to set output strategy for the rest of the year. Nigerian crude oil production decreased 11.59 percent to 1,579 trillion barrels per day in 2020, compared to 1,786 trillion barrels per day in 2019, lower than the average daily production of 2.07mbpd prior to the COVID-19 pandemic. Production in the first quarter of 2021 was 1.410 trillion barrels per day compared to production of 1,434 trillion barrels per day recorded in the fourth quarter of 20202

One of the most significant effects of COVID-19 on the Oil and Gas sector has been to persuade the government of the need to diversify the economy and revenue streams. This realization has prompted the government to take proactive measures to develop policies aimed at improving a variety of other economic sectors, including agriculture, information technology and innovation, social infrastructure, and so on, which has now become the focus of the majority of Nigeria's government-run institutions.

The extent and duration of time which the industry will need to fully recover from the effects of the pandemic is unpredictable. What is certain however, is that if the industry continues on its current trajectory, then it is very well on its way to a strong recovery. Recent trends show that the industry will be faced with intense competition from newly emerging markets, technology, new products, and growing public and government pressure on climate and environmental impacts. Nonetheless, given its importance in relation to other closely related businesses in the energy sector, it is not expected that the Oil and Gas sector will lose relevance. It is therefore pertinent for the industry to ask questions on how to create value for the new normal that is to come instead of focusing on how to return to its past glory. The latter might be very hard to actualize.

Manufacturing Sector

Manufacturing activities in Nigeria was halted in response to the government's shutdown directives, affecting a variety of businesses that are directly or indirectly related to manufacturing, such as the cement, steel, metal, plastic, and glass production industries. Many of these enterprises suffered from low income due to employee-related issues like premature death, absenteeism, and productivity losses, which resulted in a negative supply shock caused by global supply chain disruptions and factory closures. Likewise, the October 2020 end SARS protest did nothing to boost economic operations, as the riots that followed enforced movement limitations to a greater extent than did the pandemic. In February, manufacturing employment stood at 56.4 percent. However, by June 2020, employment levels had dropped by 33.69 percent, to 37.4 points, and decreasing. Aside from the effects on production and employment, business activities in the sector fell for the sixth consecutive month in October, dropping to 46.0 points from 56.4 points in February 2020, a decline of 18.44 percent3.

Despite the events of the previous year, the Manufacturing sector's real GDP turned positive at 3.4%, leading overall growth of the non-oil sector by 0.79 percent in Q1 2021 following three consecutive quarters of negative growth since the last growth in Q1 2020 at 0.4%, marking the highest growth recorded since Q1 20184. The improvement in 2021 reflects the sector's steady recovery from the COVID-19 pandemic, aided in part by the government's lifting of the country's mobility and travel restrictions, allowing for the resumption of commercial operations. In addition, the many policy initiatives enacted by the government to support economic recovery also assisted the sector's revival. Furthermore, gains from export via open borders and increased credit supply to businesses operating in the sector also relieved some of the harsh effects of the pandemic. Consequently, in February 2021, manufacturing PMI increased to 48.7 points from 44.9 points in January 2021 albeit still lower than pre-COVID levels.

Manufacturing PMI is projected to continue to rise as the economy recovers. If not addressed, insecurity, low disposable income, and a shortage of qualified labor are just a few of the factors that will continue to impede the sector's growth. Every economy's manufacturing sector is critical to attaining the country's projected goals and vision, and Nigeria is no exception. To guarantee that the economy is self-sufficient in production, the government is urged to look at workforce development, infrastructure, and innovative development.

Agricultural Industry

Prior to the COVID-19 pandemic, Nigeria's agriculture industry contributed approximately 26.95 percent (22.6 trillion) to the country's GDP of 104 trillion dollars at the end of the fourth quarter of 20203. Unfortunately, the pandemic prevented this contribution from having any effect on the economy, as hunger and inflation rates remained high. To address this, the government implemented feeding palliative measures, which were ineffective due to the length of time between pronouncement and execution. Subsequently, in October 2020, when the warehouses containing these palliatives were found, citizens scrambled for their share of the national cake, causing widespread panic, death, and damage to property.

In March 2020, a small bulb of onion was selling for a thousand naira. While Nigerians found it humorous as skits and memes circulated on social media, the food inflation crisis was only getting started. Only time will tell what challenges will be faced in the long term. More demand than supply could push up prices further, and recovery could take more than a few years.

The sector accounted for 22.35 percent of total GDP in Q1 2021, up from 21.96 percent in the first quarter of 2020 but down from 26.95 percent in the fourth quarter of 2020. In real terms, the agricultural sector increased by 2.28 percent in the first quarter of 2021, a gain of 0.07 percent points over the same time in 2020, but a decline of -1.14 percent points over the previous quarter, when it grew by 3.42 percent. The agriculture industry increased at a rate of –28.61 percent Quarter-on-quarter5.

As a matter of national strategy, the federal government must encourage the use of technology and innovation to enhance agriculture as a means of accelerating the post-COVID-19 economic recovery. Relevant governments and governing bodies should issue advisories that will attempt to minimize the negative impact on food and food security during and after COVID-19 such as the relaxation of the land border protection policy.

Financial Services

During the early phases of the pandemic, there was a clear correlation between the scale of the pandemic and financial and stock market volatility. The bigger consequences of this volatility affected credit markets, banks, and other financial institutions, and may have resulted in more severe economic downturns if the CBN had not pursued monetary stimulus so aggressively. The CBN maintained its liberal policy to promote credit flow to crucial sectors of the economy in the first half of 2020. The Monetary Policy Committee (MPC) decided to lower the Monetary Policy Rate (MPR) to 12.50 percent from 13.50 percent in May 2020, and also cut the interest rate on its intervention facilities from 9 to 5 percent while at the same time introducing a one-year moratorium on CBN intervention facilities. These measures indicate an approach to strike a balance between encouraging production growth and preserving price stability.

The drop in market indices was primarily due to the pandemic, which had a significant impact on businesses and financial markets, culminating in an unanticipated economic crisis and a flight to safety, and the banking industry, despite being only indirectly affected, saw a significant impact on its operations and revenue-generating activities. Regardless of the fact that banking services can be provided remotely and without direct customer interaction, the sector's role as a provider of payment, savings, credit, and risk management services extends the negative impact of the Covid-19 crisis to banks and other financial institutions. Increased loan demand, lower non-interest incomes, and a decline in the value of bonds and other traded financial instruments are just a few of the effects, all of which resulted in increased bank losses.

The Financial and Insurance Services sector grew by –0.46%, or –21.26% points lower from the rate recorded in the first quarter of 2020, but 3.16% points higher than the rate recorded in the preceding quarter. Quarter-on-quarter growth in real terms stood at 5.78%. The sector's contribution to real GDP was 3.77%, lower than the contribution of 3.81% recorded in the first quarter of 2020 by –0.04% points, but higher than 3.07% recorded in Q4 2020 by 0.70% points. Financial Institutions under Financial and Insurance Sector grew by 0.15% in Q1 2021 from -2.48% in Q4 2020 and 24.00% in Q1 20201.

The financial services industry's road towards precocious development has begun with the traction seen in the technologically sophisticated subsector. For example, in October, local fintech start-up Paystack was bought by US-based company Stripe in a transaction worth more than $200 million, making it one of the top news stories of 2020. While the financial services industry was able to weather the COVID storm and continue operations in 2020, it has become obvious that more progress is needed to develop the present arrangements. Financial institutions are increasingly strategizing about their technical setup and debating whether the tools they have depended on in the past are the best instruments to employ in the future.

Tourism Services; Transportation, and Aviation.

Tourism was hit the worst by the virus since it had the most direct contact with humans, and as a result, it was shut down earlier than other businesses in Nigeria. Travel restrictions on international and domestic flights have had a significant impact on the tourism industry, with about 96 percent of tourist destinations throughout the world applying travel restrictions. All regions of the world recorded a drastic decline in air travels. Airlines, on the other hand, continued to report significant capital expenditures as well as operating costs for aircraft maintenance and servicing. Any plan to revive the tourism industry must incorporate the aviation and transport sectors as critical sectors to ensure continuous movement across the globe.

The movement limitations impacted most ground transportation including public bus services, passenger train services, and digital cab-hire services. Transportation was restricted to essential trips for food, medication, or medical care. Although port cargo handling, air cargo, and related services such as storage and warehousing remained operational, insecurity and fear of harassment on transportation routes slowed operations for essential services.

The transportation sector experienced the worst contraction at 21.89 percent in the first quarter of 2021. Due in part to the work from home (WFH) policy adopted by several companies in Nigeria in response to the COVID-19 pandemic and majorly to the growing insecurity on Nigerian roads. Year on year, the industry contributed 1.18 percent to real GDP in 2020. Demand for public transportation soared in Q1 2021, as the entire state was thrown back onto the streets from the first day of the easing of the lockdown rules. Consequently, traffic has increased 3 times more than what it was before the lockdown.

A quick examination of COVID-19's effects on the aviation sector finds that activities have been disrupted and income generating has ceased. According to the Nigerian Civil Aviation Authority (NCAA), the Nigerian economy lost $800bn as revenue from the aviation industry. The Nigerian federal government attempted to mitigate the impact of the pandemic in August 2020, by adopting a bilateral air transport deal between Nigeria and the United States. The purpose of this agreement was to safeguard Nigeria's economic interest by boosting commercial cargo flights from Nigeria to the U.S. from the opportunities provided by the African Growth Opportunity Act (AGOA) of 2000. Other benefits of the agreement include strengthening the economic and socio-cultural links between the countries by ensuring growth of international air transportation as well as fostering healthy airline competition between both nations. Air transport contributed 5.68 percent in Q1 2020 as against -11.78 percent in Q1 2021, and a staggering 36.98 percent in Q4 2020. These result shows evidence that the industry is quietly easing into a recovery.

A lot has to be put in place to position the travel and tourism sector as a powerful transformational vehicle to drive recovery following the COVID-19 pandemic. Industry collaboration and alignment are critical to the sector's survival. 

ICT; Information Technology, Telecommunications, Media, and Financial Technology

The Nigerian ICT sector, despite its infancy, has demonstrated its importance to the Nigerian economy, and in the not-too-distant future, will no longer be regarded as a separate industry but as an integral element of every industry in the economy. The industry is a significant non-oil growth engine and substantial contributor to the economy, owing to a large young population, and the increasing use of mobile internet services. Globalization has pushed technical progress at an unprecedented rate, and the COVID-19 pandemic, as horrible as it is, has played a big role in Nigeria's recent technological advancement. Media and communication, financial technology, ecommerce, IT services, motion pictures, sound, music creation, product design, and other subsectors are all part this sector.

The federal government has been coming up with several policies to foster development in order to accommodate the booming ICT sector, including the renaming of the Ministry of Communications to the Ministry of Communications and Digital Economy on October 17, 2019, with the purpose of developing and implementing a digital economic policy and strategy in Nigeria. The National Digital Economy Policy and Strategy 2020- 2030 was released in early 2020, and while the coronavirus epidemic occurred shortly after the policy was enacted, it appears that the concept it promotes is already bearing fruit; the sector grew 6.47 percent in Q1 2021 there was a -1.18 percent point reduction from the rate reported in the same quarter of 2020, growing -14.80% Quarter to quarter. In addition, the sector contributed 14.91 percent to real GDP in Q1 2021, up from 14.07 percent in the same quarter the previous year but lower than the prior quarter of 15.06 percent.

Telecommunications services throughout experienced a rise as a consequence of increased demand for voice and data, which was fueled by the country's lockdown regulations. Teleconferencing technologies such as Zoom, Microsoft Teams, and Skype have seen an increase in daily and monthly average usage as consumers relied on these services to stay informed, work, maintain social relationships, and preserve a sense of normalcy. Businesses have also used the services to maintain remote working standards. The increasing demand has resulted in greater income for service providers, who must now ramp up the necessary infrastructure in order to maintain service quality and efficiency. Telecommunications & information services sector grew by 7.69% in Q1 2021 from 17.64% in Q4 2020 and 9.71% in Q1 2020. Motion pictures, sound recording, and music production sector grew by 2.21% in Q1 2021 from 2.51% in Q4 2020 and 0.33% in Q1 2020 and broadcasting to grew by 2.45% in Q1 2021 from 4.42% in Q4 2020 and 1.81% in Q1 20201. In Nigeria, the financial technology industry also witnessed a growth in utilization, especially among mobile payment solution providers. This is because, in the aftermath of the pandemic and lockdown, many customers sought other payment options. While the COVID-19 was beneficial to certain sectors of the technical economy, others, such as cab hailing services did not profit from the crisis because their activities were halted.

The year 2021 began with growing demand for information technology (IT) services, as businesses continue to seek cloud-based infrastructure to support WFH plans. Furthermore, in order to adapt to the "new normal," firms are focusing on cybersecurity, data protection, and privacy. Overall, the outlook for this industry does not spell doom.

The FIRS' Position.

The role of taxation as a revenue generating vehicle of the government cannot be overemphasized, especially at a time when the economy is struggling to regain its footing.  This subject of discourse is largely reinforced by the reduction of oil revenue as a result of falling oil prices, supply shifting and loss of global customers by the country. An analysis of the FIRS tax collection efforts shows that the service is on a mission to close out the revenue gap created by the pandemic. Several measures like the creation of e-filing platforms and aggressive auditing of taxpayers have been adopted by the FIRS to ensure that all taxes due are collected as at when due. It is also a means of keeping the taxpayer database up to date to ensure that tax evaders can be tracked down more easily.

According to the Federal Inland Revenue Service' (FIRS') publication, the country's total tax collection in 2019 was ₦5.26 trillion naira, from oil and non-oil taxes. This amount was 40.22 percent less than the ₦8.80 trillion annual target and ₦2.20 quarterly target set. Surprisingly, total tax collection in 2020, the year of the virus was ₦4.95 trillion, short ₦125 billion from the budgeted ₦5.08trillion. Further analysis revealed that tax collection from the oil and gas sector performed tremendously better than budget. Annual budget for the petroleum sector stood at ₦284 billion while actual collection was at ₦1.52 trillion, representing a 434 percent increase in collection4. This is not an anomaly, given that the industry has followed a similar trajectory for the last three years, which could ostensibly be linked to the devaluation of the Naira.

Non-oil tax collections, on the other hand, fell short of expectations in 2020, totalling ₦3.43 trillion vs the anticipated ₦4.79 trillion. The virus dampened the underlying GDP growth assumption as well as the predicted efficiency benefits. Non-oil tax revenue has risen consistently, reaching ₦2.15 trillion in 2016, ₦2.51 trillion in 2017, ₦2.85 trillion in 2018, and ₦3.15 trillion in 20196. This demonstrates that the FIRS is on the right track with its tax collection approach.

Although it is not apparent, the coronavirus has had an impact on the amount of taxes collected from businesses, forcing tax authorities to search for alternative ways to raise money. Because most companies in the industry have declared losses, continued or harsh taxes might lead to company collapse, which would further harm the economy.

Revenue Mobilizing Methods Adopted by the FIRS and other Administrators

Tax administration in the country is carried out by the three tiers of government, in line with the federal system of governance operated in Nigeria. At the federal level, the Federal Inland Revenue Service (FIRS) administers taxes and is vested with the responsibility of assessing, collecting, and accounting for revenues accruing to the government of the federation. The States Boards of Internal Revenue (SBIR) and the Local Government Revenue Committees (LGRC) perform similar responsibilities at the state and local government levels respectively. In an attempt to drive up domestic tax revenue and ensure that tax laws are in compliance with global best practices, the government passed a Finance Act in 2019 and another in 2020 which effected changes to various provisions of the Nigerian tax legislations including the Capital Gains Tax Act, Companies Income Tax Act, Personal Income Tax Act, Value Added Tax Act, Customs and Excise Tariff Etc. (Consolidation) Act, Stamp Duties Act, Petroleum Profits Tax Act amongst others. In line with the Finance Act of 2019, the government issued the Companies Income Tax (Significant Economic Presence) Order, 2020 (SEP Order) which provides further guidance on the conditions for determining a significant economic presence for the purpose of taxing the digital economy. The amendments introduced by the Finance Act of 2019 and the Finance Act of 2020 aim to incentivize investments in infrastructure and capital markets, support sustainable increase in government revenue and ensure that tax provisions are consistent with the national tax policy objectives of the government.

Also, the first phase of a Strategic Revenue Growth Initiative (SRGI) was unveiled in 2019 for the purpose of mobilizing fiscal resources by the FIRS and other agencies of the government. The initiative centers around achieving sustainable revenue generation, identifying new revenue streams, enhancing the enforcement of revenue collection on existing revenue streams and achieving cohesion between revenue generating entities, as well as equipping them with the requisite expertise and tools needed to effectively mobilize tax funds. A second phase of the initiative (SRGI 2.0) was launched subsequently which aims to shift focus from revenue collection to tax compliance and enhance tax revenues from the current 6% tax-to-GDP ratio to 15% by 2023.

At the federal level, the FIRS has over the years implemented some technology initiatives with a view of strengthening tax collection and plugging revenue leakages, while increasing the effectiveness of tax control and providing the opportunity for Nigerian taxpayers to better comply with their tax obligations. In 2013, the FIRS launched the Integrated Tax Administration System (ITAS) to enable taxpayers electronically file tax returns, pay taxes online, etc. Even more recently was the introduction of Tax-Pro max which is intended for the electronic filing of Corporate Income Tax returns, effective June 2021. Further, the FIRS upgraded its web platform and introduced six electronic tax services in 2017 and they include: e-Registration which allows for the registration of new taxpayers with FIRS for the various federal taxes; e-Stamp Duty which is used for payment of stamp duties on applicable documents; e-Tax Payment which is used for payment of all federal taxes and levies through approved collection platforms like Remita, Interswitch and Nigeria Inter-Bank Settlement System (NIBSS); e-Receipt which is used for receiving and verifying online receipts generated for taxes paid through the new e-Tax Payment; e-Filing which allows taxpayers file their tax returns through the ITAS and; e-TCC which enables taxpayers process their online tax clearance certificates. Recently, the FIRS issued a public notice announcing its intention to commence the deployment of its Automated Tax Administration System (ATAS) in line with the provisions of Section 25(4) of the Federal Inland Revenue Service Establishment Act 2007 as amended by section 51 of Finance Act 2019. The ATAS initiative aims to access for tax purposes, relevant data or records stored in any electronic devices, or cloud computing facilities which is owned, maintained, operated, or controlled by taxpayers or their agents.

Recommendations Based on Developments in other Countries

There is no doubt that enhancing the mobilization of tax revenue is essential for the Nigerian government to create a fiscal space for the purpose of funding public investments and providing public services to the citizenry. In answering the question of “how” Nigeria can effectively mobilize sufficient tax revenue to improve the crippling economy, it is necessary to have an insight from what other countries are presently doing to increase tax revenue collection in an effort to alleviate the adverse effects of the COVID-19 pandemic on their economy.

Both developed and developing countries have responded to the pandemic by implementing several fiscal measures in a bid to address the myriads of economic implications caused as a result of the pandemic. A few countries introduced new taxes on net wealth for the purpose of meeting up with their growing needs for tax revenue. Spain, for example, increased its net wealth tax rate from 2.5% to 3.5% in the top wealth tax bracket while Argentina introduced a one-off tax on the net wealth of residents that own assets worth more than ARS 200 million. Also, some countries have allowed immediate expensing of larger investments in order to increase cash flow and encourage businesses to bring forward investments. Norway, for example, temporarily allowed oil and gas companies, which are taxed under the Petroleum tax regime, to immediately deduct investments made by 2022, including the special deduction (uplift) from the special tax base used for petroleum tax revenue purposes. Furthermore, for the purpose of encouraging investment, Peru temporarily increased tax depreciation rates for some types of assets as of 2021 and allowed travel agencies, hotels, restaurants, and related services to depreciate their buildings and constructions at a 20% rate in 2021 and 2022.

Several countries have increased other business taxes and introduced several tax base broadening measures. Hungary temporarily introduced a one-off tax on banks and credit institutions and a special retail tax during the first half of 2020. France introduced a temporary tax on private healthcare providers to be levied in 2021 while Sweden announced a new tax on the financial sector that will be in force in 2023. To raise revenue, some countries have also implemented tax rate increases on high-income households. Spain is an example of a country to introduce revenue raising measures which increase the tax burden on high-income households, including a new top tax bracket for income from savings and lower tax deduction ceiling for annual pension contributions. The revenue raised as a result of the rate increase is intended to be invested in the health system. Some countries such as Germany and the Netherlands also increased vehicle and other transportation taxes to raise revenue and incentivize more sustainable modes of transportation, while others such as Japan and Macau decreased them in response to the pandemic to foster consumption and support businesses.  

There is no doubt that Nigeria can learn some lessons from the fiscal measures adopted by these countries for the purpose of driving revenue mobilization to resuscitate the crippling economy in a COVID era. It is essential for the government to introduce a net wealth tax which would increase the contributions of high net worth individuals into the tax net and increase VAT on luxury goods, liquor, cigars, concert tickets and other essential goods and services thereby increasing the tax revenue of the country. The taxing of the informal sector of the economy is also a critical tax base broadening measure to unlocking untapped tax revenue required to bridge the gap created by the decline in crude oil revenue. In light of the significant size of the informal sector in the Nigerian economy, it is safe to say that unless this huge and untapped section of the economy is effectively subjected to tax, the tax-to-GDP ratio of Nigeria will not significantly improve.

It is also essential for the government to promote tax transparency which, according to the OECD, has the potential of driving tax revenue mobilization and putting an end to tax evasion. In a bid to promote tax transparency and accountability, it is critical for the Nigerian government to adopt policies on mandatory periodic disclosure of relevant information on tax collection and profiling of taxpayers. This is exemplified in the case of Finland where the government publishes the taxable income of all its citizens, including the tax records of high net worth individuals, celebrities, and politicians. This action has helped to broaden the country's tax base as seen in a survey conducted by the country's tax administrator. Adopting a policy of this nature in Nigeria will no doubt revitalize tax morale and broaden the tax base of the country.

With the impact of the pandemic on the Nigerian economy, it is time for the country to focus on increasing its internally generated revenue and improving its revenue mobilization efforts. It is also anticipated that the FIRS would seek further collaboration and partnerships with relevant stakeholders in the private sector, professional bodies, trade associations, as well as with relevant ministries, departments and agencies such as the Ministry of Finance, the Nigeria Customs Service, States IRS, amongst others, for the purpose of facilitating tax revenue mobilization in the country.

Conclusion

The COVID-19 pandemic has no doubt battered the Nigerian economy and has led to a sharp drop in the country's GDP growth. If Nigeria must effectively address this issue, it is essential that the country diversify the economy away from oil and mobilize tax revenue in order to achieve sustainable economic development and growth. As a result, it is uncertain whether the looming crisis will have long-term structural ramifications for the economy or if it will have mostly short-term financial, social and economic effects. In either event, it is clear Nigeria's economy cannot endure the virus's continued intrusion, or even subsequent variant mutations of the virus since this might result in more catastrophic economic and financial losses for the country.

The tax authorities at different levels of government must take necessary steps to increase tax revenues and implement tax reforms that would broaden the country's tax base, improve tax compliance, and discourage tax evasion. Also, it is paramount for Nigeria to take a cue from what other countries are doing, which would serve as a useful tool in assisting policymakers in their revenue mobilization efforts.

This article has attempted to enlighten and proffer solutions to existing economic issues caused by the pandemic. It is evident that the government must be more intentional about implementing policies rather than just formulating them, as this is a very important step in revitalizing the economy and rescuing it from imminent collapse and extinction. Economic recovery is still possible and imminent if the right structures are put in place and actions taken.

Footnotes

1 National Bureau of statistic Q4 & Full year 2020 – Q1 2021

2 Organization of Petroleum Exporting Countries (OPEC) Monthly oil market report 15 July 2021.

3 The Central bank of Nigeria economic report.

4 https://data.worldbank.org/indicator/NV.IND.MANF.ZS?locations=NG

5 https://www.statista.com/statistics/1193506/contribution-of-agriculture-to-gdp-in-nigeria/)

6 Tax statistics report – Federal Inland Revenue Service (FIRS)

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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