Nigeria Aims to Nearly Double Tax-to-GDP Ratio by 2026

Nigeria is targeting a significant increase in its tax-to-GDP ratio, aiming to reach at least 18 percent within the next three years. This initiative is part of the government’s broader strategy to reduce dependency on borrowing for public expenditure. The announcement was made in a statement by the Nigerian presidency on Friday.

The country, which is the largest economy in Africa, has initiated a comprehensive reform agenda, which includes challenging but necessary steps such as removing the petrol subsidy and implementing foreign exchange trading restrictions. These reforms, spearheaded by President Bola Tinubu, are designed to rejuvenate the sluggish economic growth and revamp the economic framework of Nigeria.

To achieve this ambitious tax-to-GDP ratio, the Nigerian government has established a committee dedicated to overhauling the country’s tax system. The committee’s tasks include addressing high tax evasion rates, improving the efficiency of tax collection, and eliminating obstacles that hinder business growth. The goal is to expand the tax base significantly.

Zacch Adedeji, a presidential adviser on revenue, noted in the statement, “Our aim is to transform the tax system to support sustainable development and achieve a minimum of 18% tax-to-GDP ratio within the next 3 years without stifling investment or economic growth.”

Adedeji identified several key challenges in the current tax system, including the prevalence of multiple taxes and revenue collection agencies, a high incidence of tax evasion, a complex tax system, and poor accountability in the utilization of tax revenues.

Nigeria’s tax collection efficiency is among the lowest globally, with a tax-to-GDP ratio of approximately 10.8 percent. However, there has been an increase in tax receipts, which rose by 56 percent in 2022, reaching a record of 10 trillion naira (about $13 billion). Despite this increase, only 47 percent of the 2023 budget is expected to be financed through revenues, with the remainder being covered by borrowing.

The outgoing administration, led by Muhammadu Buhari, left a considerable debt of 77 trillion naira ($167 billion) to local and foreign creditors. Currently, about 96 percent of the government’s revenue is allocated to debt servicing, raising concerns about the potential for a worsening government cash crunch if additional revenue sources are not developed.

Adedeji acknowledged that while there has been some progress in enhancing tax collection in recent years, the impact on revenue has not been sufficiently transformative, indicating the need for more effective measures.

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