Increasing tax revenue: Is a new approach required?

The importance of taxation to a nation’s economic wealth and development cannot be overemphasised. However, the achievement of this goal is often undermined by tax evasion and deliberate attempts by multinationals to shift profits from one jurisdiction to another, amongst others.

Over the years, Nigeria has attempted to use taxation as a compulsory tool for the generation of revenue needed to meet its recurrent and capital requirements; however, there is no evidence that this has yielded the desired results.

The analysis below shows a five (5) year comparison of revenue generated from taxes as a percentage of total Gross Domestic Product (GDP) across three jurisdictions in Africa.

From the above analysis, Nigeria has the lowest tax to GDP ratio in comparison with the other two countries. This may be attributed to factors such as; lack of expansion of the tax net, partial enforcement of compliance, bureaucratic tax procedures, lack of transparency and accountability. These factors are in no way strange to the government and tax authorities as some efforts have been made over the years to curb them, expand the tax net and increase tax collection. However, the key question is whether these initiatives have been well/fully implemented by the government and tax authorities to yield the desired results.

Due to the present economic recession in Nigeria, revenue allocation from the federation account to state governments has declined sharply by 35% between 2015 and 2016. Many state governments are faced with huge budget deficits as they struggle to meet their obligations and service debts that have accumulated over the years. Thus, the need for the federal, state and local governments to generate adequate revenue from internal sources has become a matter of urgency and importance.

Usually, governments turn to taxes by either increasing the tax rates or creating new taxes in order to boost revenue. However, the foregoing would be sub-optimal considering the economic recession being faced by the country. Each of the options will only increase the financial burden on an already impoverished populace, serve as a deterrent to potential investors and consequently impede recovery of the economy.

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