After decades of depending on petrodollars, the Nigerian state has been forced by tumbling oil prices to turn to a new source of cash: the taxman.
With crude holding sway as the main source of state revenue, tax enforcement was lax and people showed little interest in what those in power did with the funds, Clement Nwankwo, the executive director of Abuja-based Policy and Legal Advocacy Centre, said in an interview. Now the government of Africa’s biggest oil producer is unable to fund its budget and is counting on ramped up borrowing and taxes to fill the gap.
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President Muhammadu Buhari, who came to power last May, has outlined a record budget of N6.1 trillion ($30.6 billion) for 2016 to spend the country out of the current economic slowdown. Higher taxes and improved efficiency in collection are among the cornerstones of the plan. That may carry a political price.
Officials make the case that Nigeria has one of the lowest tax ratios globally. It’s tax-to-GDP measure was 1.6 per cent in 2012 compared with 14.9 per cent in nearby Ghana and 25 per cent in South Africa, 25.5 per cent in the U.K. and 26.8 per cent in Norway, according to World Bank data.
International Monetary Fund (IMF) Managing Director, Christine Lagarde, while on a visit to Nigeria in January, urged the government to raise its value added tax rate of 5 per cent.
Buhari’s model is Lagos, sub-Saharan Africa’s largest city of 20 million people, which used improved tax collection and sold bonds to fund major infrastructure projects. Tunde Fowler, who headed the Lagos’ revenue office, was moved by Buhari to the helm of the Federal Inland Revenue Service (FIRS), the federal tax agency last year with the expectation he will reproduce the Lagos’ results at the national level.