SRGIs: Imperatives of FG’s New Tax Direction

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Nume Ekeghe

The recent launch of the federal government’s Strategic Revenue Growth Initiatives (SRGIs) has re-invited attention to a major inhibitor of the country’s development: low revenue generation capabilities.

At the launch of the SGRIs in Abuja last week, the Finance Minister, Mrs. Zainab Ahmed, said though the country is widely lauded as having the largest economy on the continent, it remains a challenge to translate her wealth into revenues.

The minister admitted the situation had hobbled previous administrations and imposes enormous constraints on the present one.

“We have therefore faced difficulty in mobilising domestic funds necessary for human capital development and infrastructure that are both drivers of sustainable economic growth. Our current revenue to GDP ratio of about seven per cent is unsatisfactory and we are keen on exerting all efforts in turning this around,” she said. This indicates that in the current fiscal climate and recent revenue performance (with the realisation of budgeted revenue at about 50 per cent as at the third quarter of 2018), a gulf exists between the set target of 15 per cent tax-to-GDP ratio contained in Economic Recovery and Growth Plan (ERGP). The situation is not helped by the unflattering figures of current contributions of oil and non-oil revenues to the GDP. Contribution from oil revenue stands at 39 per cent, while that of non-oil revenue to non-oil GDP as 4.2 per cent. The contribution of Value Added Tax (VAT) to GDP stands at 0.8 per cent, some tiers below the ECOWAS average of 3.4%. Figures from excise revenue, at 4.1 per cent, remain way below Ghana’s 15.3 per cent or Kenya’s 19.5 per cent.

In addition to having one of the lowest VAT rates, experts are united in their view that Nigeria has one of the lowest tax-to GDP ratios (about seven per cent), an uncomplicated indication of the systemic inefficiency and failure to adequately mine the tax-generating capacity of the economy.

It is against this background that the proposed new tax direction, especially the increase in the rate of VAT for luxury items, becomes imperative. VAT, the world over, is the fastest growing tax type. In Africa, Ghana has a VAT rate of 15 per cent, Egypt 10 per cent, Mauritius 15 per cent, Morocco 20 per cent, Namibia 15 per cent, South Africa 14 per cent, Tanzania 18 per cent and Zimbabwe 15 per cent. France, the United Kingdom, Romania and Ukraine have VAT rates of 20 per cent. The News Agency of Nigeria (NAN) quoted the minister as saying a request will be made to the National Assembly for an amendment of the VAT legislation.

The proposed increase is thus unlikely to adversely affect vulnerable segments of the society since items like basic food items and medicines are excluded.

A hint of this was given by Mrs. Ahmed in her keynote address. She explained that excise duties will be introduced in some areas, while taxes will be reduced for small and medium scale enterprises.

“For Small and Medium Enterprises, government would reduce taxes. But there are some special taxes that we will be looking at imposing. If you have a private jet, we will be taxing you specially for that. If you have a yacht, we will be charging you for that and also in terms of excise duties. There are also some new areas where excise duties will be introduced,” she said. To ensure efficiency of the process, the minister stated that there is a will to optimally collect revenues, identify new revenue streams, optimize enforcement in terms of collection from existing revenue streams and ensure inter-agency cohesion as well as equipping them with tools required for modern revenue collection and administration.