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Nigeria’s public debt equals 32.5% of GDP

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By Mercy Kelani

Nigeria is in dire need of more sources of revenue to meet revenue target.

Generation of revenue in Nigeria has been a major source of concern as a result of the country’s increasing debt. It has been discovered that there has been consistent failure in the country meeting its annual revenue target since the past seven years. A report from Naira metrics has it that out of the targeted revenue of N8.1 trillion in 2021, the country could only generate N6.1 trillion. In September 2022, the total public debt of the country was an estimation of N67.6 trillion – an equivalent of 32.5 percent of GDP.

Over the years, profits made from oil have been the major source of revenue in Nigeria, however, almost all proceeds made from oil sales have been squandered on the rising subsidy payment. Reduction of oil proceeds is also owing to lack of infrastructure and underproduction as a result of pipeline vandalism (oil theft). As a result of these drawbacks, Nigeria requires more sources of revenue to serve as a supplement for the current generated revenue.

Service generated the highest revenue in Nigeria’s history in 2022.

The Federal Inland Revenue Service (FIRS) is a Nigerian agency endowed with the power of tax payment and responsible for enforcing tax compliance, registration, collection and many more. There are also agencies attached to each state for collection of taxes on behalf of the state. Adegbite & Fasina (2019) stated that taxation was not totally considered by Nigeria as a means of revenue generation in the 1980s – the period of oil exploration. The country began to consider taxation as a source of revenue in 2014 when there was global recession and there was a need to rescue states.

In 2022, it reported the generation of the highest revenue in the history of Nigeria, N10.1 trillion. A breakdown of the revenue revealed that while oil was accountable for N4.07 trillion, non-oil accounted for N5.96 trillion. However, the actual target for the year was N10.44 trillion. The Organization of Economic Co-operation and Development (OECD) stated that Nigeria’s tax-to-GDP ratio was 5.5 percent while Tunisia’s was 32.5 percent. Compared with other African countries in the report, Nigeria ranks low.

Of Nigeria’s 200 million population, only 41 million pay tax.

United Kingdom, on the other hand, was reported by the Commons Library to have generated over £915 billion from taxes and other sources in year 2021/22. The UK’s major sources of revenue were from Income Tax, Value Added Tax and National Insurance contributions (NICs) generating over £530 billion. The OECD’s reported that out of the 38 countries in 2021, the UK ranks 23 with a tax-to-GDP ratio of 33.5 percent. In 2021, USA generated $4.90 trillion in taxes, majority of which was from Individual Income Tax.

The World Bank affirmed that tax revenue that contributes 15 percent to the Gross Domestic Product (GDP) of a country is a necessary ingredient for economic growth and reduction of poverty. Nigeria is only left with exploration of tax revenue opportunities as it already has them in place. According to Naira metrics, the FIRS showed that out of the 200 million population of Nigeria, only 41 million people pay tax. Resultantly, tax revenue generation in Nigeria is significantly lower when compared with countries with lower populations.

Sensitization campaigns would help improve tax payment.

FIRS’s 2022 revenue generation revealed the feasibility of Nigeria’s reliance on taxes as a key source of revenue due to the little revenue derived from oil sales and the increasing debt of the country. The Federal Government therefore needs to ensure an increment in tax revenues across the country with enforcement of compliance. The FG with the cooperation of the FIRS and EFCC must ensure tax transparency, allowing the public access to public services made available with tax proceeds. To achieve this, the FIRS would organize sensitization campaigns for the public on the importance of tax payments and services provided by doing so.

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