Low Revenue Poses Financing Risk for Nigeria, IMF Warns

Obinna Chima and Dike Onwuamaeze

The International Monetary Fund’s (IMF) Mission Chief and Senior Resident Representative for Nigeria, Ms. Jesmin Rahman has warned that Nigeria’s low revenue level remains a fiscal risk to the country.

Rahman, however, stressed that the country does not have a public debt crisis.

She gave the warning yesterday at a webinar titled: “Nigeria’s Fiscal Sustainability: Imperatives, Impediments and Options,” which was hosted by the Nigeria Economic Society Group (NESG).

The IMF representative therefore called on the federal government to ensure that it implements the Finance Act 2020.

Rahman added: “We did an in-depth analysis, public debt is projected to reach about 37 per cent of Gross Domestic Product (GDP) this year and to remain roughly around that level in the medium term. We did various stress scenarios in our debt sustainability analysis and in all of those scenarios, public debt did not go beyond 50 per cent of GDP.

“So, I will not say there is a public debt crisis or that it is extremely high, it is really a revenue issue. A very low revenue level is what poses a fiscal risk and there are sizeable financing risks in the next 12 months. It is good that there is high liquidity in the domestic market and a favorably borrowing cost.

“But going beyond the short-term, there is a big Eurobond falling due in January. So, eventually Nigeria will have to go to the international market for borrowing and that is where the vulnerability is. But before that happens, Nigeria need to make sure that the risk perception goes down.”

In terms of how to diversify the country’s revenue base, she advised the country to be aggressive with the Value Added Tax (VAT) and the company income tax (CIT) implementation.

“Also, excise duty on alcohol and tobacco are the most important pillars of tax system around the world and for Nigeria, revenue from excise duty is very little at about 0.04 per cent. There is also scope for sub-national taxation in property and personal income tax,” she said.

Her call for the implementation of the new Finance Act 2020, was supported by the Special Adviser on Finance and Economy to the President Muhammadu Buhari and former Acting Governor of the Central Bank of Nigeria, Dr. Sarah Alade, who was also among the panelists.

Alade said: “Personally, I think the new law should not be dead on arrival. Let us just implement it. We already have relief measures and other fiscal and monetary measures that cushioned the severe economic condition I will think that we shall see how to implement the new VAT regime and make sure that it really takes root.”

She said that Nigerians should see the mobilisation of public revenue as every citizen’s responsibility and not a matter for government alone, adding that the government has been doing its best by reducing public expenditures

Similarly, the Chairman of the Federal Inland Revenue Service (FIRS), Mr. Muhammad Mamman Nami, stated that those asking for the non-implementation of the new VAT were simply acting the Oliver Twist because the new law has taken away 60 per cent of the tax base and removed 800 items from the chargeable items.

Nani said the FIRS’ intention is to focus on indirect taxes, which the VAT is the best way to go. He added that the service is working to see if it would be possible to increase the threshold for exemption from VAT.

He regretted that most firms charge VAT but did not remit it. “This is a big challenge. We are also working on carbon emission tax.

“What we are trying to do at the FIRS is to carry out reforms. We are also modernising the tax administration process. Currently, we are working on certain amendments of our establishing Act that we hope to submit to the Minister of Finance for onward submission to the National Assembly as part of our 2021 budget estimate,” Nani said.

The Director General of Nigerian Governors’ Forum, Mr. Asishana Okauru, said that the state governments have realised the importance of professionalising and automating their tax administration system.

Speaking in the same vein, the Co-Chair of the NESG’s Fiscal Policy Roundtable Dr. Suleyman A. Ndanusa, said that the battle cry in Nigeria currently should be revenue.

“The most important thing is raising revenue. The watchword is Revenue! Revenue! Revenue! This must be efficiently raised and efficiently used. There has to reform in revenue administration to improve perception, increase tax base and modernise tax administration. “What matters at this point in time is revenue, revenue, revenue.We must build the public revenue in order to be able to tackle a lot of our problems,” he said.