A recent analysis has it that the Federal Government of Nigeria from one form of relief to the other had lost the sum of ₦5.16 trillion in 2020 alone. Beyond legitimate reliefs, the report also has it that sharp practices alongside compliance glitches are also a major contributor to this loss.
In specificity, waivers on Value Added Tax, Company Income Tax, and Petroleum Profit Tax in 2020 are further reasons why the figure continues to rise as pointed out by data from the 2022-2024 Medium-Term Expenditure Framework and Fiscal Policy Strategy report.
For the period under view, It was discovered that the country had lost ₦4.3tn to reliefs on VAT. Recall that the Nigerian Bureau of Statistics had recently said VAT yielded only about ₦1.8tn in 2020, resulting in a tax gap of about ₦4.3tn.
Out of the ₦4.3tn tax gap, about ₦900bn is attributable to exemptions laid down in legislation, while the remaining ₦3.4tn is attributable to the compliance gap, this is according to the report by the MTEF/FSP report.
The report in leaving no stone unturned analyzed that the sum of ₦457bn was lost to CIT waivers from large tax offices and medium tax offices, compared to the ₦1.1tn in 2019, representing a decrease of ₦634bn.
A breakdown of the ₦457bn CIT waivers shows that “manufacturing accounted for 65 percent of tax expenditure (₦297bn), LTO financials contributed to 15.8 percent of TEs (₦72bn) while ₦440m was from an exemption of profits under Section 23 of CIT Act”.
On CIT, the report summarizes that Nigeria compares poorly to regional peers and the Organization for Economic Co-operation and Development benchmark with regards to CIT collection efficiency.
The sum of ₦307bn was lost due to waivers granted on Petroleum Profit Tax by the Federal Government within the period under review.
It emphasized that the losses from PPT waivers might have been higher, as only a partial computation was carried out due to the limited availability of data.
What the report is Saying
“In most countries, their compliance gap is caused by several factors, including underground economic activity in the informal sector, aggressive tax planning, and problems in tax administration.
“However, in Nigeria, some firms, notably in the financial sector, are granted relief from VAT. Because this relief is not set out in the VAT Act it is not captured as a tax expenditure in the current estimates.”
The report drew a conclusion that as a result of inherent irregularities, the current estimated loss due to the policy gap might be too low and the compliance gap too high.
Recall that Muhammad Nami, Chairman of, Federal Inland Revenue Service had recently put the number of taxpayers in the country at 41 million.
The chairman also lamented the nation’s low tax reruns compared to South Africa.
In his words,
“Our total taxpayers today are in the region of about 41 million people, and the total personal income tax paid last year was less than ₦1tn by 40 million people.
“If you also compare that with South Africa where they have a total population of about 60 million people, with just four million taxpayers, the total personal income tax paid in South Africa last year is about ₦13tn. You can now see that these things are not adding up.