Tax breaks and incentives are ineffective at encouraging remittances and growth – FG Says

Despite the Federal Government’s efforts to harness the benefits of tax exemptions and concessions, Zainab Ahmed, Minister of Finance, Budget, and National Planning, has stated that the incentive has resulted in a significant income loss for the government.

Despite the government’s commitment to decreasing tax expenditure, she claims that the country’s current revenue to Gross Domestic Product (GDP) ratio of roughly 7% is bad and unsatisfactory.

This was said by the minister on Monday in Abuja at an ECOWAS Commission workshop on tax spending held in the context of the implementation of the Support Programme for Tax Transition in West Africa (PATF).

The PATF’s goal is to improve domestic tax management and provide better tax coordination in the ECOWAS and West African Economic and Monetary Union (WAEMU) regions.

The minister, who was represented by Fatima Hayatu, Director, Technical Services in the Ministry, noted that Nigeria’s inadequate revenue production capacities have long been a source of frustration for both past and present governments.

She stated that, despite Nigeria’s status as Africa’s largest economy, converting riches into revenue creation has remained a struggle.

According to Ahmed, Nigeria faces difficulties in raising domestic money for human capital development and infrastructure development, both of which are key drivers of long-term economic growth and development.

“Our present revenue to GDP ratio of around 7% is inadequate,” the minister stated, adding that “we are keen on improving this by executing various measures.”

“The case remains the same with our current contribution of oil and non-oil GDP, for which our analysis of oil revenue to GDP reveals as high as 39%, while non-oil revenue to non-oil GDP exposes as much as 4.2 percent.” In Nigeria, for example, our VAT revenue as a percentage of GDP is less than one percent (0.8%), which is lower than the ECOWAS average of 3.4 percent. Our excise revenue is likewise low, at 4.1 percent, compared to Ghana’s 15.3 percent and Kenya’s 19.5 percent.

“It is important to emphasize that, while successive Nigerian governments have long used tax exemptions and concessions to attract both domestic and foreign direct investments in the country, with the expectation that the revenue foregone will result in commensurate benefits to the economy in the form of employment creation, capital formation, wealth creation, and poverty alleviation, revenue generation, and technology transfer, among other things, they do not constitute huge tax expenditures and revenue leakages to government.”

The minister stated that the present administration would continue to stress the importance of scrutinizing the tax expenditure component of federal government spending.

According to Ahmed, the government recently sent a tax expenditure statement circular to all relevant government entities, outlining criteria and directions for rigorous adherence, compliance, and reporting.

Salifou Tiemtore, Director of the Customs Union and Taxation, said the PATF initiative would help boost the regional fight against fraud, tax evasion, IFFs, and other forms of corruption.

He explained that the workshop was the first in a series aimed at disseminating the contents of the Tax Expenditure Guide to specific nations such as Nigeria, Liberia, Guinea Bissau, and Mauritania.

According to him, the deployment of PATF tools will improve domestic taxation management in member states by allowing for more efficient VAT management and tax spending control.

He thanked the European Union Delegation (EUD) for their assistance and funding, and assured them that the commission will continue to administer the program for the benefit of its members.

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