has been advised to strengthen
its tax system, which has been
described as a more sustainable
option to raise government
Analysts at the Financial
Derivatives Company Limited
(FDC) gave the advice in the latest
economic report. The research
and investment firm noted that
unlike revenue from oil and
other exports, taxes have a very
limited vulnerability to external
pressure, adding that it takes less
time, effort and cost to improve
tax collection than to implement
other long-term development
plans such as agricultural
reformation, construction of
refineries that are expected to
contribute to revenue.
Many have advocated the
revival of the agricultural sector
as the way out of the present
economic challenge facing
the nation. It is expected that
agriculture would diversify the
nation’s exports and thus expand
the supply source of its foreign
In 2014, total tax revenue from
the Federal Board of Inland
Revenue was N4.69 trillion, from
N4.78 trillion in 2013. From
this, the tax to Gross Domestic
Product ratio was 5.9 per cent
in 2013 and 4.3 per cent in 2014,
which was substantially lower
than the sub-Saharan African
average of 21 per cent in 2014.
To this, the FDC report stated:
“This declining trend is not a
problem of inappropriate policy
but rather one of an inefficient tax
collection system. Currently, the
Nigerian tax system is generating
much less than its potential.
Because the tax officials are
not well trained and equipped
or well-paid and monitored
there has been inefficiency and
corruption in the past.
“In addition, the wide-spread
perception that the government
is corrupt and will not efficiently
expend the collected revenue for
the good of the general public,
acts as a deterrent to tax payers.
This is further complicated by the
unnecessarily onerous process
involved in the payment of tax.”
According to PwC’s report,
“Paying Taxes 2016,” a research
that measures the ease of paying
tax, Nigeria ranks 181 out of 189
“Thus, the problem of
inefficient mobilisation of tax
needs to be solved to improve
internally generated revenue.
At the state level, Lagos offers a
valuable lesson. As the nation’s
commercial hub, Lagos state
has a population of about 21
million, of which at least 20 per
cent are in the working class. In
2012, the Lagos State government
generated N219 billion internally,
amounting to 55 per cent of the
proposed budget for that year.
“Of this internally generated
revenue, 78 per cent stemmed
from pay-as-you- earn taxes
(income tax). The state’s success
is due to its rigorous collection
of tax at all levels of enterprise-
even small scale businesses. This
cumulative collection has funded
Lagos’ fast development and
“In conclusion, it is necessary
to diversify the government’s
revenue base from oil proceeds,
to more stable sources like
taxes, which are dependent on
the national income and can be
stimulated by monetary and fiscal
policies. Such diversification
will reduce the level of exposure
to external shocks and boost
“Where there is economic
stability, the country becomes
more attractive to foreign
investments which are what
Nigeria needs in this critical
moment to spur economic activity
and output. Thus, diversification
acts as a springboard for
economic growth- the primary
concern of every government for
its economy,” it added.
It however pointed out that in
terms of economic output; the
Nigerian economy had already
been diversified, revealing that
in third quarter 2015, the non-
oil sector contributed 89.73 per
cent of total real GDP while
oil contributed only 10.27 per
cent. Amongst the top non-oil
contributors were: agriculture,
trade, and information and
communication. “On the other
hand, government revenue
remains largely dependent on
oil. This lack of diversification is
all the more problematic because
of the volatility of the oil sector.
Commodities are notorious for
their volatility.
“This volatility affects prices,
production and inventories. The
weak fundamentals are driven by
an elastic demand. Thus, prices
are extremely susceptible to
changes in demography, climate,
exchange rates, growth and
policies in major economies
Currently, an estimated two-
thirds of the government’s
budgetary revenue is derived
from oil. This dependency has
been especially catastrophic for
the government in the wake of
falling oil prices,” it adde