IMF: Mobilising revenues, fair tax systems key to meet spending needs

The International Monetary Fund (IMF) has underscored the importance of effective revenue mobilisation and the establishment of broad-based and fair tax systems to meet the spending needs of emerging market and developing economies. This emphasis comes as Nigeria, in a bid to boost its tax revenue, plans to introduce a 50% tax relief for companies that increase salaries or provide transportation allowances to low-income workers. Adeyemi Adediran, Partner, Commercial Practice Group at Andersen Tax, shed light on Nigeria's tax strategy in a recent interview with CNBC Africa. Adediran highlighted the significance of expanding the tax base to increase revenue, especially considering Nigeria's tax-to-GDP ratio currently standing at around 10%, below the 15% threshold required to start reaping the benefits of good governance. He emphasized the need to integrate informal tax sectors into the formal economy to streamline tax collections and bridge the revenue gap more effectively. The discussion delved into the disparity between Nigeria and its West African counterparts, many of whom have already achieved a 15% tax-to-GDP ratio. Adediran attributed this gap to two key factors: tax awareness and technological adoption. He stressed the importance of educating the populace on tax obligations and leveraging technology for efficient tax collection, areas where Nigeria has made strides in recent years. Moreover, Adediran noted the essential link between economic productivity and tax revenue, highlighting that sustainable revenue collection is contingent upon a robust economy with income-generating opportunities. Aligning economic growth strategies with tax reform measures is crucial to ensuring that the taxable populace has the capacity to meet their tax obligations. In a bid to strike a balance between tax revenue enhancement and economic relief, Nigeria is contemplating a 50% tax relief for companies that bolster employee salaries or offer transportation benefits. Adediran lauded this approach, emphasizing that targeted incentives like these inject liquidity into businesses while encouraging compliance with tax regulations, ultimately fostering a more conducive business environment. Additionally, the Nigerian government is exploring the option of allowing tax payments in installments, providing companies with greater flexibility in meeting their tax obligations. However, Adediran highlighted the need for a thorough examination of this provision to assess its impact on revenue projections and corporate financial planning. In conclusion, Adediran expressed optimism about Nigeria's evolving tax landscape, commending the government's efforts to modernize tax laws, enhance tax compliance, and stimulate economic growth. By aligning fiscal policies with economic realities and incentivizing taxpayer participation, Nigeria aims to strengthen its revenue base while fostering a more business-friendly environment.