President Bola Tinubu yesterday vowed to end Nigeria’s over-reliance on borrowing to finance public spending. He made the vow at the inauguration of the presidential committee on fiscal policy and tax reforms.
Public debt growth
Nigeria’s total public debt rose sharply by 501 per cent in the nation’s total debt in eight years to N72.55 trillion in March 2023, from N12.06 trillion in March 2015, a development driven by increased borrowing, worsened by the global pandemic and economic recessions in 2016 and 2022.
Data from the Debt Management Service, DMO, shows that the N75 trillion total public debt comprises N19.64 trillion of foreign debt, N30.21 trillion of domestic debt and N22.7 trillion of Ways and Means lending to the Federal Government by the Central Bank of Nigeria, CBN.
Furthermore, the country spent N3.36 trillion to service debts in 2022, representing 14.68 per cent increase from N2.93 trillion in 2021.
While the country spent N1.07 trillion to service its external debts, it expended N2.56 trillion to service domestic debts.
According to the World Bank, Nigeria spends 96.3 per cent of its revenue on debt servicing in 2022 from 83.2 per cent in 2021, projecting that the debt service-to-revenue ratio may rise to 103 per cent in 2023.
Presidential Committee on Tax Reform
Recall that the President set up the committee, chaired by a tax and fiscal policy expert, Taiwo Oyedele, on July 7, 2023.
The committee, which comprises experts from both the private and public sectors, is responsible for the various aspects of tax law reform, fiscal policy design and coordination, harmonisation of taxes and revenue administration.
In his remarks at the inauguration yesterday, President Tinubu said the committee was in line with his promise to remove all barriers impeding business growth in Nigeria.
He said the country could not continue to tax poverty or production but focus on returns, income and consumption.
He said: “The consequences of the ongoing failure of our tax regime are real and significant. The inability of the government to efficiently raise revenue has led directly to an over-reliance on borrowing to finance public spending.
“A government that cannot properly fund itself will also lack the flexibility or fiscal scope to sensibly manage the economy or respond to external shocks.
“Instead, debt service begins to consume an ever greater portion of the government’s already meagre revenues.
“This traps the economy in a vicious cycle of borrowing simply to service previous debt and leaves almost no scope for socio-economic development.
“As President, I am determined to end this cycle. On the day of my inauguration, I promised that my administration would address all of the issues impeding investment and economic growth in Nigeria.
‘’This promise is why I saw an end to fuel subsidy. It is the reason the Central Bank has called an end to its multiple exchange rate system under my watch.
“It is for the same reason we gather here today (yesterday) to inaugurate the Presidential Committee on Fiscal Policy and Tax Reforms.”
Cost-effective solutions
Speaking further, the President said: “Within the scope of its mandate, the committee shall have as its objective the advancement of viable and cost-effective solutions to issues such as the multiplicity of revenue collection agencies, the high cost of revenue administration, the excessive burden of compliance on ordinary taxpayers, the lack of effective coordination between fiscal and other economic policies within and across levels of government and poor accountability in the utilisation of tax revenues.
“The committee comprises experts from both the private and the public sectors. I have given them a strong mandate and I expect their report to cover tax reform, fiscal policy design and coordination, harmonisation of taxes and revenue administration, among other items.
“Our target is to improve Nigeria’s revenue profile while making the business environment more conducive and internationally competitive.
‘’Our aim is to transform the tax system to support sustainable development, while, at the same time, achieving a minimum of 18% Tax-to-GDP ratio within the next three years.
“In order to ensure seamless implementation, the committee shall be empowered, not merely to make recommendations but also to provide practical support to the government in the execution and delivery of the recommended changes.
“The committee is expected to achieve its mandate within a period of one year. They are, in the first instance, expected to deliver a schedule of quick reforms which can be implemented within thirty days.
‘’Critical reform measures should be recommended within six months and full implementation will take place within one calendar year.”
Tinubu also directed all government agencies, ministries and departments, MDAs, to cooperate fully with the committee towards achieving its mandate.
‘Further engagement with stakeholders’
On his part, the Special Adviser to the President on Revenue, Zacchaeus Adedeji, said the inauguration of the committee would give it the opportunity to further engage with stakeholders to identify their pains and critical concerns bothering on tax and fiscal policies as well as collectively develop the solutions necessary to address the challenges in a holistic manner.
In his remarks, chairman of the committee, Taiwo Oyedele, said those who evade tax get away with little or no consequences, adding that there needed to be a change. Oyedele said Nigerians are willing to pay tax if they are sure of what it would translate to.’’
Also speaking at the event, the World Bank’s Country Director for Nigeria, Shubham Chaudhuri, said the removal of subsidy payment had increased the nation’s revenue-to-Gross Domestic Product, GDP, to two per cent and strengthened the economy.
Chaudhuri said: “Just the fact that what the President did on his first day in office, which is eliminate fuel subsidies that already added close to two per cent points of GDP to government revenues.’’
He said Nigeria was losing about N10 trillion per year on payment of subsidy, adding that right now, the target was 18% and would grow further over time.
“If you look at other sub-Saharan African countries, or I would actually say other middle income countries, such as India and Indonesia, it would be good to see they’re not very high, it’s between 15 and 20 per cent of GDP.
“At a minimum, I think in Nigeria, we would hope to get there from seven to eight per cent of GDP that it is today,’’ the World Bank director said.