By now, you probably know the Nigerian federal government is broke.
This year, the federal government’s budget deficit is ₦9 trillion, as it planned to spend ₦17 trillion while it hoped to earn ₦8 trillion and borrow to fund the rest of the budget. What’s worse is that it now earns less than it needs to pay the interest on its loans.
When this happens, the government struggles to meet other obligations like paying salaries and improving human capital in the country. It’s difficult to see how the government will meet ASUU’s demand of ₦1 trillion when it earned just ₦1.3 trillion between January and April this year and spent ₦1.9 trillion paying back interests on loans.
Key takeaways:
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Nigeria’s low revenue situation and lack of fiscal space call for an increase in revenue from sources that aren’t being fully tapped, such as taxes. Several tax reforms by the federal government have led to an increase in tax revenue from ₦1.7 trillion to ₦5 trillion in the last decade.
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However, Nigeria still collects less than 1% of its GDP in personal income taxes, while developed countries like the US and Denmark earn 10% and 24% of their GDP, respectively. South Africa and Rwanda earn 9% and 5%, respectively.
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For state governments to improve their Personal Income Tax (PIT), they must improve the economy of their states to increase income. This includes enacting formal and informal monitoring and tax collection and implementing stringent tax evasion penalties.
The lack of federal government revenue doesn’t just affect the FG’s budget. It also impacts how much allocation goes to the states. Without sufficient revenue going to the states, they can’t
