7% tax contribution to GDP in Nigeria deplorable - Okonjo-Iweala

The Minister of Finance, Dr. Ngozi Okonjo-Iweala has said the nation's tax to Gross Domestic Product ratio of seven per cent of GDP is not sufficient to build a strong economy.

Okonjo-Iweala said this during a presentation at the spring meeting of the World Bank Group and the International Monetary Fund in Washington DC, according to a report by the News Agency of Nigeria on Tuesday.

The minister spoke on the topic: 'Fiscal policy, equity and long-term growth in developing countries' at a forum of the World Bank.

'In my own country, Nigeria, the tax to GDP ratio is an unacceptable seven per cent of GDP as we depend mostly on government's direct share of oil revenue. This has to change,' she said.

According to her, the fundamental observation is that for low-income countries, more resources need to be mobilised from domestic sources given the anticipated decline in Official Development Assistance.

She noted that the IMF estimated that many low-income countries still had tax revenues that fell below the generally accepted threshold of 15 per cent of GDP.

Okonjo-Iweala said, 'For example, low-income countries in Africa are below the 15 per cent of GDP. Overall, we know that a further increase in tax revenues of about two to four per cent of GDP is attainable in many low-income countries.

'Interestingly, investing ODA in building strong tax systems in developing countries can yield excellent returns. Some research by the OECD indicates that $1 of ODA spent on building tax administration capacity results in another $350 in increased tax revenues.'

The minister said in developing countries, policy makers must first take responsibility for reviewing how resource mobilisation in their economies would be improved.

She said a complete diagnostic had been carried out with the help of McKinsey Consult, to see how to improve compliance in the tax system.

She noted that about 75 per cent of registered firms were not in the tax system.

The minister said, 'When we looked more closely at our tax payers' database, we discovered that about 65 per cent of registered tax payers had not filed their tax returns in the past two years.

'The main culprits tend to be this intermediate group of medium-sized professional service providers, contractors and landlords. This non-compliant group falls in the grey area between the informal sector and large companies, and I think, from an enforcement viewpoint, we can get a good 'bang for the buck' by focusing on this sector.'

Okonjo-Iweala said the estimated tax leakages due to unpaid real estate rentals in the country amounted to about $250m per annum.