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  • Business - Economy
  • Updated: November 15, 2020

FIRS Boss Reveals Nigeria At Risk Of Debt Crisis

FIRS Boss Reveals Nigeria At Risk Of Debt Crisis

Tax now account for 70 percent of Nigeria's revenue according to the chairman of the Federal Inland Revenue Service (FIRS), Mohammed Nami. The country that once depended largely on oil revenue, now runs on tax collection, and revenue problem put Nigeria at risk of debt crisis.

Nami revealed that tax revenue account for greater amount of the country's income, while the remaining 30 percent are drawn from other revenue lines, which includes crude oil. He made this known during a presentation titled ‘Weathering Economic Turbulence’.

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Despite the growth of tax revenue, Nami said there's need to review Nigeria's tax laws, as they were made before the 1960 Independence. He said Nigeria's total revenue available to the Federation Accounts Allocation Committee (FAAC) in June 2020 is equivalent to what a county in the United States spends. Nami put the total revenue of FAAC at N696 billion (about $2 billion).

Nigeria's Impending Recession To Affect Revenue Generation

He further commented on Nigeria's impending recession which will affect the country's revenue, “Nigerian economy is projected to contract by over five per cent in 2020 due to COVID-19 and other disruptions.

"Oil prices have plummeted (from $97.98 in 2012 to below $50 in 2020),” Nami said, adding that, “Collection has indeed gone up, but Nigeria’s VAT gap remained at a pitiable 70 percent, compared with South Africa at 12 percent, Morocco at 28 percent, and Zimbabwe at 38 percent.”

While referencing the World Bank, Nami said Nigeria's tax-to-gross domestic product (GDP) ratio is below the international financial institution's recommendation, which is 15 percent, if Nigeria intends to record economic growth and poverty reduction - currently, Nigeria's tax-to-GDP is six percent.

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Nigeria At Risk Of Debt Crisis

He said if the country's revenue doesn't improve, Nigeria will struggle to service its debt, and it will lead to debt crisis, “A Debt Management Office (DMO) report indicates that about N1.21 trillion was used to service debt from January to June 2020.

“Over N3 trillion is proposed for debt servicing in 2021. The report further projects that Nigeria’s debt stock will grow significantly by end of 2020. God forbid that Nigeria should default in debt repayment obligations.

"Nigeria’s debt to revenue ratio is worsening – it is estimated at 538 percent at the end of the fourth quarter, that is 190 percent increase from 2019 figure (348 percent).” Nami said, explaining that the debt crisis will worsen insecurity and political unrest.

Nami further stated that any change in crude oil prices will affect Nigeria due to the country's mono-product economy.

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