Tax Reform Nigeria

Background

01

Nigeria

Fiscal Reform

Policy Proposal

Policy Gap

Current Challenges

Background

Limitations

Policy 3

Policy 2

08

07

06

05

04

03

02

01

Policy 1

Table of Contents

• Nigeria is a multi-ethnic and culturally diverse federation of 36 autonomous states and the Federal Capital Territory

• Following the recession in 2020 due to the pandemic, Nigeria’s economic growth recovered but macroeconomic stability weakened

• Growth outlook is subject to downside risks including further declines in oil production

• Millions of Nigerians are now being pushed into poverty due to global commodity shocks having implications on domestic revenues

7%

Nigeria’s revenue to GDP ratio is among the five lowest in the world.

33.3%

Unemployment rate

Demographics and Revenue

95.4M

Living in Poverty

4 in 10

People live under the poverty line

213.4M

People live in Nigeria

Nigeria

01. Background

Current Challenges

02

10%

Average growth rate of Non-oil sectors in 10 years

1%

Average growth rate of Oil and gas sector in 10 years

Nigeria’s economic growth in the twenty-first century has been driven by non-oil sectors (citizen-led)

40%

Fiscal revenue is derived from external rents through oil

9%

of GDP in Oil Earnings

• Nigeria remains a rentier state: The economy is increasingly diversifying towards a service-oriented economy, yet exports and government finances are dominated by oil rents.

Government Revenue Stream

OIL

GDP

NON-OIL

02. Current Challenges

• Nigeria’s public debt has become unsustainable causing concerns. Interest payments exceeded government income at times in 2022.

Unsustainable Spending and Debt

• Since 2021, Nigeria has been unable to benefit from the surging global oil prices, as oil production fell to historic lows and petrol subsidy continues to consume a larger share of the gross oil revenues.

Inefficient Spending

02. Current Challenges

• Subsidized petrol and electricity only benefit the rich
• Oil revenues could be 52% higher without petrol subsidies in place​ both locally and internationally

Low Public Spending

The poorest purchase just 3 percent of all subsidized petrol

12% of GDP is spent on public spending, less than 1/2 of the world average

6th-largest global exporter, holds the 10th-largest proven oil reserve in the world

Among the eight economies with the lowest human capital in the world

• In 2021, Public spending per person on education was US$22; on health: $15​

• Amount spent on subsidies exceeds what is spent on public services like education, health and social protection​

Regressive tax regime

Expenditure

02. Current Challenges

Effects of External Forces

• Negative correlation between Capital generation and Foreign aid in Nigeria ​
• Aid inflow associated with deteriorating creativitity needed for national and economic transformation.
• Meanwhile, donors provide approximately $2 billion a year in aid to Nigeria​
• Nigeria got a $26.942 billion development assistance fund from international donors between 2015 and 2020.

Aid and Resources Vulnerability

02. Current Challenges

Effects of External Forces

• Foreign aid windfalls motivated by resources Nigeria has, like oil subsidies.
• Biggest bilateral partner and foreign aid source is China: aid for infrastructure chopsticks mercantilism (power plants and railways, no institutional knowledge/ skills transfer)
• Dependency theory: Aid is good for now, but in long-term sufficiency and economic sustainability is low

Aid and Resources Vulnerability

02. Current Challenges

Policy Gap

03

Gap

• Lack of policy framework geared towards transparent and accountable mechanism to increase domestic tax revenues

• Stagnation in oil sector and opaque governance of oil revenues​
• Institutionalized Corruption
• Low revenue mobilization and collection

• Crowding-out spending on pro-poor programs​

Policy Gap

Key Bottlenecks

• Petroleum subsidies

• Foreign aid funding infrastructure
• Transparency measures

What has been done

03. Policy Gap

Proposed Policy

04

3-pronged policy approach​

Institutional

Transparency and Accountability Initiative ​

Supply side

Infrastructure Reforms

Demand side

Cash Transfers​ ​

Goal Increased domestic tax revenues | Reduced dependence on foreign aid SolutionReplace the Removal of Subsidies with a new Fiscal Contract

Policy Proposal

04. Policy Proposal

Strategic Opportunity

• Since 2000, elite consensus formed based on informal “zoning” power sharing agreement. ​
• Economic downturn and federalisation has prompted new veto players to challenge this consensus, particularly state governors. ​
• 2023 election: the most competitive yet.​
• While unsuccessful, state governor and Labour party presidential candidate Peter Obi new challenge to traditional power.​
• New president has recognised need to reach out to excluded voters, particularly young people.​

Opportunity: 2023 Elections

05. Solution

Solution

05

Policy 1: Cash Transfers​

“Quality of growth is a problem. We are rising with inequality, without creating jobs, we’re rising without a basic social protection system for our poor people”. Ngozi Okonjo-Iweala Head of the World Trade Organization and former Nigerian Finance Minister

05. Policy 1

from the World BankDistribute:300B National300B Localized State

Implementation

15.3M

Mobile money users-Digital modality for urban payment schemes should be rolled out across the wider NASSP

2x

Double Fiscal capacityNational Social Register (NSR) , National Social Safety Net Programme (NASSP)

10M

BeneficiariesUtilising decentralized Federal system so payment is accountable and transparent​

₦600B

• Social protection instruments help individuals and households to increase both their income and consumption, strengthen their resilience to shocks, and prevent destitution
• Best practice from Brazil : Familia in Brazil gained global acclaim for helping to pull millions out of poverty by providing cash transfers to poor households.

Justification

Provide targeted and time-limited cash transfers to supplement poor-income households following subsidy removal.​ ​

Address Demand-side contraints

Policy 1: Cash Transfers​

05. Policy 1

₦4.5T

equally invested into national, state, and local infrastructure development projects.

4%

boost in annual GDP growth through increasing current infrastructure endowment​and accountability.

240%

increase in infrastructure spending​ needed over the next decade to sustain current development needs

Implementation

• Ranked 132 out of 138 countries with the least developed infrastructure
• Infrastructure development fosters investment and trade, drives business opportunities, and increases employment.
• Fundamental to enlarging the tax base and promoting symmetric productivity for effective cash-transfer programs ​
• Improved infrastructure also strengthens democratic functioning and social cohesion, improves citizen welfare and decreases crime. ​

Justification

Ensure efficient spending on infrastructure development​

Address Supply-side contraints

Policy 2: Infrastructure Reform​

06. Policy 2

Increased tax revenues

Goal

Transparency

Institutional

Infrastructure

Supply side

Cash transfers

Demand side

Policy 3: Institutional Reform

07. Policy 3

Ghost workers​ Padded budgets (misappropriation) ​ Bribes

From legalized corruption (salaries) to embezzlement ​

loss in GDP BY 2030 due to corruption

500

Kinds of corruption, making Nigeria world's most complex corrupt environment

37%

Justification

Implementation

• From Bureau of Public Procurement to National Council of Public Procurement (combating ghost workers and padded budgets)​
• Whistle to Win: continue existing policy of whistleblowing and compensation with strengthened support for whistleblowers from police commissioners and NGOs like Right to Know. ​
• Creation of a non-partisan Directorate of Corruption and Economic Crime which directly investigates whistleblower claims. It will be aided by special prosecutors and civil society organisations such as Transparency International or AFRICMIL. ​

Ensure institutional resilience to corruption through transparency and accountability

Address Corruption

Policy 3: Institutional Reform

07. Policy 3

Existence of offshore secrecy jurisdictionsSubsidies benefitting state, "Occupy Nigeria" protests

Corruption

Aid and Oil rents act as windfalls and discourage capacity building practices

Perverse incentives

Path dependence from colonial legacies and norms of non-interference

Moral Hazard

Flow of taxes between federal states and central government should be effective.

Implementation

Lower taxes for MNCs to attract foreign investment

Race to the Bottom

Over 3 million internally displaced people forced to flee due to insurgency in the North-East

Insecurity and Conflict

Limitations

08. Limitations

50/50 partnership with De Beers International Diamond trading company

Instilled ethical mining practices

Proceeds from diamonds went into improving social welfrare and infratructure

Skilled job relocation programmes

Enjoys 80% of profits through dividents, royalties and taxation

Partnerships with international organizations

Good governance

Public Investment

Diversification

Resource management

o Studies indicate that as of 2009, some 60 developing countries, including Botswana, Brazil, India, Mexico, and Panama, have made regular direct transfer payments to approximately 170 million people

It is Possible

09. Business Model

Charles Yu

Caroline Ida

Sebastian Tozer

Poorvika Mehra

World Bank Team

09. Team

Questions?

World Bank. Nigeria Public Finance Review: Fiscal Adjustment for Better and Sustainable Results - Full Report (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/099615211172222358/P1750950fbd29d02008429007d1ed499d61​ ​Eustace Uzor, 2017 LSE Blog https://blogs.lse.ac.uk/africaatlse/2017/03/20/enhancing-tax-collection-efficiency-and-compliance-in-nigeria-the-role-of-behavioural-economics/ ​Usman, Z. (2022). In Economic Diversification in Nigeria: The Politics of Building a Post-Oil Economy (pp. 91–126). London,: Zed Books. Retrieved March 1, 2023, from http://dx.doi.org/10.5040/9781350237674.ch-5​ Uzonwanne, Maria and Ezenekwe, Uju, Impact of Foreign Aid on Capital Generation in Nigeria (September 11, 2015). International Journal of Economics, Commerce and Management Vol. III, Issue 9, September 2015 , Available at SSRN: https://ssrn.com/abstract=2789943​ https://guardian.ng/business-services/nigeria-received-26b-foreign-aid-in-six-years-says-minister/ ​ https://www.files.ethz.ch/isn/123928/2005_01_01.pdf​https://www.transparency.org/en/blog/recognising-progress-in-the-fight-against-corruption-stories-from-africa​ https://www.tandfonline.com/doi/full/10.1080/15228916.2019.1583980?needAccess=true​ https://carnegieendowment.org/files/CP_338_Page_Nigeria_Brief_FINAL.pdf​ https://www.chathamhouse.org/2017/05/collective-action-corruption-nigeria/executive-summary-and-recommendations​ https://africanarguments.org/2018/08/nigeria-500-kinds-corruption-new-framework/​ https://guardian.ng/features/law/poor-legal-framework-hampering-whistleblower-policy/​ https://africanarguments.org/2017/05/whistle-blowing-wont-save-nigeria/​

References

https://www.cipe.org/blog/2019/02/14/overcoming-nigerias-crippling-threat-of-corruption/​ https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/213915/anti-corruption-strategy-ng.pdf​https://www.itad.com/article/anti-corruption-in-nigeria-lessons-and-recommendations-for-future-programming/​https://www.opensocietyfoundations.org/voices/nigeria-many-anticorruption-policies-and-lots-corruption-too​https://www.longdom.org/open-access-pdfs/foreign-aid-and-african-development-lessons-from-nigeria-2332-0761-1000274.pdf​https://www.thecable.ng/why-nigeria-cant-remove-fuel-subsidy-the-danger-of-political-corruption​https://www.bbc.co.uk/news/world-africa-64431962​https://www.theguardian.com/commentisfree/2023/mar/02/the-guardian-view-on-nigerias-election-a-fresh-start-not-this-time​https://www.ft.com/content/25a73a4f-7129-48f0-a61d-e9696f50894a: Nigeria’s new president inherits fragile nation FT​Nigeria's Obi says he, not Tinubu, won presidential election https://www.reuters.com/world/africa/nigerias-obi-says-he-not-tinubu-won-presidential-election-2023-03-02/​https://www.worldbank.org/en/news/infographic/2022/11/21/nigeria-s-need-to-spend-more-and-better​https://merics.org/en/nigeria-sees-china-steady-partner-and-its-largest-lender ​https://redfieldandwiltonstrategies.com/peter-obi-leads-decisively-in-nigeria-polling/​Africa's Coming Resource Curse--and How to Avoid It​https://documents1.worldbank.org/curated/en/099545011232116970/pdf/P1778200813d1605e0b361074dc50d90cd3.pdf​Nigeria’s response to COVID-19: https://cdn.odi.org/media/documents/ODI_Implementation_final.pdf​https://theconversation.com/nigerias-large-youthful-population-could-be-an-asset-or-a-burden-186574https://www.worldbank.org/en/country/nigeria/overview

References