IMF advises Nigeria to reduce tax evasion and corruption

The International Monetary Fund has advised Nigeria to increase the compliance rate in tax administration.

IMF also cautioned Nigeria on the need to watch its foreign exchange depletion as the normalization of interest rates in the United States which is redirecting capital outflows is just in its earlier stages.

Nigeria and other emerging market nations have come under pressure since April with a combination of factors affecting emerging market since then.

IMF said this today in a Transcript of the Press Conference of the October 2018 Fiscal Monitor sent to Elombah News.

“Certainly, in the tax administration, IMF stated something that could be done is to increase tax audits is to use e‑filing to a greater extent.

“There are data matching exercises that can be conducted. So generally trying to reduce tax evasion, possibly corruption as well, those would be priorities on the tax administration side.”

Paolo Mauro, Deputy Director, Fiscal Affairs Department was responding to a questioner that asked: “Nigeria has actually tried its hand in so many areas to expand the tax net, just as the IMF and the World Bank have advised, but it seems that we have not been getting the revenue or the revenue returns to the level that is able to help us overcome the debt‑to‑revenue ratio right, like you have measured ‑‑ you have always pointed out. What exactly are we not getting right in that place? In tax administration, what are we not getting right? Because the much we have done, we are still falling short of the revenue. So, what have we not done right? What would you recommend? What is it all about the tax, expanding the tax system that we cannot get right? We just want to get exactly your view.”

MR. MAURO responded: “I hope I heard the question correctly, but if I heard it, it is basically, there is an issue of how to increase the revenue base for Nigeria. And, indeed, we do see this as a crucial priority for the country, increasing non‑oil revenues. If one looks at the ratio of interest payments‑to‑revenues for Nigeria, that is quite high. And certainly, increasing revenues is the way in which one creates the space to do social spending, infrastructure, and other types of spending that benefit economic growth. So, clearly, that is a priority.

“How does one go about it? We have been discussing over the years with the government, and we see the priorities in tax administration, but there are also aspects of tax policy that would help. So, certainly, in the tax administration, to increase the compliance rate, something that could be done is to increase tax audits, to use e‑filing to a greater extent. There are data matching exercises that can be conducted. So generally trying to reduce tax evasion, possibly corruption as well, those would be priorities on the tax administration side.

“On the tax policy side, usually what has been recommended in previous discussions is to increase excise taxes on tobacco and alcohol. Stamp duties is something that can be looked at again. And, more generally, I think it is not just the revenue side; it is also the spending side. Clearly, improving the choices that one makes on which infrastructure projects, how does one go about selecting the ones that are really going to boost growth. So, I think, definitely, it is a priority to increase revenues, but also to be careful about, What are the ways in which we can make spending more efficient?”

Speaking at the launch of the global financial stability report, the Head of Emerging Economies Regional Studies Division in the IMF, Anna Ilyina, said it started with sharp appreciation in US dollar in the context of rising US interest rates adding that emerging markets are very sensitive to changes in external balancing.

She said those countries that have stronger economic fundamentals and policy frameworks and less external financing have been really less affected.

IIyina said: “In the case of Nigeria, there is one important driver that always affects its economic condition and that is oil. Nigeria being an oil exporter is always very sensitive to changes in oil prices.

“In terms of policy responses, of course flexible exchange rate is the first line of defence. Allowing exchange rate to act as an external measure is healthy to adjust to external environment. Of course, forex intervention might make sense in certain circumstances. But then, one has to consider the growth in fundamentals, the level of reserves and other policy tools that might be more appropriate in country-specific circumstances.

“Another thing that I want to mention is that given that we are still at the early stage of monetary policy normalisation in advanced economies. So, one can expect global external conditions and external balance conditions to remain challenging going forward.”

Speaking on the plans by Nigeria to continue to borrow from the international market despite huge debt profile, Tobias Adrian, Financial Counsellor and Director at the IMF, said the Fund has seen in recent years increase in countries that issue debt in international capital market.

“That’s a good thing for development. When debts are raised for infrastructure projects, it is good,” he said.

Adrian added: “International borrowing will need to be balanced with stability objectives. So, countries have to make sure that the level of borrowing is sustainable in the long run, to be able to pay both the interest rate and principal, even if there is a change in situation.

“In the case of Nigeria, the optimism is more on oil prices and it is constrained by how much the favourable price can continue. It could decline at any time. We have some slow down as financial conditions in recent months from emerging markets have tightened, which the country is inclusive.

“Of course, there is going to be quite a bit of need for rollover of debts in 2020 and 2022 and much that the country can do so that the international market would allow the rollover in smooth fashion.”