IMF said the Nigerian economy is at a critical juncture and the government must act fast on reforms that will help overcome the aftermath of the economic fall out due to the oil price crash and the COVID-19 pandemic.
“Policy adjustment and reforms are urgently needed to navigate this crisis and change the long-running lackluster course,” IMF said in the report.
In February 2020, Nigeria increased its VAT rate from 5% to 7.5%. The increment was widely criticised by many.
IMF said the increased VAT rate is still among the lowest in the world and less than charged by other major oil-exporting nations.
Despite the increased VAT rate in November 2020, Africa’s largest economy, slipped into its second recession in five years as the gross domestic product contracted for the second consecutive quarter.
The National Bureau of Statistics said the nation’s GDP recorded negative growth of 3.62 per cent in the third quarter of 2020, having recorded a 6.10 per cent contraction in the second quarter.
NBS said this recession is the worst since 1987 as the Gross Domestic Product in real terms declined by -3.62% (year-on-year) in the third quarter of 2020 and is driven by the long closure of the Nigerian borders which restricted economic movements across the borders.
IMF, however, said a large share of revenues is spent on the country’s public debt service payments, leaving insufficient fiscal space for critical social and infrastructure spending and to cushion an economic downturn.
“In this context, mobilizing revenues through efficiency-enhancing and progressive measures is a top near-term priority,” IMF said.
“Revisiting tax exemptions and customs duty waivers, increasing and broadening the base for excise taxes, developing a high-integrity taxpayer register, enhancing digital infrastructure, and improving on-time filing and payment are important measures.”
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