The Federal Inland Revenue Service (FIRS) has voiced significant concerns regarding its inability to accurately quantify revenue losses stemming from tax expenditures, citing a critical lack of adequate data across various government agencies. This disclosure was made by FIRS Executive Chairman Zacch Adedeji during a meeting held in Abuja on April 15, 2025, highlighting a major impediment to Nigeria’s fiscal management efforts. �
Tax incentives, including tax holidays, exemptions, and reduced rates, are designed to spur economic growth and attract investment into key sectors like manufacturing, agriculture, and technology. However, according to Adedeji, the absence of comprehensive data makes it exceedingly difficult to determine the actual cost of these incentives to the federation. He emphasized that the revenue forgone due to tax expenditure remains unquantifiable due to systemic issues of poor data availability within relevant government bodies, hindering transparency and accountability. �
This challenge is particularly pressing as Nigeria aims to significantly increase its tax-to-GDP ratio from the current 10.6% to 18% by 2026. The lack of reliable data complicates the assessment of whether these tax incentives are indeed yielding the intended economic benefits or are merely eroding the tax base without corresponding gains.
Nigeria�s existing tax incentive framework includes pioneer status incentives offering tax holidays for up to five years and sector-specific waivers aimed at boosting investment. Government data indicates that between 2019 and 2021, tax reliefs and concessions worth a staggering N16.76 trillion were granted to large companies, with 46 firms benefiting by 2021. While the objective is job creation and industrial growth, critics argue that the actual impact is often overstated, a problem exacerbated by the lack of effective tracking mechanisms. �
Adedeji�s remarks underscore a broader issue of inter-agency coordination. The absence of a centralized database or integrated systems makes tracking the fiscal impact of exemptions, such as customs duty waivers and VAT reliefs, a complex undertaking. This lack of transparency creates a risk of misuse, potentially allowing ineligible entities to benefit and further deplete public resources.
The difficulty in tracking these incentives has substantial implications for Nigeria�s economy. Tax revenue forms the largest portion of the federation’s income, with the FIRS achieving a record N21.6 trillion in collections in 2024, surpassing its target. However, unquantified losses from tax expenditures could undermine these achievements, limiting the funds available for crucial public services like infrastructure, healthcare, and education. Furthermore, poorly monitored incentives can distort market dynamics. For instance, taxing agricultural exporters instead of offering targeted incentives has been criticized for discouraging exports and encouraging under-invoicing, ultimately reducing revenue. A more transparent system could ensure that incentives are effectively targeted towards priority sectors while safeguarding the national treasury.
The FIRS has initiated steps to address these challenges, including the launch of the FIRS e-Invoice platform in 2024, which aims to enhance transparency through the digitization of invoice management and improved real-time transaction visibility. Additionally, the Ministry of Finance�s Incentive Monitoring and Evaluation Platform (IMEP) seeks to curb misuse through features like duty claw-back mechanisms and geo-location tagging. Adedeji also advocates for the harmonization of tax laws to simplify administration and reduce overlaps. Proposed tax reform bills currently before the National Assembly aim to simplify compliance and broaden the tax base without introducing new taxes, potentially providing a framework for better tracking of incentives and ensuring their alignment with national economic objectives. �
Moving forward, a multi-pronged approach is deemed necessary to effectively tackle the tracking problem. This includes strengthening inter-agency collaboration through the establishment of a centralized database for all tax expenditure data. Scaling up technology-driven solutions, such as the e-Invoicing system, to cover all sectors benefiting from incentives is also crucial. Finally, regular audits and impact assessments are essential to ensure that tax waivers deliver measurable benefits, such as job creation and increased output, rather than serving as avenues for revenue leakage. The FIRS�s acknowledgement of this critical issue represents a step towards greater accountability, but decisive action is now imperative. As Nigeria navigates its economic challenges, including fluctuating oil prices and rising debt, optimizing tax revenue is non-negotiable. Transparent and trackable tax incentives are vital for balancing the need to attract investment with the fundamental requirement of fiscal sustainability. �
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