How Government Can Leverage Digital Economy to Increase Revenue

In the first quarter of 2020, the Federal Government made N950.56 billion in revenue. Of this amount, N943.12 billion went into debt servicing, representing 99 percent of the total revenue. But policymakers have attributed the issue to revenue shortfall than debt servicing. Arising from these is the problem of revenue leakages, sharp practices from tax administrators, and lack of institutional framework. 

In 2019, the Minister of Finance and Budget & National Planning, Mrs. Zainab Ahmed, described the fiscal challenges as a revenue challenge rather than a debt issue. Earlier, her counterpart from the Budget Office, Mr. Ben Akabueze, also alluded to Nigeria’s revenue problem. Mr. Akabueze said Nigeria has a serious revenue problem, which, if we do not address, will snowball into a debt problem.  

Last Friday, during a Public Consultative Forum on 2021-2023 Medium Term Expenditure Framework & Fiscal Strategy Paper (MTEF/FSP) report, the Minister of Finance asked participants to list ways the government can block wastage and increase the tax base. It seems the attention of the government is to make more money and money through various means. Mr. Zainab also understands to make more money is to block government revenue leakages. 

At the Consultative Forum, a poll conducted on possible sources of revenue returned digital economy and taxes as top focuses. 71 percent of the participants asked the government to focus on the digital economy, while 55 percent opted for the harnessing of taxes. The two responses showed that the FG needs to do more on taxation as a potential source of revenue growth.

“First is to block leakages, illicit financial flows, and ensure available revenue options optimised,” Mr. Tope Fasuwa, an economist and ex-Presidential candidate of ANRP(Abundant Nigerian Renewal Party), said.

Nigeria’s revenue shortfall

In the first five months of 2020, Nigeria witnessed revenue shortfall with retained earnings at N1.48 trillion. The figure represents 56 percent of the target, according to the Minister of Finance. The overall revenue is likely going to be seriously impacted due to disruptions caused by the COVID-19 pandemic and drop in global oil price. Nigeria’s revenue shortfall is not new, COVID-19 is just going to add more headaches to it. Since the bulk of the earnings are from oil, the global oil price will continue to affect Nigeria’s fiscal strength. 

In 2019, the country proposed N7tn as revenue but was able to raise N4.77tn. In 2018, it earned a total of revenue of N3.86 trillion and spent N5.85 trillion on recurrent expenditure. BudgIT, a civic tech organisation described the situation as worrisome in one of its analyses. To avert shortfall and increases revenue sources, the Federal Government enacted the Finance Act of 2019.

The Potentials of Digital Economy

The Finance Act introduced changes to tax administration, revenue generation, and businesses operating in various sectors of the economy. Some of these include the Companies Income Tax (CIT) Act, Petroleum Profits Tax (PPT) Act, Value Added Tax (VAT) Act, Personal Income Tax (PIT) Act, Capital Gains Tax Act, Customs and Excise Tariff (Consolidation) Act and Stamp Duties Act. One of the provisions is the generation of income from the digital services of a non-resident company derived from Nigeria. It was gazette under in the Companies Income Tax (Significant Economic Presence) Order, 2020.

The Order made provision for companies with gross income higher than N25 million or any services rendered within Nigeria, including those remotely done. With these provisions, Nigeria will capture the multi-billion dollar online market into the tax net, according to a 2017 report by Euromonitor International. Some of the digital companies serving the Nigerian market include Google, Opera, Uber, Jumia, Konga, and Alibaba.

To make this work, In its June report, the International Centre for Tax and Development (ICTD), urges tax administrations to partner with digital business owners to integrate tax systems into their transactions. ICTD believes such will reduce the compliance burden of the platform owners and be useful in the audit of such a tax system.

To make provision for digital tax is not enough until the government finds means to ensure adequate remittance of payable tax and collection process is smooth, Mr. Atiku Samuel, a policy analyst, said. 

“Government needs to harness a lot of ideas, boost tax morale, simplify the process of tax payment, and ensure citizens can verify that tax paid has been remitted.” He urged the government to institute tax process reform and appreciate the little citizens that are paying the tax.