To compound the situation, Domestic Resource Mobilisation, which holds the key to unlocking Nigeria’s potential and creating fiscal space for transformational investments in these vital sectors, and to withstand unforeseen shocks, is facing significant challenges. Now, more than ever, President Bola Tinubu must quickly fix these DRM challenges, as the nation’s prosperity and the well-being of its citizens are contingent on his actions.
DRM is critical to Nigeria’s financing needs for several reasons. First, it offers a reliable alternative to external sources of finance like the Official Development Assistance and debt, which often come with the burden of debt servicing. Moreover, the exchange rate depreciation and rising global interest rates have made debt financing less viable for Nigeria’s spending plans.
Prioritising DRM in Nigeria can unlock a powerful engine for economic growth and sustainable development, ensuring greater autonomy and control over its financial destiny. However, successful domestic resource mobilisation requires overcoming significant hurdles, particularly lower tax rates and tax avoidance, which hinder the development of a robust and diversified tax base, undermining the overall tax revenue collected.
Similarly, the DRM efforts face challenges from a large informal economy, where businesses do not report their income and hence remain mostly untaxed. The government must explore ways to incentivise informal businesses to formalise their operations and be included in the tax base. One way to do that is to leverage digital platforms to establish a robust database of informal players that can serve as a decision-making tool for fiscal management of the sector.
The Federal Government’s use of tax incentives has also been ineffective and opaque, further limiting its revenue generation. While tax incentives can be beneficial for attracting investments, global best practices demand regular assessments to ensure they achieve their intended objectives. Unfortunately, there has been a significant absence of statutory evaluation and reporting of the budgetary and financial impacts of tax incentives in Nigeria.