IMF Asks Nigeria To Increase VAT, Improve Tax Compliance

Written by on February 8, 2022

The International Mone­tary Fund (IMF) on Mon­day called on Nigeria to engage in significant do­mestic revenue mobilisation, in­cluding by further increasing the value-added tax rate, improving tax compliance, and rationalising tax incentives.

It also highlighted the urgency of fiscal consolidation to create policy space and reduce debt sus­tainability risks.

This is contained in the Wash­ington, DC based body’s conclu­sion of Executive Board’s Consul­tation with Nigeria.

IMF commended Nigeria authorities’ proactive management of the COVID-19 pandemic and its econom­ic impacts, noting, howev­er, that the outlook remains subject to significant risks, including from the pan­demic trajectory, oil price uncertainty, and security challenges. ­

Looking ahead, IMF emphasised the need for major reforms in the fis­cal, exchange rate, trade, and governance areas to lift long-term, inclusive growth.

It also urged the remov­al of untargeted fuel sub­sidies, with compensatory measures for the poor and transparent use of saved resources, stressing the importance of further strengthening social safe­ty nets.

It welcomed the remov­al of the official exchange rate and recommended further measures to­wards a unified and mar­ket-clearing exchange rate to help strengthen Nige­ria’s external position, taking advantage of the current favourable con­ditions. “They noted that exchange rate reforms should be accompanied by macroeconomic poli­cies to contain inflation, structural reforms to im­prove transparency and governance, and clear communications regard­ing exchange rate policy.

“Directors considered it appropriate to maintain a supportive monetary policy in the near term, with continued vigilance against inflation and bal­ance of payments risks. They encouraged the au­thorities to stand ready to adjust the monetary stance if inflationary pressures increase.

“Directors recommend­ed strengthening the mone­tary operational framework over the medium term—fo­cusing on the primacy of price stability—and scal­ing back the central bank’s quasi-fiscal operations”, the statement noted.

It also said the directors welcomed the resilience of the banking sector and the planned expiration of pandemic-related support measures.

“They agreed that while the newly launched eNaira could help foster financial inclusion and improve the delivery of social assis­tance, close monitoring of associated risks will be im­portant.

“They also encouraged further efforts to address deficiencies in the AML/ CFT framework. Directors emphasised the need for bold reforms in the trade re­gime and agricultural sec­tor, as well as investments, to promote diversification and job-rich growth and harness the gains from the African Continental Free Trade Agreement. Improve­ment in transparency and governance are also crucial for strengthening business confidence and public trust. Directors called for stronger efforts to improve transparency of COVID-19 emergency spending”, the body said.

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