The Federal Government lost revenue worth N5.16tn to tax reliefs granted on Value Added Tax, Company Income Tax and Petroleum Profit Tax in 2020.
This figure was obtained from the 2022-2024 Medium-Term Expenditure Framework and Fiscal Policy Strategy report.
The report said Nigeria lost N4.3tn to reliefs on VAT, comprising primarily of reliefs granted by legislature and compliance burden.
The report said if all commodities in the Nigerian VAT system were fully taxable, the country would generate about N6tn from the existing tax structure.
According to the MTEF/FSP report, out of the N4.3tn tax gap, about N900bn is attributable to exemptions laid down in legislation, while the remaining N3.4tn is attributable to the compliance gap.
It said, “In most countries, there compliance gap is caused by several factors, including underground economic activity in the informal sector, aggressive tax planning and problems in tax administration.
“However, in Nigeria, some firms, notably in the financial sector, are granted relief from VAT. Because this relief is not set out in the VAT Act it is not captured as a tax expenditure in the current estimates.”
The report said as a result of this, the current estimated loss due to policy gap might be too low and the compliance gap too high.
