Nigeria Calls for $750 million World Bank Loan

The Federal Government of Nigeria (FGN) is pressing for a $750 million loan from the World Bank. The amount is part of the broader $2.25 billion approved by the World Bank (WB) for Nigeria on June 13, 2024, to bolster Nigeria’s economic stability and support its vulnerable populations.

The other second part of the loan package was for the Nigeria Reforms for Economic Stabilisation to Enable Transformation, Development Policy Financing Programme project. Already, an agreement for the loan has been signed between Nigeria (through the Ministry of Finance) and the World Bank.

The agreement document read in part, “The bank agrees to lend to the borrower the amount of $750,000,000 as such amount may be converted from time to time through a currency conversion (“Loan”), to assist in financing the programme”.

“The borrower may withdraw the proceeds of the loan in accordance with Section IV of Schedule 2 to this Agreement. All withdrawals from the loan account shall be deposited by the Bank into an account specified by the Borrower and acceptable to the bank.”

According to the Disbursement Linked Indicators set out in the loan agreement, the loan will only be released upon achieving measurable progress in key areas.

These include raising VAT collection through improved regulations, increasing excise taxes on health and environmental products, and boosting corporate tax compliance through enhanced digital infrastructure.

Central to the ARMOR programme is the government’s plan to increase VAT rates and expand taxpayer compliance. Some of the loan targets include increasing VAT collections to 1.8 per cent of non-oil Gross Domestic Product, unlocking $105m of the loan.

The WB said despite recent reforms, Nigeria’s non-oil tax revenues underperform due to low tax rates, poor compliance, a narrow tax base, and high tax expenditures.

Reforms introduced in 2020-2021 increased non-oil tax revenues from 2.3 per cent of GDP in 2020 to 3.7 per cent of GDP in 2023 due to a rise in Value-Added Tax (VAT) rates, improvements in tax digitalisation, and the unification of the exchange rate in 2023.

“Despite this increase, tax revenues in Nigeria remain very low compared to peers. Unlike most developing countries, Nigeria has yet to tap VAT (a federal responsibility to collect while sharing VAT revenues) as a significant source of revenue.

In 2022, VAT revenues were only 1.2 per cent of GDP while VAT tax expenditures were estimated at 1.98 per cent of GDP in 2022 (latest available data).10 The current VAT rate of 7.5 per cent is the lowest rate in Africa, and well below the SSA average of 15.8 per cent. Under the VAT legislation, the tax operates like a sales tax, since firms are unable to recover input VAT on purchases of fixed assets, services, and general administration costs.

“Meanwhile, Corporate Income Tax (CIT) has a very narrow tax base, and although collections have increased in recent years, they represented just 1.6 per cent of GDP in 2023.  By comparison, poorly designed and sometimes discretionary CIT expenditures were estimated to cost 0.4 per cent of GDP”.

World Bank noted that excise rates are exceptionally low by global standards, and revenues were less than 0.1 per cent of GDP in 2023. Personal Income Tax (PIT) is assigned exclusively to the States, where challenges persist in collection due to tax evasion and underreporting: only 13 per cent of the workforce is registered for PIT (2018) and only 2 per cent of those are reported as active. The bank advised that the tax and customs administrations need modernising to improve efficiency. Ikeja Hotel Climbs by 15% after Strong Earnings Growth