The Federal Government is currently seeking a $750 million loan from the World Bank as part of a larger $2.25 billion package approved on June 13, 2024.
This funding aims to strengthen Nigeria’s economic stability and provide support to vulnerable populations.
The other segment of this loan package focuses on the Nigeria Reforms for Economic Stabilisation to Enable Transformation, part of the Development Policy Financing Programme.
The Ministry of Finance has already signed an agreement with the World Bank to formalize this loan.
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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 described in Part 1 of Schedule 1 to this Agreement (“Programme”) and the project described in Part 2 of Schedule 1 to this Agreement (“Project”, and together with the Programme, hereinafter jointly referred to as the “Operation”).
“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.”
As outlined by the Disbursement Linked Indicators in the loan agreement, funds will only be released upon demonstrating measurable progress in critical areas.
Key objectives include increasing VAT collection through strengthened regulations, raising excise taxes on health and environmental products, and enhancing corporate tax compliance with improved digital infrastructure.
A central feature of the ARMOR programme is the government’s strategy to raise VAT rates and broaden taxpayer compliance. Specific loan targets include raising VAT collections to 1.8 percent of non-oil Gross Domestic Product, unlocking $105 million of the loan.
The World Bank noted that, despite recent reforms, Nigeria’s non-oil tax revenues remain low due to low tax rates, weak compliance, a narrow tax base, and significant tax expenditures.
Reforms implemented in 2020-2021 have helped increase non-oil tax revenues from 2.3 percent of GDP in 2020 to 3.7 percent in 2023, aided by higher VAT rates, advancements in tax digitalisation, and the exchange rate unification in 2023.
“Despite this increase, tax revenues in Nigeria remain very low compared to peers (Figure 2). 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.11 Excise rates are exceptionally low by global standards, and revenues were less than 0.1 per cent of GDP in 2023.12 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 recommended modernizing the tax and customs administrations to enhance efficiency.
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