## 3.      The authorities have adopted a national plan aiming to raise the revenue-to-GDP ratio to 15 percent by 2025

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### Overview of the Strategic Revenue Growth Initiative (SRGI) and fiscal context
- SRGI objectives:
  - (i) raising revenue-to-GDP ratio to 15 percent by 2025;
  - (ii) expanding the tax base;
  - (iii) countering tax evasion and encouraging the payment of taxes by citizens;
  - (iv) enhancing transparency in the tax system.
- SRGI content and limits:
  - Contains several important tax and customs administration measures but does not include any specific plan for raising tax rates.
- Current revenue and capacity benchmarks:
  - Nigeria’s tax revenue was 4.5 percent of GDP in 2021.
  - Tipping point between tax capacity and growth: minimum revenue-to-GDP ratio associated with a significant acceleration in growth/development is 12½ to 13 percent (Gaspar et al, 2016).
  - Nigeria’s tax capacity (tax frontier) estimated about 8-11 percent of GDP (IMF, 2018a; Fenochietto and Pessino, 2013).
  - IMF (2018a) tax frontier estimates: 8.1 percent of GDP for SSA sample, 10.7 percent of GDP for EMDE sample, and 11.1 percent of GDP for all country sample.
- Implication:
  - Nigeria’s current revenue is well below the tipping point and below estimated tax capacity, implying potential to further increase revenue; administration measures alone will not be sufficient.

### Evidence from past SSA revenue mobilization episodes — identification and criteria
- Definition of a successful episode (post-GFC 2010-2021):
  - Minimum increase in tax revenue of 2.5 percentage point of GDP over a five-year period (i.e., average 0.5 percentage point increase per year over five years).
- Selection criteria applied to 40 SSA countries:
  - Episodes must be sustained with no substantial decline for five years after the episode.
  - Episodes in fragile states were excluded.
- Episodes retained as comparable lessons for Nigeria (post-criteria):
  - Mauritania (2010-2014): tax revenue increase 4.1 (%p of GDP)
  - Rwanda (2010-2015): tax revenue increase 3.5 (%p of GDP)
  - The Gambia (2010-2015): tax revenue increase 3.5 (%p of GDP)
  - Uganda (2012-2017): tax revenue increase 3.1 (%p of GDP)

### Common lessons from the four successful SSA episodes (Mauritania, Rwanda, The Gambia, Uganda)
- Combine policy and administration reforms as packages:
  - Each country combined tax administration and tax policy reforms in parallel (tax rate increases, base broadening, tax incentive rationalizations).
- Focus on indirect taxes and reduction of exemptions:
  - All four mainly focused on indirect tax (VAT and excise) reforms and reduction of tax exemptions as effective revenue boosters.
  - Country examples: introduction/extension of VAT, excise increases on tobacco and spirits, removal of VAT exemptions for investment certificate holders, airtime excise increases.
- Tax administration reforms emphasized compliance, segmentation, and automation:
  - Examples include taxpayer segmentation with MTO/LTO, e-tax services, electronic filing/payment, customs Single Window, and targeted Compliance Improvement Plans (CIP).
- Use of redistributive measures when reforms were regressive:
  - Mauritania and The Gambia combined indirect tax reforms with fuel subsidy reform and targeted cash transfers for vulnerable households.
- Importance of high-level political commitment and stakeholder buy-in:
  - National revenue plans, social dialogues, and public communication were central to securing buy-in.
- Episodes often coincided with robust growth and IMF engagement:
  - Frequently overlapped with IMF programs and/or strong technical assistance.

### Country-specific reform highlights (selected)
- Mauritania (2010-2014):
  - VAT extended to mining; tax identification numbers rose from 1,789 in 2011 to 5,860 in 2013.
  - VAT revenue increased by 2½ percentage points of GDP during 2009-2013.
  - Excise on tobacco raised from 10 percent to 30 percent in 2012.
  - Removed CIT exemption for main gold company in 2012, contributing to CIT revenue increase by 1.3 percentage points of GDP.
  - Introduced targeted cash transfers alongside fuel subsidy reform.
- Rwanda (2010-2015):
  - Increased indirect tax rates (e.g., imported construction materials from 5 percent to 10 percent from July 2012; airtime excise from 5 to 8 then to 10 percent during 2011-2014).
  - Removed numerous tax exemptions, including VAT exemptions on imports for investment certificate holders.
  - Introduced electronic filing/payment, electronic tax registration, risk management, direct bank payment of tax, customs Single Window, ETD, and withholding VAT at source.
- The Gambia (2010-2015):
  - Introduced VAT in 2013 replacing sales tax; reform lifted tax revenue by about 1-1.5 percentage points of GDP during the reform period.
  - Revised excise on cigarettes from weight basis to packs (increasing equivalent rate by about 25 percent); excise revenue from tobacco increased by 0.5 percentage points of GDP during 2012-2014.
  - Implemented CIP for large taxpayers; large taxpayer filing rose from 79 percent in 2011 to about 86 percent in 2012.
  - Eliminated untargeted fuel subsidies (fuel subsidy losses were 0.8 percent of GDP in 2011); fuel subsidies eliminated in July 2014.
- Uganda (2012-2017):
  - Eliminated numerous VAT exemptions and extended VAT to new items; increased VAT threshold.
  - Increased excise on locally produced spirits from 45 percent to 60 percent; increased excise on cigarettes by almost 60 percent in 2014; broadened excise base to include imported fresh juices and other items.
  - Increased top PIT marginal rate from 30 to 40 percent.
  - Strengthened taxpayer segmentation (HNWI unit, MTO), used e-tax services, implemented RECTS in 2017.
  - Implemented comprehensive national revenue plans: National Development Plan (NDP) 2011-2015 targeted to raise revenue-to-GDP by about 0.5 percent per year; adopted a Medium-Term Revenue Strategy (MTRS) in 2017.

### Implications for Nigeria’s reform path (strategic takeaways)
- Administration measures in the SRGI are necessary but insufficient given Nigeria’s revenue-to-GDP ratio of 4.5 percent of GDP in 2021 and estimated tax capacity.
- Bolder tax policy measures recommended:
  - Raising indirect tax rates to levels comparable to ECOWAS countries.
  - Rationalizing numerous tax incentives and exemptions.
- Effective strategy elements:
  - Implement policy and administration reforms as a coordinated package.
  - Prioritize indirect tax reforms (VAT and excises) and base broadening.
  - Strengthen taxpayer segmentation, automation, and compliance measures.
  - When reforms are regressive, design compensatory redistributive measures (e.g., targeted cash transfers) and consider fuel subsidy reforms where relevant.
  - Secure high-level political commitment and stakeholder buy-in.
  - Sequence reforms alongside supportive macroeconomic conditions and technical/financial assistance.

### Implementation and sequencing considerations
- Use SRGI and recent IMF technical assistance findings as a basis for reform design.
- Pair rate and base reforms with administrative automation (e.g., TaxPro Max expansion) and compliance programs (CIP).
- Include redistributive measures to protect vulnerable households when indirect taxes are increased.

---

### 7.      Successful revenue reform episodes in peer SSA countries could provide useful lessons for Nigeria

### A package of reforms (staff recommendation)
- Implement a package reform of tax administration and tax policy measures drawing on IMF TA reports.
- Emphasis on:
  - (i) indirect tax reforms (VAT and excise) and tax incentive rationalizations;
  - (ii) tax administration measures to improve compliance via taxpayer segmentation and automation;
  - (iii) social dialogue with key stakeholders and high-level political commitment.

### VAT reforms
- Rationale:
  - VAT reform could be an effective and strong revenue booster; literature shows VAT reforms tend to raise more revenue.
- Recommended measures:
  - Streamline numerous VAT exemptions based on a systemic review; exemptions should focus on basic items in the poor’s consumption basket and on public provision of non-commercial goods and services.
  - Introduce an “anti-fragmentation rule” to prevent breaking up businesses to avoid the VAT filing threshold.
  - Adopt a VAT rate comparable to Nigeria’s peer ECOWAS country average (around 15 percent), with a path of increasing the VAT rate from the current 7.5 percent to 10 percent by 2023 and to 15 percent by 2027.
  - Accompany rate increases with proper input tax credits and a registration threshold.
- Quantified impact:
  - Raising the VAT rate by 2.5 percentage points could additionally collect revenue by around 0.3 percentage point of GDP.
- Distributional note:
  - While VAT is usually regressive, under Nigeria’s current VAT system—with large exemptions and very low rate for basic items—raising the rate could be less regressive or even slightly progressive (per literature and IMF 2018b findings).

### Excise reforms
- Rationale:
  - Excise reforms can mobilize revenue and correct externalities; excises are more inelastic and can raise revenue quickly.
- Recommended measures:
  - Gradually raise excise rates to the average level of Nigeria’s peer (ECOWAS) countries (around 50 percent).
  - As recovery strengthens, excise rates on tobacco and alcohol (about 20-30 percent) could be doubled in real terms.
  - Use a mix of increases in specific rates and ad-valorem rates; specific excises generally preferable.
  - Broaden the base by introducing new excises for externality correction and revenue mobilization, e.g., environmental charges on plastic bags/bottles, aluminum cans, light bulbs, and fossil fuels; additional fuel duty on gasoline and diesel (kerosene should be exempted); excises on luxury goods; new excises on gambling and lotteries including online betting (MTEF 2023-25).
  - Conduct a comprehensive review for all excise duties/levies and modernize controls on excise-taxed products.
- Quantified impact:
  - Raising excise rates to the ECOWAS average level could yield the estimated revenue of about 1 percent of GDP in the medium term (WB, 2021).
- Current excise duty rates (as listed):
  - Ad-valorem rates: Cigarettes 30%1/, Wine 20%, Whiskey 20%, Beer & Stout N/A, Tobacco products N/A, Sugar sweetened beverage2 N/A, Telecom service2/ 5%
  - Fixed/Specific rates: Cigarettes N84k per pack (20 stick); Wine N40 per liter; Whiskey N50 per liter; Beer & Stout N50 per liter; Tobacco products N1,000 per kg / N3,000 per litre; Sugar sweetened beverage N10 per liter
  - Note 1/: The FGN, with effect from 1 June, commenced implementation of increasing ad valorem rate on cigarettes from 20 percent to 30 percent.
  - Note 2/: Excises on sugar sweetened beverage (SSB) (Finance Act 2021) and telecom services have been implemented since H2 2022.

### Tax incentive rationalization
- Urgency and measures:
  - Streamline tax expenditures based on a comprehensive and periodic review, including cost-benefit analysis of each tax expenditure.
  - Start with suspension of introduction of new tax incentives, followed by rationalizing existing ones.
  - Scrutinize tax expenditures equally as budget expenditures and apply mandatory sunset clauses.
  - Transition inefficient tax incentives towards better-targeted investment incentives: (i) investment tax credits and accelerated depreciation; (ii) tax incentives targeted at export-oriented sectors rather than domestic-market sectors.
- Institutional notes:
  - The “2021 Tax Expenditure Statement (TES)” estimates overall size but lacks specific appraisal for each tax expenditure; IMF FAD plans TA for tax expenditure review.
  - The 2023-25 MTEF cites examples for reduction: “capital gains tax exemptions and corporate bonds’ interest income exemptions”.

### Tax administration reform
- Key actions:
  - Expand TaxPro Max automation coverage under a roadmap:
    - TaxPro Max currently operating three core modules: registration, filing, and payment (audit and investigation modules to be deployed before end-2022); back-office modules (risk/debt management, refund, compliance) remain manual and need inclusion.
    - Mandatory participation should be enlarged to include the Large Taxpayer Office (LTO) and the Medium Taxpayer Office (MTO).
    - As of March 2022, number of taxpayers registered in the TaxPro Max system is 400,562.
  - Strengthen taxpayer segmentation, especially focusing on LTOs: LTOs account for about 70 percent of taxes collected by the Federal Inland Revenue Service (FIRS) (ISORA, 2019). Review adequacy of the penalty regime for non-compliance in the LTOs.
  - Additional administration reforms in VAT, Customs, and PAYE:
    - Develop a Compliance Improvement Program (CIP) focusing on enforcement of non-compliant taxpayers and basic compliance activities (filing, payment, reporting), targeting LTO and MTO registrants in the near-term.
    - Design and implement a “comprehensive customs modernization program” beyond “e-customs”, improving valuation, exemptions, control, and monitoring, with full implementation of “e-customs”.
    - Enhance effectiveness of States IRS’s PAYE administration by: (i) introducing a modern IT-based process for State IRSs; (ii) using direct assessment of employees only where employer collection is impossible; (iii) establishing a large employee compliance office (LEOs) in states that collect PAYE from large businesses.
  - Strengthen inter-agency coordination and data sharing to reduce discrepancies and fragmentation (e.g., institutionalize exchange of import data between NCS and FIRS; share risk assessments and compliance data between FIRS and State IRSs).

### Reform strategy: political commitment and social dialogue
- Necessity:
  - Strong political commitment is essential to reduce resistance from vested interests, enhance inter-agency coordination, and gain reform momentum—particularly in LICs with weak institutions and widespread corruption.
- Social dialogue and communication:
  - Successful reforms made clear their reasons, compensated those worst affected, and ensured benefits were widely shared.
- Implementation emphasis:
  - Pair technical reforms with stakeholder engagement and transparent communication to increase the likelihood of successful adoption.

*Source: IMF selected issues paper content unit sipea2023019.*

### 3.      The authorities have adopted a national plan aiming to raise the revenue-to-GDP ratio

### 3.      The authorities have adopted a national plan aiming to raise the revenue-to-GDP ratio to 15 percent by 2025

### Overview of the Strategic Revenue Growth Initiative (SRGI) and fiscal context
- The authorities have developed and updated the “Strategic Revenue Growth Initiative (SRGI)” with four main objectives:
  - (i) raising revenue-to-GDP ratio to 15 percent by 2025;
  - (ii) expanding the tax base;
  - (iii) countering tax evasion and encouraging the payment of taxes by citizens;
  - (iv) enhancing transparency in the tax system.
- The SRGI contains several important tax and customs administration measures but does not include any specific plan for raising tax rates.
- Nigeria’s tax revenue was 4.5 percent of GDP in 2021.
- Empirical benchmarks and capacity estimates:
  - A tipping point between tax capacity and growth: minimum revenue-to-GDP ratio associated with a significant acceleration in growth/development is 12½ to 13 percent (Gaspar et al, 2016).
  - Nigeria’s tax capacity (tax frontier) is estimated to be about 8-11 percent of GDP (IMF, 2018a; Fenochietto and Pessino, 2013).
  - According to IMF (2018a), Nigeria’s tax frontier (or “tax capacity”) estimates: 8.1 percent of GDP for SSA sample, 10.7 percent of GDP for EMDE sample, and 11.1 percent of GDP for all country sample.
- Implication: Nigeria’s current revenue is well below the tipping point and below estimated tax capacity, implying potential to further increase revenue; administration measures alone will not be sufficient.

### Evidence from past SSA revenue mobilization episodes — identification and criteria
- Definition of a successful episode for post-GFC (2010-2021) analysis:
  - Minimum increase in tax revenue of 2.5 percentage point of GDP over a five-year period (i.e., average 0.5 percentage point increase per year over five years).
- Selection criteria applied to 40 SSA countries:
  - Episodes must be sustained with no substantial decline for five years after the episode.
  - Episodes in fragile states were excluded.
- From the post-GFC sample, 12 episodes initially identified; after applying sustained and non-fragile criteria, four episodes retained as comparable lessons for Nigeria:
  - Mauritania (2010-2014): tax revenue increase 4.1 (%p of GDP)
  - Rwanda (2010-2015): tax revenue increase 3.5 (%p of GDP)
  - The Gambia (2010-2015): tax revenue increase 3.5 (%p of GDP)
  - Uganda (2012-2017): tax revenue increase 3.1 (%p of GDP)

### Common lessons from the four successful SSA episodes (Mauritania, Rwanda, The Gambia, Uganda)
- Policy and administration reforms were implemented as packages:
  - Each country combined tax administration and tax policy reforms in parallel (tax rate increases, base broadening, tax incentive rationalizations).
- Focus on indirect taxes and reduction of exemptions:
  - All four mainly focused on indirect tax (VAT and excise) reforms and reduction of tax exemptions as effective revenue boosters.
  - Examples:
    - The Gambia: introduced VAT to replace a sales tax and a specific excise on tobacco products in 2013.
    - Mauritania: raised excise on tobacco from 10 to 30 percent and extended VAT to mining in 2012.
    - Uganda: increased excise on locally produced spirits from 45 to 60 percent and increased cigarette excise by almost 60 percent in 2014; reduced many VAT exemptions.
    - Rwanda: raised excise on mobile airtime from 5 to 10 percent in 2011-14; removed VAT exemptions for certain investment certificate holders.
- Tax administration reforms focused on compliance, segmentation, and automation:
  - Examples:
    - Uganda: expanded taxpayer segmentation with an MTO and created e-tax services.
    - The Gambia: implemented a detailed “Compliance Improvement Plan (CIP)” for large taxpayers.
    - Rwanda: introduced electronic filing, payment, and tax registration during 2010–11; automation and customs Single Window.
- Use of redistributive measures when reforms were regressive:
  - Mauritania and The Gambia combined indirect tax reforms with fuel subsidy reform and mitigating measures (targeted cash transfers for vulnerable households).
- High-level political commitment and stakeholder buy-in were critical:
  - Uganda announced national revenue plans with strong political will.
  - Mauritania launched social dialogues with civil society and opposition groups to secure buy-in.
- Episodes often coincided with robust growth and IMF engagement:
  - Identified episodes frequently overlapped with IMF programs and/or strong technical assistance and tended to show relatively robust growth during the episode period.

### Country-specific reform highlights (selected)
- Mauritania (2010-2014):
  - VAT extended to mining; tax identification numbers rose from 1,789 in 2011 to 5,860 in 2013.
  - VAT revenue increased by 2½ percentage points of GDP during 2009-2013.
  - Excise on tobacco raised from 10 percent to 30 percent in 2012.
  - Removed CIT exemption for main gold company in 2012, contributing to CIT revenue increase by 1.3 percentage points of GDP.
  - Introduced targeted cash transfers as mitigants alongside fuel subsidy reform.
- Rwanda (2010-2015):
  - Increased rates for several indirect taxes (e.g., imported construction materials from 5 percent to 10 percent from July 2012; airtime excise from 5 to 8 then to 10 percent during 2011-2014).
  - Removed numerous tax exemptions, including VAT exemptions on imports for investment certificate holders.
  - Introduced electronic filing/payment, electronic tax registration, risk management, direct bank payment of tax, customs Single Window, ETD, and withholding VAT at source.
- The Gambia (2010-2015):
  - Introduced VAT in 2013 replacing sales tax; expanded base and lifted tax revenue by about 1-1.5 percentage points of GDP during the reform period.
  - Revised excise on cigarettes from weight basis to packs (increasing equivalent rate by about 25 percent) and introduced excise on non-cigarette tobacco products; excise revenue from tobacco increased by 0.5 percentage points of GDP during 2012-2014.
  - Implemented CIP for large taxpayers; large taxpayer filing rose from 79 percent in 2011 to about 86 percent in 2012.
  - Eliminated untargeted fuel subsidies (fuel subsidy losses were 0.8 percent of GDP in 2011); fuel pricing formula reformed and fuel subsidies eliminated in July 2014.
- Uganda (2012-2017):
  - Eliminated numerous VAT exemptions (motor vehicles and trailers, extended VAT to computers, terminated VAT exemptions on hotels) and increased VAT threshold.
  - Increased excise on locally produced spirits from 45 percent to 60 percent; increased excise on cigarettes by almost 60 percent in 2014; broadened excise base to include imported fresh juices; increased excise on fuel, sugar, mobile money transfers, and international calls.
  - Increased top PIT marginal rate from 30 to 40 percent.
  - Strengthened taxpayer segmentation, created HNWI unit and MTO, used e-tax services, and implemented RECTS in 2017.
  - Implemented comprehensive national revenue plans: National Development Plan (NDP) 2011-2015 targeted to raise revenue-to-GDP by about 0.5 percent per year; adopted a Medium-Term Revenue Strategy (MTRS) in 2017.

### Implications for Nigeria’s reform path (summary of strategic takeaways)
- Administration measures in the SRGI are necessary but insufficient given Nigeria’s very low revenue-to-GDP ratio (4.5 percent of GDP in 2021) and estimated tax capacity.
- Bolder tax policy measures are required, including:
  - Raising indirect tax rates to levels comparable to ECOWAS countries.
  - Rationalizing numerous tax incentives and exemptions.
- An effective strategy should leverage the SRGI and recent IMF technical assistance findings, and draw on lessons from the identified SSA episodes:
  - Implement policy and administration reforms as a coordinated package.
  - Prioritize indirect tax reforms (VAT and excises) and base broadening.
  - Strengthen taxpayer segmentation, automation, and compliance measures.
  - When reforms are regressive, design compensatory redistributive measures (e.g., targeted cash transfers) and consider fuel subsidy reforms where relevant.
  - Secure high-level political commitment and stakeholder buy-in.
  - Consider sequencing reforms alongside supportive macroeconomic conditions and technical/financial assistance.

*Source: IMF selected issues paper content unit sipea2023019.*

### 7.      Successful revenue reform episodes in peer SSA countries could provide useful lessons

### 7.      Successful revenue reform episodes in peer SSA countries could provide useful lessons for Nigeria

### A package of reforms
- Staff recommends implementing a package reform of tax administration and tax policy measures.
- Key components draw on IMF TA reports (Baer et al., 2021; IMF 2018b; Yavwa, 2022; IMF, 2015).
- Emphasis on: (i) indirect tax reforms (VAT and excise) and tax incentive rationalizations; (ii) tax administration measures to improve compliance via taxpayer segmentation and automation; (iii) social dialogue with key stakeholders and high-level political commitment.

### VAT reforms
- VAT reform could be an effective and strong revenue booster; literature shows VAT reforms tend to raise more revenue (Keen and Lockwood, 2010; Akitoby et al., 2019).
- Recommended measures:
  - Streamline numerous VAT exemptions based on a systemic review for exempted items; exemptions should focus on basic items in the poor’s consumption basket and on public provision of non-commercial goods and services.
  - Introduce basic rules of modern consumption tax, including an “anti-fragmentation rule” to prevent breaking up businesses to avoid the VAT filing threshold.
  - Adopt a VAT rate comparable to Nigeria’s peer ECOWAS country average (around 15 percent), with a path of increasing the VAT rate from the current 7.5 percent to 10 percent by 2023 and to 15 percent by 2027.
  - Accompany rate increases with proper input tax credits and a registration threshold.
- Quantified impact:
  - Raising the VAT rate by 2.5 percentage points could additionally collect revenue by around 0.3 percentage point of GDP.
- Distributional note:
  - While VAT is usually regressive, under Nigeria’s current VAT system—with large exemptions and very low rate for basic items—raising the rate could be less regressive or even slightly progressive (per literature and IMF 2018b findings).

### Excise reforms
- Excise reforms can mobilize revenue and correct externalities; excises are more inelastic and can raise revenue quickly (Akitoby et al., 2019).
- Recommended measures:
  - Gradually raise excise rates to the average level of Nigeria’s peer (ECOWAS) countries (around 50 percent). As recovery strengthens, excise rates on tobacco and alcohol (about 20-30 percent) could be doubled in real terms.
  - Use a mix of increases in specific rates and ad-valorem rates; specific excises generally preferable because they are simpler to administer and less vulnerable to avoidance.
  - Broadening the base by introducing new excises for externality correction and revenue mobilization, e.g., (i) environmental charges on plastic bags/bottles, aluminum cans, light bulbs, and fossil fuels; (ii) charges on road transport infrastructure via additional fuel duty on gasoline and diesel (kerosene should be exempted); (iii) excises on luxury goods; (iv) new excises on gambling and lotteries including online betting (MTEF 2023-25).
  - Conduct a comprehensive review for all excise duties/levies and modernize controls on excise-taxed products.
- Quantified impact:
  - Raising excise rates to the ECOWAS average level could yield the estimated revenue of about 1 percent of GDP in the medium term (WB, 2021).
- Table 2: Nigeria: Excise Duty Rates (Percent / Fixed)
  - Ad-valorem rates: Cigarettes 30%1/, Wine 20%, Whiskey 20%, Beer & Stout N/A, Tobacco products N/A, Sugar sweetened beverage2 N/A, Telecom service2/ 5%
  - Fixed/Specific rates: Cigarettes N84k per pack (20 stick); Wine N40 per liter; Whiskey N50 per liter; Beer & Stout N50 per liter; Tobacco products N1,000 per kg / N3,000 per litre; Sugar sweetened beverage N10 per liter -
  - Note 1/: The FGN, with effect from 1 June, commenced implementation of increasing ad valorem rate on cigarettes from 20 percent to 30 percent.
  - Note 2/: Excises on sugar sweetened beverage (SSB) (Finance Act 2021) and telecom services have been implemented since H2 2022.

### Tax incentive rationalization
- Tax incentive rationalization is urgent to boost revenue.
- Recommended measures:
  - Streamline tax expenditures based on a comprehensive and periodic review, including cost-benefit analysis of each tax expenditure. Start with suspension of introduction of new tax incentives, followed by rationalizing existing ones.
  - Scrutinize tax expenditures equally as budget expenditures and apply mandatory sunset clauses.
  - Transition inefficient tax incentives towards better-targeted investment incentives: (i) investment tax credits and accelerated depreciation; (ii) tax incentives targeted at export-oriented sectors rather than domestic-market sectors.
- Institutional notes:
  - The recent publication of “2021 Tax Expenditure Statement (TES)” estimates overall size but lacks specific appraisal for each tax expenditure; IMF FAD plans TA for tax expenditure review.
  - The 2023-25 MTEF cites examples for reduction: “capital gains tax exemptions and corporate bonds’ interest income exemptions”.

### Tax administration reform
- Improve compliance by strengthening taxpayer segmentation, expanding automation, and adopting a well-designed implementation roadmap.
- Recommended measures:
  - Expand TaxPro Max automation coverage under a roadmap:
    - TaxPro Max is already operating three core modules: registration, filing, and payment (audit and investigation modules to be deployed before end-2022); back-office modules (risk/debt management, refund, compliance) remain manual and need inclusion.
    - Mandatory participation should be enlarged to include the Large Taxpayer Office (LTO) and the Medium Taxpayer Office (MTO).
    - As of March 2022, number of taxpayers registered in the TaxPro Max system is 400,562.
  - Strengthen taxpayer segmentation, especially focusing on LTOs: LTOs account for about 70 percent of taxes collected by the Federal Inland Revenue Service (FIRS) (ISORA, 2019). Review adequacy of the penalty regime for non-compliance in the LTOs.
  - Additional administration reforms in VAT, Customs, and PAYE:
    - Develop a Compliance Improvement Program (CIP) focusing on enforcement of non-compliant taxpayers and basic compliance activities (filing, payment, reporting), targeting LTO and MTO registrants in the near-term.
    - Design and implement a “comprehensive customs modernization program” beyond “e-customs”, improving valuation, exemptions, control, and monitoring, with full implementation of “e-customs”.
    - Enhance effectiveness of States IRS’s PAYE administration by: (i) introducing a modern IT-based process for State IRSs; (ii) using direct assessment of employees only where employer collection is impossible; (iii) establishing a large employee compliance office (LEOs) in states that collect PAYE from large businesses.
  - Strengthen inter-agency coordination and data sharing to reduce discrepancies and fragmentation (e.g., institutionalize exchange of import data between NCS and FIRS; share risk assessments and compliance data between FIRS and State IRSs).

### Reform strategy: political commitment and social dialogue
- Prepare an effective reform strategy anchored on high-level political commitment and social dialogue with key stakeholders.
- Rationale and approach:
  - Strong political commitment is essential to reduce resistance from vested interests, enhance inter-agency coordination, and gain reform momentum—particularly in LICs with weak institutions and widespread corruption.
  - Social dialogue and communication are key: successful reforms made clear their reasons, compensated those worst affected, and ensured benefits were widely shared (Inchauste and Victor, 2017; Rentschler and Bazilian, 2017).
- Implementation emphasis:
  - Pair technical reforms with stakeholder engagement and transparent communication to increase the likelihood of successful adoption.

*Source: IMF staff analysis and IMF TA reports as presented in the chapter "7. Successful revenue reform episodes in peer SSA countries could provide useful lessons" from sipea2023019.*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023019.pdf_