Nigeria and other developing countries have been advised to explore the revenue potential of personal income tax as a viable source of boosting the local economy.
The International Monetary Fund (IMF) disclosed this in a report titled, ‘Personal Income Tax Has Untapped Potential in Poorer Countries.’
The said governments that want to achieve lasting economic recovery from the pandemic must focus on increasing their revenue source, and personal income tax which is a tax levied on wages, salaries, and other income offers that cushion.
It said, “In the two decades preceding the pandemic, income tax revenue more than doubled in low-income countries, rising from the equivalent of 1 per cent of GDP to 2.1 per cent, while emerging markets saw an increase from 2.1 per cent to 3.1 per cent.
“These were also reflected in the share of tax in overall tax intake, which went from 5 per cent to 8 per cent of total tax revenue in low-income countries and from 9 per cent to 11 per cent in emerging markets.
“In examining the progress of the personal income tax in developing countries, we distinguish between observable tax policy changes and broader economic changes. Policy changes have targeted top and bottom statutory rates as well as the level of exempt income. Remarkably, we find that this hasn’t contributed much to the increase in revenue in low-income countries.”
It added, “And in emerging market economies, this shift has sometimes actually reduced revenue. This is the case in part because many emerging markets have introduced flat tax systems with low rates and those with progressive schedules have reduced rates over the last two decades.”
