Rising anxiety over Nigeria’s ongoing tax reform reflects a deeper crisis within the country’s fiscal architecture rather than a fair reading of the policy recalibration. Beneath the public fear lies a system plagued by weak revenue mobilisation, loopholes that enable wealthy individuals and corporations to evade taxes, and a long-standing structure that fuels poverty and widens inequality.
As the implementation date approaches, public discourse has become increasingly emotional and marked by deep mistrust of government. Many Nigerians fear that the reform will lead to higher tax rates, worsen headline inflation, and intensify economic hardship. However, available data suggest the reforms are less a fiscal ambush and more an overdue attempt to correct one of Nigeria’s most damaging structural weaknesses.
The government has described the reform as its most ambitious effort yet to strengthen economic growth, modernise tax administration, and boost long-term revenue generation. Analysts note that mistrust, poor fiscal exchange, bribery, and administrative complexity are among the main reasons Nigerians resist paying taxes—straightforward taxes—forcing authorities to rely heavily on indirect taxes, which disproportionately burden the poor.
While the reform may not immediately resolve these challenges, it establishes a legal framework that empowers tax authorities, civil society, and the media to demand a gradual but meaningful shift toward a fairer system. Notably, the introduction of a progressive personal income tax (PIT), which exempts individuals earning N800,000 or less annually, signals a move toward equity. Though the threshold is low—below the current minimum wage—experts see it as a clear indication that the tax system is being recalibrated to protect low-income earners.
In an economy with a high marginal propensity to consume, estimated at over 60 percent, increasing disposable income for poorer households could stimulate consumption and production. This, economists argue, may offset revenue losses from higher taxes on the wealthy, while also strengthening incentives for work and boosting national productivity.
Nigeria’s need for reform is underscored by its weak revenue performance. As of 2023, tax revenue stood at about 10 percent of GDP, far below Africa’s average of 17 percent and the OECD benchmark of roughly 30 percent. This chronic underperformance—rather than excessive taxation—has pushed the country into fiscal fragility, with debt service consuming over 90 percent of revenue.
Years of weak revenue mobilisation have left public finances dangerously exposed, forcing the government to borrow even to fund routine expenditure and undermining its capacity to close an estimated $100 billion annual infrastructure gap. The result has been overlapping budgets, delayed capital projects, and mounting arrears to contractors—clear warning signs on Nigeria’s fiscal dashboard.
The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, has warned that without reform, Nigeria risks zero capital expenditure, a debt service-to-GDP ratio exceeding 100 percent, and ballooning ways-and-means financing. Past reliance on excessive money creation, he noted, has already imposed an indirect “inflation tax” on Nigerians, with inflation peaking above 34 percent last year.
Crucially, the reform agenda is not anchored on aggressive tax rate increases. Instead, it focuses on broadening the tax base, improving compliance, and closing loopholes exploited by the wealthy. With fewer than 30 million registered taxpayers out of more than 70 million economically active adults, the scale of untapped revenue is significant, without imposing new burdens on those already compliant.
Fears that the reforms will cripple businesses may also be overstated. Nigerian firms have long faced multiple taxation, informal levies, and arbitrary enforcement across different tiers of government. Streamlining and harmonising these obligations could reduce compliance costs and improve efficiency. The reform further exempts small businesses with turnover below N100 million from company income tax and capital gains tax, while shielding essential sectors such as agro-allied industries.
Digitalisation of tax administration is expected to curb human discretion, reduce harassment, and level the playing field for small enterprises that account for over 80 percent of employment. Yet anxiety persists, particularly among low-income earners, fuelled by rumours of increased tax burdens and fears that linking bank accounts to tax identification numbers could enable extortion.
Experts and officials have dismissed these fears, noting that the Tax ID linkage has existed since 2019 without reports of arbitrary deductions from bank accounts. Moreover, pursuing every Nigerian based on bank inflows would violate basic cost-of-collection principles.
At its core, the reform also seeks to correct Nigeria’s overreliance on indirect taxes, which disproportionately hurt the poor. By strengthening personal and corporate income tax administration while preserving exemptions for basic consumption, the burden shifts toward higher earners and profitable sectors that have long remained outside the tax net.
Beyond revenue, the reforms have implications for fiscal federalism. Stronger internally generated revenue at the state and local levels could enhance accountability and improve service delivery where citizens most directly feel the impact of governance.
Public scepticism is understandable, given past reforms that failed to translate higher revenues into better infrastructure, healthcare, or education. The trust deficit underscores the need for transparency, credible reporting, and a visible link between taxes paid and services delivered.
However, in a country edging toward fiscal collapse, outright rejection of tax reform could prove costly. With warnings from the World Bank and IMF about Nigeria’s unsustainable budget arithmetic, the alternatives—deeper debt, harsher austerity, or prolonged stagnation—may be far more painful than reform itself.
