The International Monetary Fund (IMF) has recommended the introduction of taxes on fuel products and telecommunications services in Nigeria, arguing that additional revenue measures will be necessary to strengthen public finances and fund critical development and social welfare programmes.
In its latest Article IV Consultation report on Nigeria, the Washington-based lender said that despite sweeping reforms to the country’s tax system, further policy changes would be required over the medium term to create the fiscal space needed for government spending.
Among the measures proposed are an increase in the Value Added Tax (VAT) rate, the extension of VAT to fuel products, the reduction of tax exemptions granted to certain industries and the introduction of excise duties on telecommunications services.
“Further tax policy changes will likely be needed,” the IMF said, citing measures including “increasing the VAT rate, extending VAT to fuel products, rationalising tax expenditures in particular VAT exemptions on extractive industries and some customs duties, and introducing telecom excises”.
The recommendations are likely to reignite controversy in a country already grappling with the economic consequences of subsidy removal, high inflation and a prolonged cost-of-living crisis.
The Fund acknowledged the political and social sensitivity of the proposals, warning that any new tax measures must be implemented carefully given rising poverty levels and worsening food insecurity.
“The timing of reforms must consider the poverty and food insecurity situation and ensure that the cash transfer system is in place and funded,” the report noted.
The suggestion of new taxes on telecommunications services is particularly contentious. A previous attempt by the Nigerian government to introduce a five per cent excise duty on telecom services met fierce resistance from operators, consumer groups and subscribers before the policy was eventually suspended and later abandoned.
Industry stakeholders argued at the time that telecommunications companies were already struggling with multiple taxation, soaring energy costs, foreign exchange volatility and infrastructure deficits. They warned that any additional levy would ultimately be transferred to consumers through higher costs for calls, text messaging and internet data.
Fuel taxation has proven equally sensitive. Since the removal of petrol subsidies, Nigerians have faced sharp increases in transportation costs, food prices and household expenses, prompting repeated opposition from organised labour and business groups to any policy perceived as likely to push prices higher.
The IMF nevertheless argued that stronger revenue mobilisation has become increasingly urgent as Nigeria seeks to finance public investment while supporting vulnerable households.
According to the report, proposed revenue-enhancing tax measures could generate additional income equivalent to 3.9 per cent of gross domestic product within three years of implementation.
The largest contribution would come from a two-percentage-point increase in VAT, which the Fund estimates could raise revenues equivalent to 0.8 per cent of GDP.
The IMF also projected that removing pioneer status tax incentives and revising free zone regulations could generate a further 0.7 per cent of GDP. Reforms to capital gains taxation and adjustments to personal income tax rates, allowances and income bands were each estimated to contribute an additional 0.6 per cent of GDP.
A proposed top-up tax on multinational corporations and large firms could yield 0.5 per cent of GDP, while reforms to investment allowances would add another 0.4 per cent.
The category described as “other measures” — including telecommunications excise duties and potential carbon taxes on fuel products — was projected to generate an additional 0.4 per cent of GDP.
Beyond tax policy changes, the IMF argued that Nigeria could unlock even greater gains through improved tax administration and stronger compliance mechanisms.
The report estimated that administrative reforms alone could increase revenues by 3.1 per cent of GDP through better enforcement, improved taxpayer registration and efforts to reduce the size of the informal economy.
Measures such as electronic invoicing, fiscalisation and cross-validation of tax deductions could account for 1.5 per cent of GDP in additional revenue, while expanding tax identification systems and consolidating taxpayer databases could contribute another 1.6 per cent.
The Fund also acknowledged that several recently enacted tax reforms were designed to provide relief for households and small businesses and would therefore reduce government revenues in the short term.
It estimated that revenue-reducing measures would lower government income by 2.4 per cent of GDP. Expanded VAT input credits, additional zero-rated goods and broader exemptions on essential consumption items would account for the largest share of the decline.
Reduced corporate tax obligations for smaller businesses would lower revenues by 0.4 per cent of GDP, while lower personal income tax rates and expanded exemptions for low-income earners would account for a further 0.3 percentage-point reduction.
Taken together, however, the IMF projected that the combined effect of new tax measures, administrative reforms and targeted relief policies would still result in a net increase in government revenues equivalent to 4.6 per cent of GDP over the medium term.
The Fund argued that such gains would be critical as Nigeria seeks to strengthen its fiscal position, expand social protection programmes and finance development priorities amid persistent economic pressures.
