The International Monetary Fund (IMF) has endorsed Nigeria’s choice to postpone raising the Value Added Tax (VAT) rate, citing the country’s ongoing struggles with high poverty and food insecurity.
In its recent Article IV consultation report, the IMF stated that deferring the VAT hike is a reasonable approach, especially since the national cash transfer system designed to assist the most vulnerable households is not yet fully implemented.
This recommendation comes as Nigerian households face rising living costs coupled with stagnant income growth—factors that could be exacerbated by new tax burdens.
The IMF’s guidance aligns with Nigeria’s broader fiscal reform agenda, which aims to modernize tax collection systems and improve public finance efficiency. Despite recent progress, the Fund noted that Nigeria still maintains one of the lowest revenue-to-GDP ratios globally.
New tax reform bills, developed by the Presidential Committee on Fiscal Policy and Tax Reforms and recently enacted into law, are expected to overhaul the VAT and Corporate Income Tax (CIT) systems to boost compliance and enforcement.
Nigerian authorities see significant medium-term benefits from these reforms, with the IMF providing ongoing capacity development support, including the placement of a resident advisor.
However, the IMF cautioned that delaying the VAT increase will result in a short-term reduction in consolidated government revenue by up to 0.5% of GDP. The federal government may offset some losses through higher corporate tax collections, but state and local governments will likely feel the impact most acutely.
Without alternative revenue sources, subnational governments may need to increase their own tax collections or reduce spending, the report warns.
Rather than rushing to increase VAT rates, the IMF recommends that Nigeria focus on building long-term fiscal credibility and sustainability. The Fund suggests authorities commit to a clear timeline for implementing future tax policy measures within an updated medium-term fiscal framework.
Such a strategy, the IMF argues, will strengthen investor confidence, clarify available resources, and safeguard development and social protection programs for vulnerable populations.
The IMF’s technical assistance continues to play a crucial role in helping Nigeria balance the urgent need for increased revenue with the imperative to protect its poorest citizens.
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