Introduction
Nigeria continues to grapple with persistent fiscal challenges—ranging from recurring revenue shortfalls and mounting debt obligations to surging inflation, which reached over 32% in 2024. These pressures have consistently widened the country’s budget deficits, even as government spending has increased to tackle urgent national needs such as infrastructure, economic recovery, and social welfare.
Although the Federal Government has ramped up allocations to critical sectors, fiscal performance remains strained. A major factor is Nigeria’s relatively low tax-to-GDP ratio, which stood at approximately 10.3% in 2024—an improvement from previous years but still below the African average of 15.6% and the global average of 19%. In response, the government has set a target of increasing this ratio to 18% by 2026 through comprehensive tax reforms aimed at boosting compliance, widening the tax base, and reducing reliance on borrowing.
Taxation remains a cornerstone for addressing Nigeria’s fiscal and budgetary challenges. In 2023, President Bola Tinubu inaugurated the Presidential Fiscal Policy and Tax Reforms Committee, chaired by Taiwo Oyedele. The committee was tasked with overhauling the fiscal system to enhance revenue mobilization from both tax and non-tax sources. Notably, the committee aims to raise the tax-to-GDP ratio without introducing new taxes or increasing existing rates. Instead, reforms will focus on streamlining taxes, improving collection efficiency, and alleviating the compliance burden on businesses and individuals.
FIRS Revenue Performance (2020–2024)
Over the past five years, the Federal Inland Revenue Service (FIRS) has significantly improved its revenue collection efforts, despite economic headwinds including the COVID-19 pandemic, inflation, and rising debt.
2020: ₦5.26 trillion collected—surpassing targets despite pandemic disruptions.
2021: ₦6.4 trillion collected, bolstered by digital tools like the TaxPro Max platform.
2022: Record-breaking ₦10.1 trillion, driven by Companies Income Tax, VAT, and stamp duties.
2023: ₦12.3 trillion collected due to enhanced data management and sector-specific strategies.
2024: FIRS exceeded its ₦19.4 trillion target by collecting ₦21.6 trillion—a 112% performance rate and a 76% increase from 2023.
The FIRS attributes this success to internal reforms, stakeholder collaboration, and workforce commitment. However, it’s crucial to acknowledge external influences, such as the deregulation of the exchange rate regime and high inflation, which have inflated nominal revenue figures. As such, Nigeria must adopt inflation-adjusted strategies to ensure the long-term sustainability and real value of its revenue gains.
Revenue Performance vs. Budget Deficits (2020–2024)
Despite FIRS’s commendable performance, Nigeria’s budget deficit remains a significant concern. From 2020 to 2024, national budgets expanded steadily, but expenditures have consistently outpaced revenues.
2022: With a ₦17.1 trillion budget, the deficit surged to ₦7 trillion.
2024: A ₦49.74 trillion budget projected a deficit of ₦13.39 trillion.
The core issue lies in Nigeria’s continued dependence on oil revenues and an expanding expenditure base. While improved tax collection has helped, it has not been sufficient to close the gap. To achieve fiscal sustainability, Nigeria must diversify its revenue sources, reduce structural inefficiencies, and deepen non-oil revenue mobilization.
Charting a Sustainable Path Forward
The proposed Nigerian Tax Bill (NTB) represents a critical reform designed to improve compliance, enhance the ease of doing business, and expand government revenue without imposing new taxes. Key elements include:
Simplification: Streamlining the tax system and eliminating redundancies.
Compliance: Encouraging voluntary compliance and reducing disputes through clearer legal provisions.
Inclusivity: Expanding the tax net to include previously untaxed activities, particularly in the informal and digital economies.
Modernization: Leveraging technology to improve monitoring and enforcement, particularly for non-resident companies and digital services.
Investment climate: Reducing administrative burdens to attract both local and foreign investors.
The bill is a significant step toward achieving the government’s 18% tax-to-GDP target by 2026. However, its success hinges on effective implementation, institutional reform, and stronger fiscal discipline.
Conclusion
Nigeria stands at a critical juncture in its fiscal journey. While recent gains in tax collection are encouraging, long-term economic stability requires comprehensive reforms that go beyond revenue targets. The Nigerian Tax Bill, coupled with strategic fiscal planning and diversification efforts, can help bridge the deficit gap, ensure financial sustainability, and drive inclusive national development.
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