The International Monetary Fund (IMF) has advised Nigeria to consider expanding its tax base by introducing Value Added Tax (VAT) on petroleum products and imposing excise duties on telecommunications services as part of efforts to increase government revenue.
The recommendation was contained in the IMF’s 2026 Article IV Consultation Report on Nigeria, released on June 9.
According to the global financial institution, recent tax reforms in Nigeria may not be sufficient to sustain government spending plans over the medium term without additional revenue sources.
New Revenue Measures Proposed
The IMF stated that Nigeria may need to implement further tax policy changes, including:
- Increasing the VAT rate
- Extending VAT to fuel products
- Reducing tax exemptions in extractive industries
- Rationalising customs duty exemptions
- Introducing excise duties on telecom services
It explained that these measures would complement ongoing administrative improvements in tax collection.
Rising Spending Needs Prompt Concern
The Fund warned that Nigeria has limited fiscal space to sustain its planned increase in capital expenditure under the 2026 budget unless additional revenue is generated.
It noted that stronger revenue mobilisation is necessary to fund infrastructure development and social programmes.
“The IMF said continued revenue mobilisation is essential because there is limited room to maintain the federal government’s planned increase in capital expenditure without additional sources of income,” the report stated.
Digital Tax Reforms and Leakages
The IMF acknowledged that Nigeria’s new tax laws and digital revenue collection systems could improve efficiency, reduce leakages, and enhance compliance.
It said these reforms are expected to gradually boost revenue performance if properly implemented.
Concerns Over Timing and Social Impact
However, the IMF cautioned that the timing of new taxes must be carefully considered due to Nigeria’s current economic and social challenges.
It warned that poverty and food insecurity levels remain high and should guide policy decisions.
According to the report, about 63 percent of Nigerians live below the national poverty line, while an estimated 27 million people faced food insecurity in late 2025.
Risk of Higher Living Costs
The IMF also warned that global increases in fuel, food, and fertilizer prices could worsen living conditions, even if they improve government revenues.
It noted that additional taxation on fuel and telecom services could increase the cost of transportation, communication, and internet services if passed on to consumers.
Economic Outlook
While acknowledging Nigeria’s recent macroeconomic reforms, the IMF said the country still faces significant hardship at household level.
It stressed that policy decisions must balance revenue generation with protection for vulnerable citizens.
The recommendation is expected to trigger fresh national debate, particularly over the impact of higher fuel costs and increased telecom tariffs on already strained households.
