Citizens shoulder rising cost of basic services despite higher tax collections

Every month, a Lagos-based accountant, Sarah Adeyemi, sees deductions from her salary for taxes and statutory contributions. Yet she still spends heavily on petrol to power her generator, pays private school fees for her children, relies on private hospitals for medical care, and contributes to neighborhood security arrangements.
Her experience reflects a reality familiar to millions of Nigerians who, despite contributing to government revenues, continue to privately fund many of the services taxes are meant to support.

Economists say the issue is not necessarily taxation itself but the growing gap between what citizens contribute and what they receive in return.

 

The Nigerian Economic Summit Group (NESG), in a recent event themed ‘Tax Reality: Ripple Effect on Industry and Commerce,’ argued that strengthening Nigeria’s tax system requires more than policy reform. According to the group, greater transparency, support for businesses, and confidence in the implementation of tax policies are essential to building a sustainable revenue culture.
“Building an effective tax system is a shared responsibility, one that thrives on collaboration, clarity, and confidence,” the organisation said.

As Nigeria records unprecedented growth in tax collections and pushes ahead with ambitious revenue reforms, many citizens say they are still paying for basic services that the government is expected to provide, raising fresh questions about the country’s social contract and the value taxpayers receive for their contributions.
From electricity and healthcare to education, water, security, and road maintenance, households and businesses are increasingly shouldering costs that, in many countries, are partially financed through public spending. For many Nigerians, the burden has created a sense of paying twice, first through taxes, levies, and government charges, and again through private alternatives when public services fall short.

 

“The cost-of-living challenge in Nigeria goes beyond inflation,” said Nnfawa Ubani, an energy economics and ESG analyst. “Rising energy costs, exchange-rate volatility, transportation expenses, supply chain disruptions, and the high cost of doing business are all putting pressure on households and businesses.”

 

The issue comes at a time when government revenues are rising sharply. Nigeria Revenue Service (NRS) collected a record N28.3 trillion in 2025, exceeding its target of N25.2 trillion. The agency is targeting N40.7 trillion in 2026, while collections in the first five months of the year rose 49 percent to N15.8 trillion from N10.6 trillion a year earlier.
Yet despite these gains, many Nigerians remain unconvinced that higher revenues are translating into meaningful improvements in daily life.

 

One of the clearest examples is electricity.
According to Adebayo Adelabu, minister of power, Nigerians spend between N16.5 trillion and N20 trillion annually on self-generation through petrol and diesel generators, compared to roughly N1 trillion spent on grid electricity. Industry estimates show that a typical Lagos household can spend between N80,000 and N150,000 monthly on generator fuel alone.

 

For businesses, the burden is even heavier. Manufacturers spent N1.35 trillion on alternative energy sources in 2025, a 21.6 percent increase from the previous year, as unreliable grid supply forced firms to rely on expensive diesel-powered generation.
The situation reflects a broader challenge highlighted by Ubani, who noted that rising energy costs remain one of the biggest drivers of Nigeria’s cost-of-living crisis.

 

Healthcare presents a similar picture.

Nigeria’s total health expenditure rose to N10.42 trillion in 2024, but households continue to bear most of the burden directly. Out-of-pocket spending accounted for 58.3 percent of total health expenditure, while government financing represented just 12.4 percent.

 

Medical inflation, rising insurance costs and the continued dependence on private healthcare providers mean that many families remain vulnerable to financial shocks. A single hospital admission can consume months of household savings, according to industry analysts.
The trend extends beyond domestic healthcare. Central Bank of Nigeria data show spending on foreign health services rose nearly 25 percent year-on-year to $465.7 million in the first nine months of 2024, suggesting that many Nigerians continue to seek medical treatment abroad despite rising costs.

Education tells a similar story.
Although public schools remain the largest providers of basic education, private institutions continue to attract a growing share of enrollment. The latest available World Bank and UNESCO data show that private schools account for 23.3 percent of primary enrolment and 27.9 percent of secondary enrollment.

 

At the same time, private school fees have risen sharply in recent years, with some schools implementing fee increases of between 50 and 70 percent. Despite the higher costs, many parents continue to choose private institutions, reflecting persistent concerns about the quality and reliability of public education.

 

For many analysts, these spending patterns point to a deeper issue than inflation or taxation.

“The challenge is not taxation itself. The challenge is trust and accountability in how public funds are managed,” said Uzochukwu Blessing N., a tax practitioner. “When tax revenue does not translate into visible development, citizens naturally feel disconnected from the system.”

For businesses, the conversation extends beyond tax obligations to broader compliance and governance concerns.
Rukayat Agboola, a regulatory compliance specialist, said businesses increasingly operate in an environment where tax administration, corporate records, and regulatory disclosures are becoming more integrated.

 

“The future belongs to businesses that are not merely compliant on paper but transparent by design,” she said.

 

 

Yet experts argue that compliance becomes more difficult when citizens and businesses perceive limited returns from public spending.
This concern echoes arguments contained in a recent essay on Nigeria’s social contract by public policy analyst Godiya Haruna-Peter. According to him, many Nigerians have effectively become their own power providers, water corporations, security agencies, welfare systems, and emergency responders.

 

“The Nigerian citizen is not merely a citizen; they are their own local government, power company, security agency, employment bureau, welfare office, and emergency response system,” he wrote.

Haruna-Peter described this arrangement as a “survival contract” in which citizens routinely compensate for institutional shortcomings through private spending.
The implications extend beyond household budgets.
Economists warn that when citizens and businesses must independently finance critical infrastructure and services, the cost of living rises, business competitiveness weakens, and trust in public institutions erodes. Over time, this can undermine voluntary tax compliance and make future revenue mobilisation efforts more difficult.

For a government seeking to increase revenues while reducing dependence on oil earnings, rebuilding that trust may prove just as important as passing new tax laws.
The debate, analysts say, is no longer simply about whether Nigerians should pay taxes. It is increasingly about whether rising government revenues can reduce the need for households and businesses to privately fund the services those taxes are intended to support.

 

Until then, many Nigerians may continue to feel that they are financing both the government and their own survival.