The tax burden: Will Nigerians finally see the benefits?

Nigeria’s economic turbulence has once again put taxation at the centre of national debate. While President Bola Tinubu’s administration is pushing forward with ambitious tax reforms, the lessons of history urge caution. In the 16th and 17th centuries, the Kingdom of Kongo imposed arbitrary taxes, discouraging productivity and stifling economic growth. Though Nigeria’s tax system is not as crude, its complexities and inefficiencies echo a similar disincentive to enterprise.

With a tax-to-GDP ratio of just 10.9 percent, Nigeria lags behind its African counterparts. In contrast, Tunisia’s tax-to-GDP ratio stands at 32 percent, while Kenya’s is 15.2 percent. This fiscal weakness starves the country of much-needed revenue, limiting investment in essential public services like education, healthcare, and infrastructure. The low tax base also forces the government into chronic borrowing, further entrenching its dependence on debt.

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Tinubu’s tax reforms, spearheaded by the Presidential Special Committee on Tax Reform, aim to simplify Nigeria’s convoluted tax structure. A reduction from over 60 official taxes to just six or eight is proposed, alongside measures to exempt low-income earners and small businesses from certain tax burdens. While these reforms may streamline collection, the bigger challenge is enforcement. Can the government rein in corruption and inefficiency to ensure the new tax system functions as intended?

The removal of fuel subsidies earlier this year offers a cautionary tale. The policy was designed to free up resources for investment, but instead, it has triggered public backlash and worsened inflation. The promised dividends of subsidy removal have yet to materialise, deepening public scepticism about the government’s fiscal management.

Similarly, Tinubu’s tax reforms could face unintended consequences. The planned increase in VAT, from 7.5 percent to 10 percent by 2025, could place additional strain on the middle class. Rising inflation, combined with this VAT hike, risks eroding purchasing power. If mishandled, these reforms could aggravate public discontent, rather than alleviating it.

“Can the government rein in corruption and inefficiency to ensure the new tax system functions as intended?”

Moreover, while the redistribution of VAT revenue to states and local governments is a step toward fiscal federalism, it comes with new risks. State and local governments have long struggled with inefficiency and corruption. Without accountability, the increased revenue may not translate into better public services, leaving citizens to question the real value of tax reforms.

What Nigeria’s tax reforms must achieve is efficiency, fairness, and transparency. Taxation must be more than just a tool to raise revenue; it must incentivize economic activity and provide for the country’s long-neglected infrastructure. Tinubu’s success in Lagos, where he increased internally generated revenue significantly, offers a model. But scaling that success nationally will require more than just technical adjustments — it demands strong governance and trust in public institutions.

Nigeria’s tax reforms are a critical step toward addressing the country’s fiscal challenges. While streamlining the tax system is a necessary first step, the true success of these reforms will depend on effective implementation. To ensure that these efforts are not merely another chapter in the long history of unmet promises, the Tinubu administration must prioritise accountability and transparency, public engagement, capacity building, and the fight against corruption.

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By establishing mechanisms to monitor the effectiveness of the tax reforms and holding officials accountable, the government can build trust and ensure that the reforms are implemented as intended. Engaging with stakeholders, including businesses, civil society organisations, and taxpayers, is essential for gathering feedback and ensuring that the reforms align with the needs of the people. Investing in the training and development of tax officials will help to ensure efficient and fair tax administration.

Finally, addressing the pervasive issue of corruption is crucial for the success of any tax reform. The government must take decisive action to combat corruption and ensure that tax revenue is used for its intended purposes. By prioritising these areas, Nigeria can unlock the full potential of its tax reforms and create a more equitable and prosperous society. The challenges may be significant, but the rewards of successful tax reform are equally great.