Nigeria’s Tax Paradox: More Burdens, Fewer Benefits

An often-touted saying is that “Nigerians don’t pay taxes.” On the face of it, that may be true. Nigeria’s tax-to-GDP ratio is currently 12.5%, according to Taiwo Oyedele, Nigeria’s Minister of Finance and Coordinating Minister of the Economy. This compares unfavourably with the African average of 16.1%, Europe’s 40.4%, and the US’s 25.6%. In response, the government of President Bola Ahmed Tinubu pursued one of the most comprehensive tax reforms in more than a generation. Implicit in these reforms is a plan to redefine the social contract between Nigerians and their governments at the federal, state, and local levels.

While the tax laws have been passed, an effective tax system still has to be built. As comprehensive as the legislation is, it will not automatically fix the government’s inability to generate fiscal revenue commensurate with the size of the economy. Historically, this has been hampered by weak tax administration, the main issue the laws seek to address; a large informal sector, which the legislation also seeks to capture through presumptive tax regulations; a narrow tax base; and the availability of oil and gas revenues as an alternative and relatively cheap source of government income.

An effective tax system depends on many factors, but none is more important than the social contract. At the 32nd Nigerian Economic Summit (NES) last week, the Nigerian Economic Summit Group (NESG) published its Tax Perception Survey Report 2026. According to the report, only 24.3% of households had seen or heard of a tax-funded project in their community, while a mere 22.0% were satisfied with public services. A further 29.2% said no such services were available in their areas. Businesses surveyed rated all categories of public services below the midpoint of the scale, particularly water and sanitation.

What does this tell us about building an effective tax system and increasing the tax-to-GDP ratio?

First, consider a simplistic juxtaposition of government budgetary items at the federal, state, and local levels with the everyday experience of the average Nigerian. Government budgets are largely administrative, covering civil administration, security, and international engagements. When capital expenditure is considered, it is often associated with the construction of roads. It is easy to see that across the three tiers of government, there is little direct contact or correlation between government expenditure—funded partly by taxes—and the livelihoods of most Nigerians, particularly in education, health, water, and sanitation. Where such services exist, it is often unclear which tier of government has paid for them. Consequently, Nigerians are largely unaware of how their taxes are being used.

Second, and following from the first point, Nigeria still struggles with the hangover from the military era: the absence of a clear demarcation between federal, state, and local government responsibilities. This is also reflected in the way taxes are collected. For instance, I am not aware of specific taxes dedicated to local government administration, yet we argue that local governments should have clearly defined responsibilities. For an effective tax system, responsibilities must not only be clear; they must also match the form and level of taxation.

Third, and something I think the tax legislation missed, is the ability of states to directly collect some form of corporate tax. I think we underestimate the capacity of states to drive investment, growth, and jobs. Without a corresponding responsibility to support private-sector investment in return for growth, jobs, and tax revenues, we have missed a critical opportunity to operationalise this relationship.

Ultimately, the failure of the government and the country to raise the tax-to-GDP ratio is not simply a failure of income growth or public attitude. It is a failure of successive administrations to build an effective economic and tax system. The best economic systems are those that support businesses to compete and scale, while enabling citizens to improve their lives.

In conclusion, the focus should be on expanding the formal economy—particularly by helping businesses scale—and driving income growth. Both depend largely on the Nigerian economy’s ability to address five constraining costs: food, energy, logistics, capital, and human capital. These costs are strangling the transition to a more productive formal economy and limiting the expansion of government revenues. Until we build a system that helps bring them down, the government will struggle to expand its tax revenues sustainably.

I thank you.