The International Monetary Fund (IMF) says Nigeria may need to extend value-added tax (VAT) to fuel products and introduce excise duties on telecommunications services to raise government revenue, fund development and social spending.
The recommendation is contained in the IMF’s 2026 Article IV
consultation report on Nigeria, released on June 9, where the Washington-based
lender said recent tax reforms may not be enough to sustain the government’s
spending plans over the medium term.
“Further tax policy changes will likely be needed–such as
increasing the VAT rate, extending VAT to fuel products, rationalizing tax
expenditures in particular VAT exemptions on extractive industries and some
customs duties, and introducing telecom excises — to complement administrative
gains,” IMF said.
The fund 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.
“Staff’s projections caution that there is limited space to
sustain the 2026 ramp up of capital expenditure over the medium-term in the
absence of further revenue gains,” the IMF said.
According to the Bretton Woods institution, the
implementation of Nigeria’s new tax laws should gradually increase revenue
collection, while the use of digital tools to track, verify and collect
revenues could reduce leakages and corruption vulnerabilities.
The IMF said higher revenues would create fiscal space for
development projects and social spending, but warned that the timing of any
additional taxes should take into account the country’s worsening social
conditions.
“The timing of reforms must consider the poverty and food
insecurity situation and ensure that the cash transfer system is in place and
funded,” the fund said.
Also, the IMF acknowledged that the proposed reforms come at
a difficult time for many Nigerians despite improvements in macroeconomic
stability over the past three years.
The international lender said that while strong reforms over
the past three years have yielded improved macroeconomic outcomes and built
resilience, conditions for many Nigerians remain difficult.
According to the fund, poverty has reached 63 percent based
on the national poverty line, while about 27 million Nigerians are estimated to
have faced food insecurity in the latter part of 2025.
The IMF warned that higher global fuel, food and fertiliser
prices could worsen living conditions even as they boost export earnings and
government revenues.
“Higher global fuel, food and fertilizer prices will improve
exports and fiscal revenues, but also give rise to inflationary pressures,
potentially aggravating poverty and food insecurity,” the institution said.
The recommendation is likely to reopen debate over the cost
of living in Nigeria as extending VAT to fuel products could push up the prices
of petrol and diesel, while telecom excise duties may raise the cost of
airtime, voice calls and internet subscriptions if operators pass the costs to
subscribers.
In January 2025, the Nigerian Communications Commission
(NGX) approved a 50 percent upward adjustment in tariff, resulting in an
increase in the cost of airtime and data.
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