Attracting and diversifying government revenue has been a consistent objective for Nigeria. As the country is unable to rely on a larger pool of financial revenue streams, it has witnessed its budgetary and fiscal resources expand and contract in accordance with global energy prices in recent years. Furthermore, the budget is increasingly financed through debt, as public resources alone are insufficient to finance annual expenditure – which has added pressure on the debt-to-GDP ratio.

By 2024 public debt is expected to be equivalent to 39% of GDP, up from 20.3% in 2015, according to figures from the IMF. In recent years, the government has been repeatedly financing its fiscal deficits and increase in expenditure through the Central Bank of Nigeria, which has not only put pressure on the government’s debt but also contributed to high levels of inflation (see overview). “There is definitely an issue with fiscal sustainability. The more we face this problem, the more we have to borrow,” Muda Yusuf, founder and chief executive at the Centre for the Promotion of Private Enterprise, told OBG.


he implementation of major reforms is seen as necessary to counter dwindling public resources. Total government revenue is projected to decrease to 6.9% of GDP by 2024, down from 7.5% in 2015. Of this, federally collected revenue is expected to reach 4.8% of GDP in 2024, compared to 6.4% in 2015, although this will represent a slight improvement from projected federally collected revenue of 3.9% of GDP in 2023.

Likewise, due to oil theft and ongoing security concerns, oil and gas revenue has seen a contraction in recent years. Although oil and gas represented 3.2% of GDP in 2015, it is projected to amount to 1.3% in 2023, climbing slightly to 2.1% in 2024. These figures demonstrate that the prolonged reliance on revenue from energy to finance the budget has left Nigeria highly exposed to the headwinds facing the sector.

Oil theft remains an obstacle that negatively impacts revenue collection. Indeed, between January and August 2022, the Nigerian government reportedly lost the equivalent of $2bn due to oil theft. Besides the loss of extracted oil and export revenue, the prevalence of oil theft has reportedly encouraged some international companies to reduce output, further curbing potential oil revenue.

However, the authorities anticipate oil revenue will start improving in 2023 on the back of recent security measures to safeguard against theft. In an effort to ramp up oil production, in September 2022 the government awarded a pipeline surveillance contract valued at N48bn ($114.4m) per year to Tantita Security Service, in partnership with the Nigerian National Petroleum Corporation.

Leveraging the potential of the non-oil sector offers key opportunities for sustainable improvement in government resources. However, despite its role in reducing the dependence on energy exports, non-oil revenue has gradually decreased in recent years. From 3.2% of GDP in 2015, non-oil revenue had fallen to 2.5% by 2021. By 2023, this figure is projected to reach 2.6%, before rising to 2.7% in 2024.

Despite the increase, there is room for improvement in Nigeria’s revenue mobilisation. Potential within the non-oil sector can be witnessed in the country’s economic recovery following the Covid-19 health crisis, which has mostly been led by non-oil activities such as trade, ICT and agriculture.

Tax Base

Another structural element that policymakers are looking to tackle is reducing informal economic activity. In the short term, however, government budgets stand to benefit from tax hikes. Nigeria increased its standard value-added tax (VAT) rate in 2020 from 5% to 7.5%. However, VAT remains relatively low when compared to other countries and includes exemptions on a wide range of goods, including food, pharmaceuticals and education.

In a 2022 report, the IMF suggested several measures that could help Nigeria create necessary fiscal space. One potential avenue is to eliminate fuel subsidies. While the government declared in August 2022 that fuel subsidies would be cut in June 2023, the authorities announced in January that it would retain them indefinitely. It is unclear whether the new administration will remove fuel subsidies, as such a move is expected to be unpopular. However, because of the large expenditure they represent – amounting to an estimated $9.6bn in 2022 – as well as their minimal benefits for most Nigerians in terms of job creation and business opportunities, eliminating the fuel subsidies would have a significant impact on public revenue.

Increasing the fiscal space could potentially open up government capacity to expand social expenditure at a time when inflation and unemployment have continued to restrict household incomes across the country. According to projections by the IMF, Nigerian authorities would be able use the savings garnered through removal of fuel subsidies and a streamlining of the tax system to increase social spending by 1.7% of GDP between 2023 and 2027.

The IMF also encouraged Nigeria to gradually push the VAT rate upwards, eventually to 15% by 2027, and consider the elimination of some of the VAT exemptions. These measures, the IMF projects, would create fiscal room equivalent to roughly 6% of GDP over the 2023-27 period. These funds could help Nigeria improve infrastructure or enhance social spending through poverty-reduction measures.

Curbing Informality

While increasing VAT is a relatively easy way to raise government revenue, it can have other knock-on effects in the economy. At a time of inflationary pressures, increasing VAT might impact consumption levels and help to lower overall VAT-related revenue for the state. Another important consideration is the burden it puts on lower-income citizens, who are most affected through generalised increases in the prices of basic goods.

Tackling inefficiencies by applying existing laws to the tax collection system is another avenue that could yield dividends for public finances. At present, the country operates a dual taxation system when it comes to the collection of personal income tax. Salaried employees, civil servants and those working in the private sector can be easily taxed. The amount of income that is unaccounted for from high earners in the informal sector, however, deprives Nigeria of valuable income tax revenue.


Improvements in the deployment of IT are also expected to increase tax revenue. The Federal Inland Revenue Service (FIRS) launched an online integrated tax administration system in 2014, and has been expanding digital tax services in the years since. As of 2017, e-registration for new taxpayers, online payment of stamp duties, payment of federal taxes, as well as e-receipts and online filling of tax returns were all available to taxpayers. Several states also launched their own tax initiatives to further improve available services.

Additional progress was made in June 2021, with the launch of the TaxPro Max platform, which has made the registration, filing and payment of taxes easier by centralising all interactions between taxpayers and FIRS in a single platform. The introduction of the new system has reportedly led to an improvement in tax collection. In 2021, FIRS was able to collect N6.41trn ($15.3bn), marking an increase on the N4.95trn ($11.8bn) collected in 2020 before the system was implemented.

Tax revenue also improved early 2022, with the new system enabling FIRS to raise the collection of corporate income tax to N532.5bn ($1.3bn) in the first quarter of that year, an increase of 35.6% compared to the same period in 2021. VAT collections rose too, expanding by 18.6% to N588.6bn ($1.4bn).