Nigeria could lose revenue amounting to 0.5% of its GDP following the government’s decision not to increase the value-added tax (VAT) rate, according to the International Monetary Fund (IMF).
In its latest Article IV Consultation Report, the IMF acknowledged recent tax reforms as a positive step toward modernizing Nigeria’s VAT and corporate tax systems but warned that keeping the VAT rate unchanged would result in an immediate decline in government revenue.
While improved corporate tax collection may partly offset the shortfall, state and local governments — which rely heavily on VAT — are likely to be hardest hit.
The IMF noted that maintaining the current VAT rate is a socially sensitive but costly choice, given persistent poverty and limited reach of the federal cash transfer program, which has so far covered only 5.5 million out of a 15 million household target.
Without alternative funding sources, subnational governments may be forced to cut spending or boost internal revenue efforts. The Fund commended the work of the Presidential Committee on Fiscal Policy and Tax Reform, describing ongoing efforts to improve tax compliance, reduce exemptions, and implement digital payment systems as critical to boosting Nigeria’s low revenue-to-GDP ratio, which improved to 14.4% in 2024 from 9.8% in 2023.
