INTRODUCTION
Over the years, Nigeria has faced persistent revenue shortfalls, rising debt obligations, and soaring inflation (which peaked at over 32% in 2024). These economic challenges have consistently widened the budget deficit beyond annual projections. In response, budgetary allocations have increased to address pressing issues such as infrastructure development, economic recovery, and social welfare programs. However, the combined pressures of high inflation, growing debt servicing costs, and underperforming revenues have continued to strain fiscal performance and limit the government's ability to achieve its economic objectives.
As of 2024, Nigeria's tax-to-GDP ratio is estimated to be approximately 10.3%, reflecting a modest improvement from previous years. This increase is attributable to efforts to enhance non-oil revenue collection. Despite this progress, Nigeria's tax-to-GDP ratio remains below the African average of 15.6% and the global average of 19%.1 The Nigerian government has set an ambitious target to raise the tax-to-GDP ratio to 18% by 2026. Achieving this goal involves comprehensive tax reforms aimed at improving compliance, broadening the tax base, and reducing reliance on borrowing for public spending2
Taxation plays a pivotal role in driving economic development and addressing fiscal and budget deficit challenges in Nigeria. In 2023, President Bola Tinubu inaugurated the Presidential Fiscal Policy and Tax Reforms Committee, chaired by Taiwo Oyedele. The committee's mandate includes reviewing and redesigning Nigeria's fiscal system, focusing on revenue mobilization from both tax and non-tax sources.3 One of the committee's key objectives is to increase Nigeria's tax-to-GDP ratio to 18% by 2025. Importantly, the committee has stated that it does not intend to introduce new taxes or increase existing tax rates. Instead, the focus is on reducing the number of taxes and levies, harmonising revenue collection, and improving tax administration to enhance efficiency and reduce the burden on businesses and individuals.
FIRS BUDGET AND COLLECTION PERFORMANCE (2020–2024)
Over the past five years, FIRS has steadily improved its revenue collection performance despite facing numerous macroeconomic challenges such as the COVID-19 pandemic, inflation, and rising public debt. These challenges have tested the resilience of Nigeria's fiscal system, and the FIRS has responded with reforms focused on digitisation, compliance enforcement, and a shift towards non-oil revenue streams.
In 2020, the FIRS collected about ₦5.26 trillion, slightly exceeding its target despite the widespread economic disruption caused by the pandemic. The following year, revenue increased to ₦6.4 trillion, reflecting improved compliance strategies and the early results of automation in tax administration through the introduction of the TaxPro Max platform. By 2022, the service recorded a major milestone by collecting ₦10.1 trillion, crossing the ₦10 trillion mark for the first time in its history. This was largely driven by improved contributions from Companies Income Tax, Value Added Tax, and stamp duties, with reduced reliance on oil revenue.
In 2023, the positive trajectory continued, with the FIRS collecting ₦12.3 trillion. This growth was attributed to better taxpayer data management, sector-specific strategies, and ongoing digital transformation initiatives. By 2024, the FIRS had set an ambitious target of ₦19.4 trillion and exceeded it by collecting ₦21.6 trillion a whopping 112% of its goal and a 76 percent increase over the 2023 collection. The Executive Chairman of the FIRS credited this success to internal process improvements, enhanced collaboration with stakeholders, and the commitment of the FIRS workforce.
However, while these figures are commendable, it is important to note that other macroeconomic factors have also contributed to the increase in the FIRS's collections. Notably, the deregulation of the exchange rate regime led to a significant jump in the naira value of foreign currency receipts, thereby inflating nominal revenue collections. Furthermore, inflation rising from 13.25% in 2020 to over 32% in 2024 has eroded the real value of these revenues. This highlights the need for inflation adjusted fiscal strategies that can ensure the sustainability and real effectiveness of Nigeria's revenue mobilisation efforts.
Having examined FIRS's budget and collection performance, it is equally important to assess how this revenue performance has influenced Nigeria's fiscal position. The next section explores the persistent budget deficits between 2020 and 2024 and the implications for fiscal sustainability and economic development.
EVALUATION OF FIRS BUDGET/COLLECTION AND THE BUDGET DEFICIT (2020–2024)
Despite the Federal Inland Revenue Service (FIRS) consistently exceeding its revenue targets from 2020 to 2024, Nigeria has struggled with a persistent budget deficit. Even though FIRS' performance has been strong—especially with the ₦21.6 trillion collected in 2024—the country's fiscal deficit remains significantly high due to rising government expenditures, inflation, and debt servicing.
From 2020 to 2024, Nigeria's national budgets have steadily increased, yet the revenue generated, while improving, has not kept pace with the rising costs. For example, despite a budget of ₦17.1 trillion in 2022, the deficit surged to ₦7 trillion, and by 2024, with a budget of ₦49.74 trillion, the deficit was projected to reach ₦13.39 trillion.
The main challenge lies in the continued dependence on oil revenues and the widening gap between revenue collection and public spending. While FIRS' digital transformation has contributed positively, the budget deficit underscores the need for broader fiscal reforms and improved non-oil revenue mobilization.
To achieve a balanced budget, Nigeria must not only enhance tax collection but also address structural inefficiencies and diversify its revenue base, moving beyond oil dependence.
THE WAY FORWARD FOR NIGERIA'S TAX SYSTEM AND FISCAL HEALTH
The Nigerian Tax Bill (NTB) represents a significant reform aimed at improving tax compliance, enhancing the ease of doing business, and boosting revenue collection. At its core, the bill seeks to simplify the tax system, minimise leakages, and streamline administration to promote greater efficiency. One of its primary objectives is to widen the tax net particularly by integrating more businesses from both the formal and informal sector ensuring that previously untaxed economic activities are brought into compliance without introducing new taxes or increasing the tax burden.
The NTB also addresses long-standing issues of tax complexity by providing clarity on ambiguous provisions in existing tax laws. This is expected to reduce disputes between taxpayers and tax authorities, foster transparency, and promote voluntary compliance. By reducing the administrative burden on businesses, the bill supports a more favourable business environment and encourages both domestic and foreign investment.
A key focus of the NTB is the expansion of Nigeria's tax base, especially into under-taxed areas such as the digital economy. Provisions within the bill make it easier to tax digital services and non-resident companies, thereby modernising the tax system in line with global trends. With improved enforcement tools and monitoring mechanisms, the bill also targets tax evasion and aims to significantly increase government revenue.
As Nigeria strives to reach its ambitious target of an 18 percent tax-to-GDP ratio by 2026, the effective implementation of the Nigerian Tax Bill will be crucial. Coupled with broader institutional reforms and greater fiscal discipline, this legislation can play a transformative role in narrowing budget deficits, ensuring long-term economic resilience, and delivering inclusive development.
Footnotes
1 https://businessday.ng/news/article/vat-increase-seen-pushing-nigerias-revenue-to-gdp-ratio-to-10-3/?utm_source=chatgpt.com
2 https://www.reuters.com/markets/nigerias-advisory-body-proposes-creation-central-tax-agency-2024-05-30/?utm_source=chatgpt.com
3 https://fiscalreforms.ng/index.php/about-the-committee/?utm_source=chatgpt.com
The opinion expressed in this article is solely personal and does not represent the views of any organization or association to which the authors belong.
