Nigeria’s Revenue Challenge: Lessons from Africa’s Top Tax Reformers

Rather than raising taxes, Nigeria is reshaping its revenue mobilisation strategy to widen the tax base and improve the efficiency of tax collection.

The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, reiterated this at the BusinessDay 14th Annual CEO Forum in Lagos, describing the approach as key to sustaining long-term economic growth.

“Our revenue mobilisation agenda is not about raising tax rates to punish success. No. No. It is about widening the tax net, simplifying compliance, and leveraging technology. Our landmark tax reforms are designed to eliminate multiple taxation and drastically reduce compliance costs. This is not merely tax reform; it is a fiscal reset necessary for shared prosperity,” he said.

His remarks capture the thinking behind Nigeria’s latest tax reforms. As the government pursues its ambition of building a stronger economy, it is betting that a wider tax base, better compliance and improved administration will generate more sustainable revenue than repeatedly increasing tax rates.

That challenge has become more urgent because, despite having one of Africa’s largest economies, Nigeria continues to generate far less domestic revenue than many countries with much smaller economies. While credit expansion may help businesses grow and increase productivity, sustaining economic growth will also require a tax system capable of financing infrastructure and public services without excessive reliance on borrowing or oil receipts.

According to reports, Nigeria’s tax-to-GDP ratio of between 9.4 and 10.86 per cent remains below Africa’s average of 16.8 per cent and the African Union’s recommended minimum threshold of 15 per cent for sustainable development. The result is persistent revenue shortages that weaken public investment and increase fiscal pressure.

Tax expert Saidi Olalekan believes the ongoing reforms offer an opportunity to reverse that trend by fixing structural weaknesses that have limited Nigeria’s revenue performance for decades.

“Despite being Africa’s largest economy, Nigeria has a large economy but weak mobilisation,” Olalekan explained to Pinnacle Daily.

According to him, the reforms have already produced early gains. Registered individual taxpayers have increased dramatically, while government revenue targets have become more ambitious.

“The new tax reform in Nigeria is addressing the challenges. Before the Tax Reform, the number of registered individual taxpayers was around 10 million, but it has increased to over 100 million now,” he said.

He added that while the Federal Inland Revenue Service (FIRS) had revenue targets of N19.4 trillion and N25.2 trillion for 2024 and 2025, respectively, the Nigeria Revenue Service (NRS) now has a 2026 target of N40.7 trillion, equivalent to about 60 per cent of the N68.32 trillion approved national budget.

How Nigeria Compares with African Peers

Nigeria’s tax performance continues to trail several African countries that have developed stronger domestic revenue systems despite having smaller economies.

READ ALSO:

• Higher Electricity Cost Looms as NMDPRA Raises Gas Price for GenCos
• NRS Unveils ‘Rev360’ to Track Tax Evaders, Drive Revenue
• Tinubu’s Capital Spending Puzzle: Why ₦3.85trn in Project Funds Failed to Reach Projects
• CBN to Banks: Keep Payment Data in Nigeria
• Beyond Bigger Banks: What Nigeria Can Learn from Global Recapitalisation Reforms

While Nigeria’s tax-to-GDP ratio remains between seven and 10 per cent, Kenya records between 14 and 16 per cent, Rwanda between 16 and 18 per cent, Morocco between 20 and 25 per cent, while South Africa generates between 25 and 27 per cent.

The difference goes beyond tax rates. These countries have built broader tax bases, stronger compliance systems and more efficient tax administration.

South Africa benefits from a highly formal economy, a sophisticated revenue authority and stronger compliance enforcement. Morocco has developed a broad tax base supported by a more formal economy and stronger local taxation. Kenya and Rwanda have invested heavily in digital tax administration, allowing authorities to identify taxpayers more efficiently, process returns electronically and improve compliance.

Nigeria, by contrast, continues to face deep structural challenges. According to Olalekan, one of the biggest problems remains the country’s dependence on oil revenue, which for decades reduced the incentive to build a strong non-oil tax system.

He also identified weak tax administration, poor enforcement, excessive tax exemptions, low taxpayer confidence, a narrow personal income tax base, and the country’s large informal economy as major obstacles.

“Large population in the informal sector with low incomes” remains one of the biggest barriers because millions of businesses operate outside the formal tax system.

VAT productivity also remains relatively weak. Although Nigeria maintains one of the lower VAT rates among comparable African economies, widespread exemptions and a large informal sector reduce the amount of revenue generated from consumption taxes.

Property taxation presents another missed opportunity. While countries such as South Africa generate substantial municipal revenue through well-developed property tax systems, Nigerian states continue to struggle with weak land administration, incomplete property records and poor enforcement.

Digital administration also separates Nigeria from stronger-performing peers. Kenya and Rwanda have built tax systems around electronic filing and digital payment platforms, making compliance easier while reducing leakages.

Nigeria has started moving in the same direction under the current reforms, Olalekan pointing out that the NRS has started deploying technology and it would just be a matter of time.

He, however, stressed that technology alone cannot solve the problem if taxpayers continue to distrust government, adding, “poor culture of tax compliance due to government trust deficits” remains another major factor limiting revenue mobilisation.

What These Countries Did Differently

One common feature among Africa’s stronger revenue performers is that they focused less on raising tax rates and more on expanding the number of taxpayers and making compliance easier.

Kenya widened its tax base through electronic tax administration while strengthening compliance instead of relying mainly on repeated tax increases. Rwanda invested heavily in digital tax administration and built a comprehensive taxpayer database that improved revenue collection.

South Africa modernised its revenue authority, strengthened compliance enforcement and adopted data-driven tax administration, while Morocco improved local government taxation through stronger property tax administration and a broader formal economy.

Olalekan believes Nigeria’s reforms are moving in a similar direction. He said, “Nigeria needs to mobilise the economy by diversification and formalisation of informal businesses.”

He argued that expanding economic activity into the formal sector will ultimately generate more sustainable revenue than increasing taxes on existing businesses.

He also identified several reforms that should remain priorities, stressing, “Improve tax administration and enforcement, expand digital tax administration and e-invoicing, reduce exemptions and tax expenditures, improve taxpayer trust through better public service delivery and strengthen data sharing between agencies.”

He noted that many of these reforms are already embedded in the Nigeria Tax Act 2025, including replacing the Pioneer Status Incentive with the Economic Development Tax Incentive scheme from January 2026 and improving coordination among revenue agencies through the Joint Revenue Board (Establishment) Act.

Can Nigerian States Replicate These Models?

The debate over domestic revenue is equally important for Nigeria’s states. Although state governments are receiving more money than at any point in recent years, growing dependence on Federation Account Allocation Committee (FAAC) transfers raises concerns about long-term fiscal sustainability.

A previous analysis by Pinnacle Daily found that while internally generated revenue (IGR) continued to increase in absolute terms, it failed to keep pace with the rapid growth in federal allocations.

As a result, cumulative IGR’s contribution to recurrent revenue declined from 25.27 per cent in 2023 to below 20 per cent in 2024, indicating that states became more dependent on FAAC despite collecting more internally generated revenue.

Over the three years, FAAC allocations to the 36 states and the Federal Capital Territory rose from N4.01 trillion in 2023 to N5.95 trillion in 2024 before reaching N8.36 trillion in 2025. Combined allocations totalled about N18.32 trillion, representing an increase of 108.81 per cent from the 2023 level.

The figures suggest that stronger federal transfers may be masking a weakening local revenue structure.

For Olalekan, the solution is not introducing more taxes but building stronger state economies capable of generating sustainable revenue.

“To improve state IGR, the following aspects of the Nigeria Tax Reform must be domesticated, established or strengthened,” he said.

He argued that states should focus on improving taxpayer trust, increasing productivity, expanding the formal sector, strengthening tax administration, deploying technology, simplifying tax systems and creating more employment to widen the personal income tax base.