Nigeria’s fiscal and tax reforms: CPPE mulls next focus on deepening revenue diversification, enhancing spending efficiency

 

Context and Background

Nigeria is undergoing a major fiscal transition aimed at strengthening revenue mobilization, fiscal sustainability, and economic resilience. Two landmark policy measures — the removal of fuel subsidy and the unification of exchange rates — have significantly boosted government revenues, expanded fiscal space, and improved the capacity for public investment.

Dr. Muda Yusuf, Director/Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE) in a policy statement noted that collections from Value Added Tax (VAT) and Company Income Tax (CIT) have also increased, reflecting stronger compliance and a gradual recovery in economic activities. Subnational governments are reporting higher revenues and increased allocations to agriculture, infrastructure, and social development.

However, rising inflation and currency depreciation have moderated the real value of these gains, underscoring the need for prudent fiscal management and realistic expectations.

Revenue Performance and Fiscal Reality

Recent reforms have driven strong nominal revenue growth:

• Fuel subsidy removal freed trillions of naira in fiscal resources.
• Exchange rate unification boosted naira-denominated oil revenues.
• VAT and CIT collections improved through enhanced compliance and enforcement.

Despite these advances, the real fiscal impact is tempered by high inflation and exchange rate pressures. It is therefore important to assess fiscal outcomes in both nominal and real terms to maintain credible expectations and policy balance.

Nigeria’s Budget in Perspective

A 2025 comparison of national budgets in U.S. dollar terms highlights Nigeria’s fiscal limitations:

• Nigeria: $36.7 billion
• South Africa: $141 billion
• Algeria: $126 billion
• Egypt: $91 billion
• Morocco: $73 billion

Despite its large economy and population, Nigeria’s budget remains relatively small. This limits fiscal capacity for transformative investments in infrastructure, human capital, and social welfare. The situation underscores the urgency of revenue diversification, public-private partnerships, and enhanced non-tax revenue mobilization.

Spending Priorities and Efficiency

With limited fiscal space, spending efficiency is paramount. Priority areas should include:

• Infrastructure: Roads, power, ports, and digital infrastructure to reduce business costs and improve competitiveness.
• Productivity: Targeted support for manufacturing, MSMEs, and technology-driven enterprises.
• Food Security: Investment in agriculture, storage, irrigation, and logistics to stabilize prices and supply.
• Security: Strengthening of law enforcement, intelligence, and military capability.
• Human Capital: Increased investment in health and education to build a skilled and productive workforce.

Governments at all levels should minimize waste, link spending to measurable outcomes, and comply strictly with fiscal responsibility benchmarks.

Subnational Fiscal Dynamics

State governments play a pivotal role in national fiscal sustainability. Many have benefited from higher federal allocations, improved internally generated revenue (IGR), and expanded investments in key sectors. Aligning fiscal priorities with local economic needs — supported by transparency and accountability — will promote balanced national development and reduce dependence on federal transfers.

Tax Policy Reforms

Recent tax measures have introduced several positive features:

• Reliefs for producers and priority sectors.
• Higher exemption thresholds for low-income earners and small businesses.
• Zero-rated VAT on essential goods such as food, pharmaceuticals, and educational materials.

However, private sector concerns remain over compliance costs, the increase in capital gains tax from 10% to 30%, and possible welfare implications of personal income tax changes. Effective implementation should be guided by stakeholder consultation, flexibility, and evidence-based adjustments.

The 5% Fuel Levy Debate

The long-standing 5% fuel levy for road maintenance, legislated since 2007, has never been implemented due to affordability and social concerns. While its fiscal rationale is clear, activation should consider economic conditions, timing, and social welfare implications to ensure broad acceptance and minimal disruption.

Policy Recommendations

1. Measure Fiscal Gains Realistically: Adjust fiscal assessments for inflation and exchange rate effects; communicate outcomes transparently.
2. Broaden and Diversify the Revenue Base: Improve tax efficiency, expand the tax net, and optimize non-tax revenues and national assets.
3. Prioritize High-Impact Spending: Focus on infrastructure, food systems, productivity, and security.
4. Strengthen Subnational Fiscal Capacity: Support fiscal autonomy, accountability, and efficient resource use in states.
5. Implement Tax Reforms with Flexibility: Maintain continuous dialogue with stakeholders and refine policies as needed.
6. Reinforce Fiscal Discipline: Ensure strict adherence to fiscal responsibility frameworks across all levels of government.

Conclusion

Nigeria’s fiscal and tax reforms have delivered important progress in expanding revenue and improving fiscal sustainability. The next phase must focus on deepening revenue diversification, enhancing spending efficiency, and aligning fiscal outcomes with real economic performance.

With prudent management, stakeholder collaboration, and social sensitivity, these reforms can lay a solid foundation for a more resilient, productive, and inclusive Nigerian economy.