IMF Urges Nigeria to Broaden Tax Base Amid Soaring Poverty and Shrinking Incomes

The International Monetary Fund (IMF) has once again advised Nigeria to expand its tax base and raise non-oil revenue to stabilize its fragile economy.

The recommendation, delivered during the Fund’s 2025 Spring Meetings in Washington, comes at a time when inflation, unemployment, and poverty have eroded the earnings of most Nigerians, raising fresh questions over whom the government intends to tax further.

Kristalina Georgieva, the IMF’s Managing Director, said Nigeria and other African countries must deepen domestic revenue mobilization using digital systems, reduce leakages, and ensure better compliance.

“Countries like Nigeria must broaden their tax revenue base. It is essential not just for short-term budget support, but for building long-term economic resilience,” she said.

“Technology offers tremendous opportunities to strengthen revenue collection. When deployed effectively, it can reduce leakages, increase efficiency, and promote fairness.”

However, the context on the ground suggests a growing disconnect. Nigeria is grappling with one of its worst cost-of-living crises in decades, and the government under President Bola Tinubu is struggling to convince citizens to endure more pain.

According to the World Bank’s Africa’s Pulse report released in April 2025, Nigeria has the highest number of extremely poor people in the world. The report, which examines macroeconomic performance across Sub-Saharan Africa, attributes the worsening poverty rate in Nigeria to a combination of persistent inflation, sluggish growth, and underemployment.

The country’s monthly minimum wage, recently reviewed and set at N70,000—about $45 at prevailing exchange rates—remains among the lowest globally. The government has exempted individuals earning that amount from personal income tax, effectively removing a large segment of workers from the tax net.

The challenge doesn’t end there. According to 2023 data from Enhancing Financial Innovation and Access (EFInA), over 50 percent of Nigeria’s adult population earns N35,000 or less monthly. That figure further shrinks the number of people with taxable income, leaving only a small portion of the formal workforce, mostly civil servants and some private sector employees, to bear the brunt of personal income taxation.

With such statistics in mind, the IMF’s call to broaden the tax base has triggered the same question across boardrooms and households: who, exactly, is left to tax?

Businesses Already Overburdened

In addition to a large chunk of the population effectively below the taxable threshold, businesses in the formal sector have long complained about the burden of multiple taxation. Industry groups including the Manufacturers Association of Nigeria (MAN) and the Nigerian Association of Small and Medium Enterprises (NASME) have, in recent years, warned that excessive and overlapping levies from federal, state, and local authorities are suffocating businesses and discouraging formalization.

In a joint statement issued in late 2024, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) and the Lagos Chamber of Commerce and Industry (LCCI) said the rising cost of doing business, compounded by inconsistent tax demands, was pushing companies into survival mode.

There are reports of businesses paying for signage permits, local council development levies, and environmental taxes, all in addition to company income tax, VAT, and other statutory remittances. In some states, businesses are also asked to pay development levies and informal security fees.

This tax layering not only affects business viability but also limits the incentive to stay compliant or to register formally—undermining the government’s own efforts to expand the tax base.

Declining Oil Revenue Fuels Call for More Taxes

Despite eliminating petrol subsidies and floating the naira, the government still struggles with revenue shortfalls. Oil production has consistently fallen below budget benchmarks, and the Nigerian National Petroleum Company Limited (NNPCL), which now operates as a commercial entity, is inconsistently remitting earnings to the federation account due to what it claims are deductions for under-recovery and pipeline repairs.

In 2024, the Federal Inland Revenue Service (FIRS) posted strong non-oil tax revenue performance, driven by improved VAT and company income tax collection, but the overall federal revenue still fell short of projections. With Nigeria’s debt service consuming over 80 percent of revenue in the 2024 budget year, the government has limited options outside of borrowing or raising more taxes.

That backdrop makes the IMF’s advice unsurprising.

Little Room to Tax the Informal Sector

Nigeria’s informal economy, which the National Bureau of Statistics (NBS) estimates accounts for over 50 percent of GDP and more than 85 percent of total employment, remains largely untaxed. The IMF and the World Bank have repeatedly urged Nigeria to bring informal businesses into the tax net, but the capacity to enforce that without worsening inequality or overreaching into survivalist enterprises is limited.

Many market traders, artisans, and informal workers operate on daily earnings below N2,000. For them, taxes—even micro levies—could mean the difference between feeding their families and not.

The federal government has not signaled a willingness to raise taxes on the wealthy or luxury consumption. Nigeria lacks an inheritance tax, and property tax enforcement remains weak. High-net-worth individuals often operate opaque business structures or shift assets abroad, complicating collection efforts.

While the FIRS under the new administration has indicated plans to integrate digital tools and use data analytics to improve compliance, results remain nascent.

In 2023, the total number of registered taxpayers was just over 41 million, out of a population exceeding 220 million. Only a fraction of those registered contribute any significant amount of tax due to their income levels.

The IMF’s call to broaden the tax base is not new—but it now comes at a moment of serious economic vulnerability. For a government already struggling to maintain public trust after subsidy removals and currency devaluation, adding more financial pressure to the lives of citizens could carry serious political consequences.

Without addressing wage stagnation, rebuilding public infrastructure, and reducing wasteful government spending, analysts say Nigeria will find it hard to justify expanding tax obligations, no matter how urgent the revenue needs may be.