Nigeria’s fiscal strategy for 2026 may put pressure on the tax system because of a projected N23.85 trillion deficit, as the federal government shifts its focus away from a historical reliance on volatile oil proceeds toward a technology-driven domestic tax regime.
However, as the 2026 budget reveals, “Debt service alone is estimated at N15.52 trillion, about 45 percent of projected revenue, which limits resources for infrastructure, health, education, and other social services,” Yvonne Afolabi, a tax expert, said.
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For tax administrators, the primary metric of concern remains the tax-to-GDP ratio. PwC, in an outlook report, estimates that Nigeria’s ratio could rise from 9.5 percent to 10.2 percent in 2026 and reach 12.5 percent by 2027.
Nigeria remains a regional outlier, sitting well below the 15 percent benchmark cited by the World Bank as the minimum required to fund core government functions.
Nigeria’s tax effort also trails several African peers. Ghana’s tax-to-GDP ratio is about 16 percent, Kenya’s is close to 15 percent, and Senegal’s stands at roughly 20 percent, highlighting not only the revenue gap but also concerns about how effectively additional revenue is deployed.
As compliance efforts intensify, attention is shifting from revenue collection to institutional capacity.
The transition from the Federal Inland Revenue Service to the Nigeria Revenue Service is intended to support a more data-driven tax administration, anchored on digital integration, real-time transaction tracking, and closer coordination between federal and state authorities.
“The institutional framework for managing higher tax revenues has partially improved, but it is not yet fully ready. Digital tools and coordination/transparency mechanisms exist, but capacity, public trust, and full execution are still works in progress,” Afolabi said.
The challenge for the NRS in 2026 is Tax Morale. When taxpayers see that debt servicing and recurrent costs (personnel and overheads) are fully funded, while capital projects like roads and hospitals are deferred, the willingness to comply drops.
In 2023, for instance, only about N2.2 trillion of the N6.23 trillion allocated to capital projects was released, despite revenue targets being met. Although implementation improved in 2024, delays and rollovers remain persistent.
Debt servicing has further narrowed fiscal flexibility. Actual debt service rose to N12.63 trillion in 2024, exceeding the original budget provision of N8.27 trillion.
In the first seven months of 2025, debt service absorbed nearly 72 percent of federal government revenue. When personnel costs are added, mandatory spending exceeded revenue, forcing additional borrowing even as tax collection efforts intensified.
Analysts argue that taxation should fundamentally reshape the relationship between citizens and the state. Adi Bongo, an economist and public affairs analyst, said Nigeria’s long dependence on oil revenue has weakened accountability.
“Taxation gives citizens the moral right to question government spending. Without it, there’s no real democracy,” Bongo said in an interview on ARISE News.
Read also: How Nigeria Tax Administration Act 2025 clarifies digital assets within tax system
Countries that rely more heavily on domestic revenue tend to face stronger pressure to deliver results. Rwanda, for example, combines a tax-to-GDP ratio of about 15.7 percent with extensive digital tax systems, transparent reporting of tax expenditures, and strong audit follow-through. More than half of its national budget is financed by domestic revenue.
For Nigeria, the challenge goes beyond raising more taxes. Higher compliance raises expectations around accountability, efficiency, and results. If additional revenue continues to be absorbed by debt servicing and recurrent costs, public trust and tax morale could weaken, undermining the sustainability of ongoing reforms.
“Stronger accountability through transparent spending, digital platforms linking taxes to services, and clear public reporting is essential,” Afolabi said.
She added that visible results, disciplined spending, and reduced leakages are key to turning tax revenue into real improvements in infrastructure, health, and education.
