Nigeria's tax-to-GDP ratio has consistently lagged behind compared to regional averages

Nigeria's tax-to-GDP ratio remains significantly lower than regional averages, showing a gap in revenue mobilisation. While OECD countries reached a tax-to-GDP ratio of 34.2% in 2021, and even the African regional average stood at 18.8%, Nigeria's tax revenue represented only 6.7% of its GDP. This disparity emphasises the need for strategic tax policy reforms to strengthen Nigeria’s fiscal capacity.

Source:

OECD

Period:

2013 - 2021
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Nigeria's VAT revenue shows over ₦1.1T increase in 2023 while the value in dollars shows a decline
  • VAT revenue in naira has consistently grown over the years, hitting an all-time high of ₦3.64 trillion in 2023.
  • The dollar value of VAT revenue declined despite the increase in naira terms, dropping from $5.88 billion in 2022 to $5.44 billion in 2023.
  • Over the last decade, VAT revenue in naira has grown at an impressive CAGR of 20.18%, while its dollar value grew at a much lower 5.48%, showing the impact of currency devaluation.
  • 2023 saw one of the largest year-on-year increases in VAT revenue in naira, but the corresponding drop in dollar value indicates that exchange rate volatility are eroding real revenue gains.
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  • This trend reflects a broader issue in Nigeria’s economy - higher local earnings do not necessarily translate into increased global purchasing power.
  • With VAT being a major non-oil revenue source, policymakers must focus on stabilizing the exchange rate to maximize the real impact of revenue growth.
Three sectors accounted for a combined 59% of the total VAT collected in the first half of 2024
  • Three sectors, Manufacturing, ICT, and Mining & Quarrying, accounted for 58.8% of total VAT revenue in the first half of 2024.
  • Manufacturing alone contributed 24.8% of VAT, making it the highest-paying sector.
  • Nigeria’s digital economy is thriving, with ICT generating 17.6% of VAT revenue, signaling the growth of telecom, data services, and digital platforms.
  • The extractive industry remains vital, with Mining & Quarrying contributing 16.4% of total VAT collection.
  • Finance & Insurance (10.2%) and Public Administration & Defence (9.7%) also made significant contributions to Nigeria’s VAT revenue.
  • Despite contributions from 21 sectors, VAT revenue is still heavily reliant on a few key industries, highlighting the need for a broader tax base.
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With the top ten states receiving 40% of the ₦82b shared in EMTL, Lagos led with ₦7.68b, followed by Kano with ₦3.46b. Oyo, Rivers, and Kaduna rounded out the top five, each securing over ₦2b. These states are driving the lion’s share of the revenue. In stark contrast, the bottom ten states, including Bayelsa and Ebonyi, saw much smaller allocations, with each receiving less than ₦2b.
Since January 2024, Nigerian states have shared ₦82b in ETML, with the South-West receiving 23% (₦19b) of the total allocation
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