The International Monetary Fund (IMF) has advised the Nigerian government to
introduce excise duties on telecommunications services and extend Value
Added Tax (VAT) to fuel products as part of broader measures to strengthen its
revenue.
The Fund gave the recommendation in its latest Article IV consultation report
on Nigeria. The IMF said Nigeria would need additional tax policy reforms over
the medium term to create enough fiscal space for development spending and
social interventions, warning that the current pace of capital expenditure may
not be sustainable without stronger revenue growth.
The recommendation is coming amidst skyrocketing fuel prices and a recent
50% hike in telecom tariffs.
According to the Fund, robust implementation of Nigeria’s newly signed tax
laws should gradually improve revenue collection, but this alone may not be
sufficient to meet the country’s fiscal needs.
“Further tax policy changes will likely be needed—such as increasing the VAT
rate, extending VAT to fuel products, rationalizing tax expenditures in
particular VAT exemptions on extractive industries and some customs duties,
and introducing telecom excises—to complement administrative gains,” the
Fund stated.
The IMF, however, noted that the timing of such reforms must take into account
rising poverty levels and food insecurity across the country.
It advised Nigerian authorities to ensure that an effective and well-funded cash
transfer system is in place before rolling out additional tax measures that could
worsen cost-of-living pressures.
The Fund also urged Nigeria to deepen the use of digital technology in revenue
administration to reduce leakages and curb corruption vulnerabilities.
According to the report, leveraging digitalization to track, verify, and collect
government revenues could significantly improve tax efficiency.
The IMF noted that it is continuing to support Nigerian authorities on tax
administration reforms through technical assistance, including the deployment
of a resident advisor on tax administration and customs support from its
regional technical assistance center.
In September last year, the Federal Government announced it had scrapped the
5% excise duty earlier imposed on telecommunications services to ease cost
pressures for millions of Nigerian subscribers.
The 5% excise tax on telecommunications was introduced in 2022 under the
Buhari administration as part of a plan to raise more non-oil revenue for the
government. It covered both voice and data services, with operators directed to
remit on or before the 21st of every month.
Officials justified the levy by pointing to Nigeria’s widening revenue shortfall
and the need to expand the tax net beyond oil earnings.
From the outset, the tax drew criticism from telecom operators who warned that
it would place an extra burden on both the industry and consumers.
The Association of Licensed Telecom Operators of Nigeria (ALTON) explained
that companies were already struggling with more than 39 different taxes, a
7.5% VAT, and a mandatory 2% contribution of annual revenue to the Nigerian
Communications Commission.