IMF recommends extending VAT to petroleum products and introducing excise duty on telecommunications services to boost government revenue amid cost-of-living crisis
The International Monetary Fund has recommended that Nigeria introduce new taxes on fuel products and telecommunications services as part of broader fiscal measures to strengthen government revenue and support development spending.
The recommendations were contained in the IMF’s 2026 Article IV Consultation Report on Nigeria, released on 9 June, which acknowledged that the country faces a severe cost-of-living crisis affecting millions of citizens.
The IMF stated that recent tax reforms alone would be insufficient to sustain Nigeria’s spending plans.
“Further tax policy changes will likely be needed such as increasing the VAT rate, extending VAT to fuel products, rationalising tax expenditures in particular VAT exemptions on extractive industries and some customs duties, and introducing telecom excises to complement administrative gains,” the IMF said.
The Fund argued that continued revenue mobilisation is essential because limited fiscal space exists to maintain the federal government’s planned increase in capital expenditure without additional income sources. According to IMF projections, revenue-enhancing tax policies could generate additional revenues equivalent to 3.9 per cent of Gross Domestic Product within three years.
“Staff’s projections caution that there is limited space to sustain the 2026 ramp up of capital expenditure over the medium-term in the absence of further revenue gains,” the IMF said.
Tax expansion faces fierce opposition
However, the tax recommendations face significant opposition. A previous attempt by the Federal Government to impose a five per cent excise duty on telecommunications services met strong resistance from operators, subscribers and consumer advocacy groups before being suspended and eventually scrapped.
Telecommunications firms had warned that additional levies would likely be passed to consumers through higher call and data tariffs, compounding existing affordability challenges. Similarly, proposals to tax fuel products have encountered opposition from labour unions and private sector organisations amid concerns over the rising cost of living following the removal of petrol subsidies.
The IMF acknowledged Nigeria’s worsening social conditions, noting that poverty has reached 63 per cent based on the national poverty line, whilst approximately 27 million Nigerians faced food insecurity in late 2025.
Tax timing concerns amid hardship
The IMF cautioned that the timing of any new tax measures must consider poverty and food insecurity situations.
“The timing of reforms must consider the poverty and food insecurity situation and ensure that the cash transfer system is in place and funded,” the IMF stated.
Extending VAT to fuel products could increase petrol and diesel prices, whilst telecommunications excise duties may raise costs of airtime, voice calls and internet subscriptions. These increases would further strain household budgets already pressured by elevated food, transportation and energy costs.
Tax administration improvements also needed
The IMF recommended that implementation of Nigeria’s new tax laws should gradually increase revenue collection. The use of digital tools to track, verify and collect revenues could reduce leakages and corruption vulnerabilities, the Fund suggested.
The IMF also acknowledged that some recently enacted tax reforms would reduce government revenue in the short term because they were designed to support households and small businesses. Revenue-reducing measures were projected to lower revenues by 2.4 per cent of GDP.
Despite these challenges, IMF projected that the combined impact of revenue-enhancing tax measures, administrative reforms and revenue-reducing policies would result in a net increase in government revenue equivalent to 4.6 per cent of GDP over the medium term.
The International Monetary Fund (IMF) is a specialised agency of the United Nations established in 1944. It is headquartered in Washington, D.C., and currently has 190 member countries. The IMF’s main objective is to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
