Govt May Need to Hike VAT, Introduce Telecom Tax – IMF

The International Monetary Fund (IMF) has advised the Nigerian government to consider increasing the Value Added Tax (VAT) rate and introducing excise duties on telecommunications services as part of efforts to boost revenue generation and create fiscal space for development spending.

IMF in its 2026 Article IV Consultation Report on Nigeria warned that despite recent tax reforms, additional revenue measures would likely be required over the medium term to support critical social and infrastructure spending.

According to the IMF, Nigeria’s revenue mobilisation efforts must go beyond administrative improvements to address the country’s persistently low revenue-to-GDP ratio and rising expenditure pressures.

The Fund stated that, “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.”

It noted that while the recently enacted tax reforms are expected to improve revenue collection over time, some of the measures are revenue reducing in the short term and may take time to yield significant gains.

The IMF stressed that continued revenue mobilisation is essential if the government is to sustain higher capital spending and expand social intervention programmes aimed at cushioning the impact of economic reforms on vulnerable Nigerians.

“Over the medium term, continued revenue mobilization is essential to creating fiscal space for development and social spending,” the Fund said, adding that there was limited room to maintain the projected increase in capital expenditure without additional revenue sources.

The Brentton Woods institution, however, cautioned that the timing of any new tax measures should take into account the worsening poverty and food insecurity situation in the country.

It emphasised that any tax increases should be accompanied by a fully funded and effective cash transfer programme to shield vulnerable households from additional economic hardship.

“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 report stated.

The IMF’s recommendation comes as Nigeria continues to grapple with weak revenue generation despite recent reforms, including the removal of fuel subsidies and efforts to improve tax administration.

The Fund projected that poverty and food insecurity could worsen amid higher global fuel and food prices, noting that poverty had already reached 63 per cent of the population while about 27 million Nigerians faced food insecurity in 2025.

It also reiterated its call for a neutral fiscal stance in 2026, warning that spending pressures linked to poverty, food insecurity and preparations for the 2027 general elections could widen fiscal deficits and increase financing needs if not carefully managed.