Nigeria stands at a pivotal moment. Facing significant economic challenges, the country’s fiscal policy appears out of step with its long-term growth goals. Despite persistent efforts to raise revenue through taxation, the government’s strategy remains regressive, yielding insufficient benefits and disproportionately impacting the poorest citizens. Despite Nigeria having the lowest personal income tax (PIT) exemption threshold among eight selected African countries, its revenue collection lags behind peers such as South Africa and Kenya, according to a BusinessDay study. It became clear that we were late. This imbalance points to a deeper structural problem in Nigeria’s tax system, one that must be addressed if the country is to forge a sustainable path to prosperity.
“This imbalance points to a deeper structural problem in Nigeria’s tax system, which must be addressed if the country is to forge a sustainable path to prosperity.”
The comparison with South Africa is particularly striking. In 2023, South Africa collected PIT of N50.5 trillion compared to Nigeria’s N1.53 trillion. Even Kenya, which has a higher exemption threshold, surpassed Nigeria by generating N5.8 trillion. These figures highlight the inefficiency of Nigeria’s tax system and raise questions about its fairness and effectiveness. The burden now falls heaviest on those least able to bear it, further exacerbating inequality and economic hardship.
History offers clear lessons for countries seeking to tax growth. During the reign of Elizabeth I, England faced similar fiscal pressures, imposing heavy taxes on an already struggling population. The economic strain created dissatisfaction, and Congress was eventually forced to call for reforms that would curb the king’s ability to tax without checks. This change helped lay the foundation for Britain’s economic transformation during the Industrial Revolution.
Remnants of this past remain in the situation in Nigeria today. A government’s focus on extracting revenue from a limited number of low-income groups without meaningful reforms or wealth creation is unlikely to lead to economic development. On the contrary, there is a risk that poverty will deepen and growth will be suppressed. In an environment where local purchasing power is among the lowest in the world (South Africa’s purchasing power index is 84.7, Nigeria’s purchasing power index is only 9.4), taxing the poor will only further suppress consumption and economic activity.
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Recent government proposals such as the Economic Stabilization Bill (ESB) provide a step in the right direction. The bill aims to provide relief to low-income earners and widen the tax base by raising the PIT exemption threshold to N1.5 million. But for this reform to be effective, it must be part of a broader strategy to boost economic growth, improve tax compliance and streamline revenue. A tax system that fosters entrepreneurship, investment and innovation is essential to fostering long-term prosperity.
Nigeria’s experience highlights the importance of creating a comprehensive tax framework that supports rather than hinders growth. Economists have long argued that taxing the wealthy, who have a low marginal propensity to consume, can stimulate economic activity by putting more disposable income in the hands of those most likely to spend it. Ta. This principle is especially true in the case of Nigeria, where many citizens already struggle to meet their basic needs. Targeting them with more taxes will only deepen their economic hardship and limit the country’s growth potential.
Nigeria cannot progress on the path to prosperity by focusing on the least wealthy. Sustainable economic growth requires a tax system that encourages investment, widens the tax base, and promotes equity. Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reform, recently stated that “the best way to generate revenue on a sustainable basis is to grow the economy.” Nigeria should keep this in mind.
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The challenges ahead are clear. Governments must prioritize reforms that create a more inclusive and pro-growth tax framework that empowers people and fosters shared prosperity. This requires a comprehensive review of the existing tax system, reducing dependence on narrow sources of income such as oil, and strengthening non-oil sectors to diversify the economy. Measures such as simplifying tax compliance for small and medium-sized enterprises (SMEs) and strengthening enforcement to reduce tax evasion should be at the forefront of these reforms.
At the same time, addressing fiscal imbalances is crucial to avoid plunging the economy into a vicious cycle of debt and underinvestment. A progressive tax system that ensures a fair share for the rich while reducing the burden on low-income groups will stimulate consumption and growth. Broadening the tax base through digitalization and financial inclusion initiatives can improve governments’ ability to fund critical public services such as education, health and infrastructure, which are key to long-term prosperity.
Without these changes, Nigeria risks falling further behind other countries in a cycle of low growth, fiscal imbalances and rising inequality. But with decisive action, this country can move toward sustainable development and foster an economy where all its citizens have the opportunity to prosper. The path forward prioritizes not only fiscal stability but also inclusive growth that bridges the gap between the rich and the disadvantaged, ensuring that Nigeria’s growth benefits the many, not the few. It is necessary to secure it.
