Experts in Nigeria’s economic space have warned that the country’s ongoing tax reform efforts could face serious setbacks if state governments fail to translate increased revenues into improved public services and social benefits for citizens.
Speaking at the 2026 Tax Conference organised by BusinessDay in Abuja on Thursday, tax experts and administrators said that while the reforms are expected to widen the tax base, block revenue leakages and boost government income, their long-term success will depend largely on how effectively states utilise the additional funds to improve the welfare of Nigerians.
According to the experts, Nigeria’s tax reforms risk failing to deliver real benefits for citizens and broader economic development unless governments — particularly at the state and local government levels — demonstrate accountability in how public funds are spent.
Sam Amadi, former chairman of the Nigerian Electricity Regulatory Commission (NERC) and director of the School of Social and Political Thoughts, said much of Nigeria’s tax revenue, including value-added tax (VAT), flows to states and local government areas which increasingly bear responsibility for social protection and public services.
He stressed that these tiers of government must justify the rising revenues through accountable spending if the reforms are to be perceived as successful.
Amadi warned that Nigeria could become trapped in what he described as a “tax enclave” if increased tax revenues do not translate into economic development and improved public services.
“Every tax is the state taking from the individual. That taking has a social justice component. It rests on the assumption that citizens themselves are net beneficiaries of that contribution,” he said.
“If government officials take the money and use it for politics, as is happening in many states, then it might not drive development. We might move from an oil enclave to a debt enclave and eventually to a tax enclave — where taxation becomes aggressive but the economy remains stunted.”
Amadi identified public trust as a critical factor for the success of tax reforms, noting that citizens are more willing to pay taxes when they believe the funds will be used responsibly.
He also criticised the tendency among tax experts to view taxation purely as a technical revenue-collection exercise rather than a political and social instrument.
“Tax is not just about income. Tax comes after value has been created. People collectively organise to create value,” he said.
Also speaking at the conference, Joseph Tegbe, chairman of the National Tax Implementation Committee, said the reforms were deliberately structured to strengthen subnational finances by increasing the share of tax revenues flowing to states and local governments.
According to him, the restructuring of tax administration and revenue-sharing mechanisms is designed to ensure that subnational governments receive a larger portion of the country’s tax proceeds.
“The true beneficiaries of these tax reforms are the subnational governments. When VAT revenue of about one trillion naira was distributed, only a fraction went to the federal government while the states received the bulk of the funds,” Tegbe said.
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Under the new framework, the states’ share of value-added tax revenue increased from 50 percent to 55 percent, while the federal government’s share declined.
Tegbe said the adjustment reflects a deliberate effort to channel more resources to state governments to strengthen their fiscal capacity and support development initiatives.
“Previously, the federal government collected 50 percent of VAT revenue. Under the new tax reform, 5 percent of that share was reallocated to the states, giving them a total of 55 percent under the revised VAT distribution formula,” he explained.
He also noted that the concept of derivation in VAT allocation has been redefined — shifting from where a company is registered to where goods and services are actually consumed — a move he said improves fairness in the distribution of revenues.
Tegbe added that the reforms also strengthen local government finances by enabling them to receive statutory allocations more directly, thereby improving fiscal autonomy at the grassroots level.
“Today, local governments receive their revenues more directly from the federal government, ensuring that major fiscal flows reach both the states and local governments,” he said.
He further highlighted the introduction of stronger oversight mechanisms, including the proposed establishment of a tax ombudsman to safeguard taxpayer rights and ensure fairness in tax administration.
“There are now checks and balances in the system. Taxpayers who feel unfairly treated can approach the tax ombudsman, whose role is to represent them and ensure that tax authorities operate within the law,” Tegbe said.
Despite these reforms, Tegbe acknowledged that Nigeria’s tax compliance challenge is rooted in a broken social contract between government and citizens.
“The problem is that the social contract has been broken for many years. It didn’t just happen today, so rebuilding trust will take time,” he said.
According to him, the reforms are brave and bold decisions by President Bola Ahmed Tinubu to rebuild the broken trust, redistribute wealth and bridge the gap between the poor and the rich.
In his remarks, Michael Ango, acting executive chairman of the Federal Capital Territory Internal Revenue Service (FCT-IRS), said the 2025 tax reforms also addressed the longstanding issue of multiple and overlapping taxes across the country.
According to him, the consolidation of various tax laws into a more coherent framework simplifies compliance for businesses and improves efficiency in revenue collection.
“All the multiple taxes are now being streamlined. Businesses have long complained about duplications and numerous levies, but these reforms are addressing those issues. Ultimately, this will support economic activity and improve the overall tax system,” Ango said.
He added that misinformation had initially created fear and uncertainty among Nigerians regarding the reforms, though sustained public engagement by government officials has helped address some of the concerns.
“For us as tax administrators, the next challenge is attitude. Many people do not renew their driver’s licences until they are forced to, and they do not pay taxes until the tax authority sends a notice,” he said.
Ango noted that many Nigerians still struggle to see tax compliance as a civic responsibility, reflecting broader issues of civic participation and governance.
He also pointed to weak enforcement mechanisms and influence peddling as major obstacles to effective tax administration, noting that some taxpayers attempt to use personal connections to reduce or avoid tax obligations.
As part of efforts to improve transparency and fairness, Ango reiterated plans to introduce a tax ombudsman to serve as an independent channel between taxpayers and tax authorities.
The ombudsman, he said, would assist taxpayers who lack the resources to hire lawyers or consultants to challenge tax assessments.
Also speaking at the conference, Uche Uwaleke, professor of capital markets and director of the Institute of Capital Market Studies at Nasarawa State University, explained that recent tax reforms are designed to encourage investment while blocking revenue leakages.
Uwaleke said the capital gains tax (CGT) framework has been adjusted, increasing the rate from 10 percent to 30 percent for certain high-value transactions.
However, he noted that investors would be exempt from the tax if proceeds from share sales are reinvested in the Nigerian capital market, a measure aimed at discouraging capital flight and stimulating domestic investment.
The reforms also allow investors to offset losses from one investment against gains from another, thereby reducing the overall tax burden in some cases.
Beyond the capital market, Uwaleke said the reforms seek to expand government revenue by widening the tax base rather than increasing tax rates, noting that the value-added tax rate remains unchanged at 7.5 percent.
According to him, additional revenue will come largely from blocking leakages and bringing previously untaxed economic activities into the system.
He cited companies operating in free trade zones but selling products in the domestic market while still enjoying tax exemptions as one of the loopholes the reforms aim to close.
Uwaleke stressed that taxation should not be viewed in isolation from broader fiscal policy, which includes government spending and public debt management.
“With higher revenues expected from these reforms, the next advocacy should be on ensuring quality spending that improves social services and the welfare of Nigerians,” he said.
