Nigeria's Fiscal Crisis: The Urgent Need for Transparency Over Taxation
Over the past year and a half, Nigeria's economic policy discussions have been heavily focused on a single, compelling notion: the government does not generate sufficient revenue. From the stages of the Nigeria Economic Summit to the debates in the National Assembly, the message has been consistent – increase the tax-to-GDP ratio, broaden the tax base, and implement new consumption taxes. On the surface, this logic seems undeniable. With a tax-to-GDP ratio ranging from 9.5 to 13.5 percent in 2025, which remains well below the African average of about 16 percent and the OECD's 34 percent, Nigeria appears to be missing out on billions in potential revenue.
The Misdiagnosis of Nigeria's Fiscal Health
However, this widely echoed consensus represents a dangerous misdiagnosis of the country's economic challenges. Nigeria is not grappling with a revenue crisis; it is facing a profound governance crisis. The critical, often overlooked reality is that the nation's fiscal stability will not be restored by extracting more funds from its citizens and businesses. Instead, it can only be secured through radical transparency regarding the funds already collected. Therefore, the essential reform is not about imposing more taxes – it is about establishing greater accountability.
The Paradox of Increasing Revenues Amidst Persistent Struggles
Let us consider the evidence. Contrary to perceptions of collapse, government revenues have seen significant growth. Following the dual impacts of subsidy removal and exchange rate unification, fiscal indicators showed marked improvement. Government revenue increased by approximately 4.5 percent of GDP in 2024. By 2025, the fiscal deficit had reduced from 5.4 percent in 2023 to around 3 percent, and capital inflows surged by an impressive 90 percent.
Yet, despite these numerical gains, the everyday experiences of Nigerians did not improve. The 2026 fiscal framework outlines a staggering budget exceeding N54 trillion, with a deficit of over N20 trillion – roughly 3.6 percent of GDP. Notably, debt servicing alone is projected to cost nearly N16 trillion. This creates a paradox: revenues are rising, but financial pressures are intensifying.
This contradiction cannot be attributed to inadequate tax collection efforts. It is driven by systemic leakage – characterized by opacity, inefficiency, and weak expenditure controls that prevent increased inflows from translating into tangible public goods and services.
The Transparency Deficit: Where Public Funds Disappear
The core issue is not the size of the national treasury; it is that the treasury has significant leaks. Despite initiatives like the Treasury Single Account (TSA) and enhancements in budget disclosure, substantial portions of public finances remain shrouded in opacity. Revenue-generating agencies, including the Nigeria Customs Service and various self-funding parastatals, operate with inconsistent remittance practices.
Extra-budgetary funds and special accounts continue to fragment the fiscal system, creating blind spots that oversight bodies struggle to monitor. The annual reports from the Auditor-General of the Federation have become a routine highlight of dysfunction, consistently identifying unremitted revenues, unexplained expenditures, and direct procedural violations. In recent years, the Auditor-General's Office has flagged hundreds of billions of naira in unremitted operating surpluses from federal agencies.
However, enforcement remains notoriously weak, with no permanent officials facing significant sanctions for fiscal indiscipline. Consequently, the government is poised to ask Nigerians to contribute more to a system that cannot adequately account for existing funds. Increasing taxes in this context is not sound fiscal policy; it is fiscal folly – comparable to filling a reservoir with unseen leaks.
Taxation Without Trust: A Political Impasse
Taxation is more than just a technical tool; it represents the most intimate contract between a state and its citizens. In Nigeria, this contract is severely broken. The government has publicly expressed ambitions to raise the tax-to-GDP ratio to as high as 18 percent within the next few years. But this goal clashes with a harsh reality: public trust is at historic lows.
Citizens are likely to resist, evade, or outright refuse to pay taxes when they perceive that public funds are being diverted, expenditures on critical areas like healthcare and education are invisible, and institutions meant to enforce accountability are themselves compromised. The Federal Inland Revenue Service (FIRS) has made genuine progress in digitalization and collection efficiency, but no technological upgrade can legitimize a fiscal system lacking moral credibility.
Nigeria's challenge, therefore, is not merely to expand the tax net – it is to earn the right to cast it by rebuilding trust through transparent governance.
The Economic Costs of Fiscal Opacity
This argument is not merely philosophical; it has direct economic implications. Fiscal opacity imposes three significant costs. First, it distorts investment patterns. The 90 percent surge in capital inflows recorded in 2025 is often hailed as a success, but a closer examination reveals that much of this was short-term portfolio capital chasing high yields in treasury bills. Long-term productive capital – essential for building factories, power plants, and infrastructure that create jobs – remains hesitant.
Institutional investors seek not only returns but also predictable governance; opacity signals heightened risk. Second, opacity leads to resource misallocation. When fiscal flows are not fully transparent, critical sectors are systematically underfunded. Nigeria's health and education budgets, as a percentage of GDP, rank among the lowest globally – not due to insufficient aggregate revenue, but because available funds are diverted or spent inefficiently.
Third, opacity undermines reform credibility. The current administration's macroeconomic adjustments have incurred political costs. If these sacrifices are not visibly linked to improved service delivery and accountable governance, the next phase of reform, including tax expansion, will face insurmountable popular resistance.
Beyond Revenue: A Real Reform Agenda for Fiscal Sustainability
If Nigeria is serious about achieving fiscal sustainability, it must move away from the arithmetic of extraction and embrace an architecture of transparency. Four immediate reforms are essential.
- Radical, Real-Time Fiscal Transparency: Nigeria must advance beyond annual budget publications to implement live, public-facing dashboards. Every remittance from the NNPC, every transfer from FIRS, and every withdrawal from consolidated revenue should be timestamped and accessible. The NEITI framework for extractive industries should serve as the national standard for all public finance.
- Consequences, Not Just Reports: The Office of the Auditor-General must be empowered with prosecutorial authority or guaranteed referral mechanisms that lead to actual sanctions. Until senior officials face consequences for non-remittance, audit reports will remain mere literature without impact.
- Consolidation of Fiscal Accounts: The proliferation of off-budget agencies and special funds must cease. A unified, coherent budgeting framework – where every naira is visible and traceable – is a prerequisite for building public trust. The TSA was a preliminary step; complete fiscal consolidation is the necessary next phase.
- Enforcement of Fiscal Discipline: Rules must be meaningful. Fiscal misconduct, whether through non-remittance, misallocation, or procedural violations, must attract predictable and enforceable sanctions. This is not only a legal requirement but also a critical credibility imperative for the government.
Conclusion: Repair the System Before Expanding It
Nigeria stands at a critical crossroads. Data indicates progress: revenues are increasing, deficits are narrowing (though still substantial), and foreign capital is cautiously returning. However, progress without structural reform is fragile and unsustainable. The government's push for higher taxation is not inherently misguided; eventually, Nigeria must mobilize more domestic resources to fund development.
But the sequence of actions matters profoundly. Transparency must precede taxation. Citizens need to see the tangible effects of their contributions before being asked to give more. Until Nigeria addresses the leaks in its fiscal system, the crisis will persist – not as a loud, dramatic event, but as a persistent, structural, and dangerously silent challenge that undermines long-term economic stability and public trust.
Kingsley Eiguedo Okoeguale is a fellow of the Institute of Chartered Accountants of Nigeria (ICAN) and a public policy analyst specializing in economic governance and institutional reform. His work explores the intersection of fiscal policy, public administration, and private sector outcomes.
