Nigeria’s Fiscal Origins and the Politics of Taxation Today

In his post-amalgamation report to the Colonial Office, Lord Lugard proclaimed triumphantly the “astonishing results” of the administrative merger of the Northern and Southern protectorates that became Nigeria in 1914. The anticipated first-year deficit of £200,000 had become a surplus of £80,500, despite the First World War. Lugard believed it might have reached £634,000 without the war.

This simple but defining episode offers a profound insight into contemporary Nigeria. In the creation of Nigeria, there is little indication that Lugard or the colonial officials who created a new political entity and changed the destinies of millions of West Africans considered the full implications of their decision beyond the need to stabilise the finances of the loss-making Northern Protectorate. Crucially, the political implications of creating this new country were hardly considered. The officials who engaged in this mainly bureaucratic exercise could hardly have envisaged the political crises that would later confront the country they had created: independence six decades later, followed soon after by civil war.

Lord Lugard, first Governor-General of Nigeria (caricature, Vanity Fair, 1895)

Tinubu’s fiscal turn

More than a century later, President Bola Tinubu’s administration risks neglecting one of the lessons embedded in Nigeria’s creation: managing the finances of a nation-state often carries seismic political implications beyond narrow accounting success. Since taking office in 2023, Tinubu has embarked on necessary corrective steps to stabilise an ailing economy. The controversial but necessary removal of the fuel subsidy, the return to more orthodox monetary policy and the stabilisation of the exchange rate have started yielding positive results. Nigeria’s net foreign exchange reserves rose from $3.99 billion in 2023 to $34.8 billion by the end of 2025, while gross reserves reached $45.71 billion and later climbed to $50.45 billion by mid-February 2026. The naira, after depreciating substantially, has also shown greater stability, with the gap between the official and parallel market rates narrowing.

Yet while these steps were necessary short-term correctives, the administration’s long-term economic aim has been to reshape the structure of public finance, especially in terms of revenue management. These aims were laid bare in one of the administration’s first major actions: the creation of the Presidential Fiscal Policy and Tax Reforms Committee, headed by Taiwo Oyedele, PwC’s former Africa tax leader and now Nigeria’s finance minister. One of the committee’s major aims was to broaden the tax base, with an explicit commitment to raise Nigeria’s tax-to-GDP ratio. In his 65th Independence Day broadcast, the president celebrated that the tax-to-GDP ratio had grown to 13.5%, from less than 10%. Like the administration’s other fiscal decisions, this is a necessary corrective to Nigeria’s flawed revenue structure.

Nigeria’s revenue has long relied heavily on volatile oil receipts, even though non-oil receipts have increased substantially in recent years. Oil and gas still account for a large share of government revenue and an even larger share of foreign exchange earnings. This, in itself, necessitates diversifying the country’s revenue base. Yet the administration’s commitment to broadening the tax base has important political consequences beyond swelling the public coffers, because of the inherent structure of the Nigerian economy.

Nigeria, like many African economies, has a vast informal economy. Recent estimates by the National Bureau of Statistics suggest that informal employment accounts for about 92% of total employment in Nigeria. This substantial section of the economy is often untaxed by the Nigerian state, if we disregard the informal, arbitrary and localised taxes that many of its actors already pay.

Aerial view of a tomato market in Lagos

While these facts have been acknowledged by the finance minister, who has repeatedly stated that the Nigerian state has no plan to tax 90% of the informal economy because many of these businesses are poor actors merely trying to survive, the administration’s broader drive to increase the tax-to-GDP ratio sits uneasily beside this assurance. For example, the Nigeria Tax Administration Act 2025 requires taxable persons to file returns showing income earned within the relevant financial year. Section 101 of the Act sets penalties for failure to file: ₦100,000 for the first month of default and ₦50,000 for each additional month. These provisions may be positive for the financial administration of the state, but they also reveal the deeper political question: how will a state that struggles to provide security, infrastructure and public trust justify a more intrusive fiscal relationship with its citizens?

The limits of reform

Mr Oyedele appears to envision Nigeria’s tax-to-GDP ratio moving closer to that of developed economies. In a recent Arise TV interview, he suggested that Nigeria should aspire to the levels seen in countries such as France, where the ratio is far higher. He also acknowledged the political implications of this, noting that people would ask what followed after the revenue was collected. Yet he seemed to assume that expanding taxation would itself help reset the social contract so that Nigeria could work better for Nigerians.

This leans towards a familiar idea in fiscal sociology: taxation is not merely a method of raising revenue; it can also shape citizenship, scrutiny and accountability. In countries such as the United States, Britain and France, the idea of “taxpayers’ money” plays a decisive role in politics. But just like the colonial officials in 1914, Nigeria’s current reformers risk treating the huge consequences of reshaping the state in a bureaucratic manner. The passage of tax laws and the increase of revenue by bringing more Nigerians into the government’s tax bracket will not, by themselves, bring about reform.

One can understand Oyedele’s position: he is a technocrat dependent on presidential patronage, not a politician with independent reform power. But the core assumption must be tested against Nigerian reality. What matters is not simply whether revenue rises, but whether political administrators understand the responsibilities that come with collecting and allocating it.

Defence is a case in point. In a country where insecurity remains one of the most visible failures of the state, the Tinubu government has substantially prioritised security spending: the 2026 budget proposal allocates about ₦5.41 trillion to defence and security, following about ₦6.57 trillion in the 2025 budget. But has this spending translated into meaningful security reforms? Do Nigerians feel safer as a result of increased revenue and larger allocations?

This shows the limits of revenue-centred reform. Broadening the tax base may stabilise public finances, but it will not by itself reform the Nigerian state. That can only come through political will and a political class willing to treat taxation as an obligation on government, not merely a source of income. Without that shift, Tinubu’s reforms may produce a stronger treasury without producing a stronger state.

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