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Nigeria’s push to raise domestic revenue is putting greater scrutiny on the tax incentives granted to businesses, investors and consumers through exemptions, credits, holidays, reduced rates and other concessions.
The review comes as the government seeks to expand revenue without placing additional pressure on households and businesses already facing high production costs, elevated interest rates and other structural challenges.
Nigeria’s tax-to-GDP ratio stood at 8.2% in 2023, according to the OECD, compared with an average of 16.1% for African countries covered by its Revenue Statistics in Africa report. The gap underscores the country’s difficulty in converting economic activity into government revenue.
There is, however, no single official aggregate naira figure showing the total value of tax incentives granted specifically to attract foreign direct investment since President Bola Tinubu assumed office in May 2023.
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What the data is saying
The Medium Term Expenditure Framework (MTEF) 2024–2026 provides estimates of several forms of tax expenditure, including the Road Infrastructure Tax Credit Scheme.
The scheme was projected to cost N45.26 billion in 2023, N46.26 billion in 2024, N55.51 billion in 2025 and N66.61 billion in 2026.
Overall tax expenditures were projected at N3.87 trillion in 2026, including N1.64 trillion from VAT and N1.11 trillion from Company Income Tax (CIT).
The Budget Office of the Federation lists exemptions covering items such as goods imported under diplomatic privileges, military hardware, fuels and lubricants, hospital and surgical equipment, aircraft and related equipment, plant and machinery for companies operating in export processing zones, medical products, and import duty and VAT for commercial airlines.
However, the N3.87 trillion figure should not be interpreted as conventional tax waivers.
The MTEF uses the broader concept of tax expenditure, covering exemptions, deductions, credits, reduced rates and other measures through which government forgoes revenue.
The Road Infrastructure Tax Credit Scheme, for instance, allows companies to receive tax credits for financing eligible public road projects. It is designed to mobilise private capital for infrastructure rather than simply provide a tax holiday.
Petroleum-sector fiscal arrangements, including NNPC management fees and reinvestment provisions, also affect government revenue but should not automatically be classified as investor tax exemptions.
Revenue is rising despite tax concessions
The debate over tax incentives comes as tax collection has increased significantly under the Tinubu administration.
The Nigeria Revenue Service collected N22.59 trillion between January and September 2025, while cumulative collections between October 2023 and September 2025 reached N47.39 trillion.
The agency ultimately collected N28 trillion in 2025 against a N25 trillion target.
The stronger performance suggests that improved tax administration, enforcement and compliance can generate substantial additional revenue without relying solely on higher tax rates.
At the same time, the government has deliberately surrendered some potential revenue to support investment, production and consumers.
Since May 2023, the administration has suspended or redesigned measures including the proposed 5% excise duty on telecommunications services, increases in excise duties on locally manufactured products and some provisions under the Finance Act 2023 and Customs Tariff Review.
It has also introduced targeted incentives for areas including upstream oil and gas, deep offshore petroleum operations, pharmaceutical manufacturing and clean energy.
VAT reliefs have similarly been provided for selected products and activities, including CNG, LPG, electric vehicles, pharmaceutical inputs and medical products.
The policy argument is that targeted tax relief can lower the cost of investment and production, encourage formalisation and improve the viability of projects.
The trade-off is the revenue government gives up in the process.
The investment case
The effectiveness of these incentives is particularly important as Nigeria seeks to attract more productive foreign investment.
Nigeria recorded $23.22 billion in total capital importation in 2025, almost double the $12.32 billion recorded in 2024.
Yet foreign direct investment accounted for only about $923 million, or roughly 4% of total capital imported during the year, with portfolio investment accounting for most of the inflows.
The pattern was even more pronounced in the first quarter of 2026, when total capital importation reached $10.37 billion. Portfolio investment accounted for $9.86 billion, representing 95.1% of the total.
“The figures show that foreign investors are returning to Nigerian financial markets, but attracting long-term capital for factories, infrastructure and productive businesses remains more challenging. That distinction is important when assessing tax incentives,” Abuja-based energy policy analyst, Dr. Abdulmumeen Kundir said.
“An investor buying Nigerian government securities faces a different set of considerations from a manufacturer deciding whether to establish a factory. The latter must weigh electricity supply, logistics, infrastructure, security, foreign exchange availability, financing costs, regulation and taxation. Tax relief may influence the decision, but it is only one part of the investment equation,” he added.
Investment pledges versus realised FDI
The Tinubu administration has announced more than $50 billion in investment commitments since taking office. Actual FDI inflows, however, have remained considerably lower.
Data compiled from NBS releases shows that actual FDI inflows between Q2 2023 and Q1 2026 amounted to about $2.06 billion.
“The difference does not necessarily mean that announced projects have failed to materialise. Large investments, particularly in infrastructure and energy, can take years to reach financial close and begin disbursement,” Kundir said.
He said but it does underline why investment pledges should not be treated as equivalent to realised capital inflows.
“A tax concession may be justified if it results in investment, jobs, exports or production that would not otherwise have occurred,” Dr Olu Olajemgbesi an economist at the University of Abuja noted.
“For example, if a company receives N10 billion in tax relief and invests N100 billion in a new factory because of the incentive, while creating jobs and generating exports, the concession may produce a measurable economic return.
“But if the company would have invested the same N100 billion without the relief, government has surrendered N10 billion without materially changing the investment decision. That is the central test policymakers face when reviewing major tax concessions,” he added.
Nigeria is changing its incentive model
Nigeria’s tax reform programme is already moving away from some traditional tax holiday arrangements.
One of the major changes is the replacement of the Pioneer Status Incentive with the Economic Development Tax Incentive (EDTI) under the new tax framework.
Pioneer Status provided qualifying businesses with corporate income tax relief for an initial period, subject to specified conditions and extensions.
The EDTI places greater emphasis on qualifying capital expenditure and investment in priority sectors.
The shift is intended to link tax benefits more closely to actual economic activity rather than simply granting relief because a business falls within a qualifying category.
Taiwo Oyedele, who was then chairman of the Presidential Committee on Fiscal Policy and Tax Reforms now Minister of Finance, has advocated more targeted incentives tied to measurable economic outcomes.
Under that approach, the objective is not merely to reward investment but to encourage additional factories, production capacity, employment, exports, technology transfer and infrastructure.
The measurement problem
One of the biggest challenges is determining how much individual incentives cost and whether they achieve their intended objectives.
NRS Chairman Zacch Adedeji has highlighted limitations in government data that make it difficult to establish the cost and effectiveness of some tax incentives.
Without reliable data connecting individual concessions to investment, employment, production and exports, government cannot easily determine whether a particular incentive is generating sufficient value.
This creates the risk that some concessions remain in place because they have historically existed rather than because there is evidence that they continue to influence investment decisions.
An incentive becomes difficult to justify when the underlying investment would have taken place without it.
This is particularly relevant in sectors where Nigeria already has strong commercial advantages, including its large consumer market and access to raw materials.
Not every exemption is an investment incentive
Another important distinction is that not every tax exemption should be evaluated as an investment-attraction measure.
Some reliefs are primarily intended to reduce the cost of essential goods and services or serve wider social objectives.
VAT relief on medicines, for example, should be assessed partly on its impact on healthcare affordability. An investment tax credit for a manufacturing plant, by contrast, should be evaluated against capital expenditure, employment, production and exports, says Dr Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE).
Applying the same criteria to both could obscure their different policy objectives, he noted.
What experts are saying
The debate is complicated by the fact that not every exemption represents an avoidable loss of revenue, according to economic analysts.
Dr Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), said some exemptions should be assessed based on their wider economic and social benefits rather than solely on the immediate revenue forgone.
“I don’t think so [that Nigeria is giving more away], although we don’t have the full data because when you import, for instance, defence equipment, you know we don’t produce those things locally, they waive taxes for it completely,” Yusuf told Nairametrics.
He argued that similar considerations apply to machinery and equipment imported for industrial production, particularly where the items cannot be produced locally.
Yusuf said the assessment should therefore extend beyond the immediate fiscal cost.
“So, my own view is that we don’t have to be looking at everything through the lens of money or based on naira and kobo alone. There are social returns, there are economic returns. There are also financial returns.”
His argument is particularly relevant to import-related exemptions, where duties and VAT may be waived on equipment and machinery used by businesses.
The immediate customs or VAT revenue forgone could potentially be offset by increased production, employment, investment and eventual tax payments from businesses using the equipment.
Dr Yusha’u Aliyu, a researcher at the Abuja-based Institute for Professional Economists and Policy Management, said tax incentives should also be considered alongside the wider investment environment.
“My opinion has to do with the ease of doing business practices in Nigeria. The second is environmental factors. The security of the business environment itself. While the third one is government policy,” Aliyu said.
He argued that Nigeria remains attractive to investors because of its underlying economic potential despite the challenges businesses face.
His position highlights an important point: tax policy does not operate in isolation.
An investor comparing Nigeria with another market will consider taxation alongside infrastructure, electricity, security, regulation, foreign exchange access, market size, labour costs and macroeconomic stability.
Banke Adebanwi, an analyst at Kwik Securities Ltd, expressed concern about the opacity surrounding Nigeria’s tax incentives, arguing that limited disclosure makes it difficult to determine how much revenue government is foregoing and whether concessions are producing sufficient economic benefits.
Abuja-based energy policy analyst Dr Abdulmumeen Kundir similarly argued that Nigerians need greater clarity on what government is giving up and what the country is receiving in return.
A tax concession may improve the economics of a project, but it may not be enough to compensate for structural weaknesses elsewhere in the business environment.
What you should know
In December 2025, the Federal Inland Revenue Service (FIRS) formally rebranded as the Nigeria Revenue Service (NRS) following the enactment of the Nigeria Revenue Service Establishment Act, 2025.
With the new law, the NRS replaced the FIRS as Nigeria’s central revenue authority, expanding its mandate under the country’s sweeping tax reform programme that took effect on January 1, 2026.
Nairametrics reported IMF advised the Nigerian government to introduce excise duties on telecommunications services and extend VAT to fuel products as part of broader measures to strengthen its revenue.
The IMF said Nigeria would need additional tax policy reforms over the medium term to create enough fiscal space for development spending and social interventions.
