Taxation and Development In Nigeria: Bridging The Gap Between Policy and Implementation

Effective tax administration plays an important role in generating tax revenue for the government, to enable it to provide basic amenities that would improve standard of living of the citizens.¹ Taxation in Nigeria can be traced back to the era of the Sahara trades of 800AD1600AD, between then and now the Nigerian tax system still faces controversies, starting from the fact that Nigeria has a GDP to Tax ratio of 9.6% which is subsequently lower than other African countries and developing countries in general. Nigeria current debt stands at 130 trillion naria and debt servicing of 15.9 trillion naria, this has resulted to the Debt to GDP ratio to be very high over 50%.² It is a known fact that Nigeria has embarked on series of tax reforms. While this is true, the success of these several tax reforms were to reduce the tax burden on tax payers and revive their confidence in the taxation system. However, it is likely that these reforms are not sufficient to produce rapid national developments. While this is true, these reforms also promote voluntary compliance on the part of the tax payer which threatens the effectiveness of the tax administration. On the account of the WJP rule of law index ranking, Nigeria ranked 119th out of 142 countries in terms of regulatory enforcement, this raises the question of efficiency on the institution in charge of the enforcement of tax laws which are the Federal Inland Revenue Service (FIRS) and the State Internal Revenue Service (IRS). Hence the aim of this paper is to examine the nexus between taxation and development in Nigeria as well as highlighting gaps between tax policy and implementation. 

This paper is divided into five sections. The preliminary section discusses the introductory aspect of the paper .While the conceptual clarification and theoretical frameworks on taxation in Nigeria will be elaborated on in section two. In section three, an elaborate analysis given. Section four examines the challenges in regulating Taxation in Nigeria. Finally, section five concludes this paper and provides recommendations. 

Conceptual Classification 

The law of Taxation in Nigeria is not fully codified, they are spread out based on the specific type of taxes .There are at least 20 laws applicable to taxation in Nigeria, and each define tax as; ‘the tax chargeable under this act’. 

On the balance, a definition of tax could be seen as a fiscal policy measure imposed on citizens by the government for revenue generation and expenditure to grow the country’s economy. 

The collection of tax revenue is a key development priority, it is essential to finance investment in human capital, infrastructure and the provision of services for citizens and businesses. 

Theoretical Framework 

Optimal Income Taxation Theory  

I. Proponent and principle 

 The Optimal Income Taxation theory was propounded by Frank P Ramsey and later refined by James Mirrlees. This theory provides a solid theoretical foundation for analyzing the effectiveness and efficiency of tax policies.³

II. Application 

The Optimal Income Taxation theory argues that a country’s taxation structure should be designed in a way that maximize social welfare. It states that a tax system should promote economic growth while ensuring that the tax system is fair and equitable at the same time.  

III. Relevance 

Optimal Income Taxation theory lays emphasis that a well-structured tax system can provide the necessary funds to finance various developmental activities independently and in alignment with Sustainable Development Goals. ((Thomas Beloe and Ahtesham Khan, ‘How Taxes Drive the Sustainable Development Goals’(UNDP, 2 May))⁴

IV. Criticism

This research does not fully adopt the Optimal Income Taxation Theory. This assumes the fact that it provides a fair amount of tax on the citizens and ensures development but in practice, it does have some challenges due to various implementation and administrative obstacles, along with the difficulties presented by those seeking to dodge taxation leading to unfair and unequal payments. 

Analysis 

Currently in Nigeria, there are at least 20 laws guiding taxation. These laws include but are not limited to; Companies Income Tax Act as amended, Constitution of the Federal Republic of Nigeria (CFRN) 1999 as amended, Federal Inland Revenue Service (Establishment) Act 2007,Value Added Tax (Amendment) Act, Tertiary Education Trust Fund (Establishment etc.) Act 2011, as amended, Petroleum Profits Tax Act and Finance Act 2011 as amended 2023. Nonetheless, due to a variety of laws that govern different aspects of tax collection and administration across various levels of government. This is bad because it has given rise the issue of legal pluralism in its frameworks. In August 2024, President Bola Ahmed Tinubu established a committee called the Fiscal Policy and Tax Reforms Committee to address the need for tax reform in Nigeria. This committee came up with a solution which was presented to the National Assembly, these bills include; Nigerian Tax Bill, Tax Administration Bill, Nigeria Revenue Service Bill and Joint Revenue Bomyriad (Establishment) Bill with the aim to overhaul the country’s tax administration and revenue generation. Although, there is no proper released statement by the national assembly, there is a lot of speculation particularly about the Nigerian Tax Bill (NTB) which seeks to outline all taxes in the country administered by different laws, combining them into a single unified law by revoking some tax laws and maintaining some, these include; Casino Act, Deep Offshore and Inland Basin Act, Industrial Development (Income Tax Relief) Act, Income Tax (Authorized Communications) Act, among others. 

The National Tax bill, has different objectives which when enforced would improve the Tax administration which include but are not limited to; reducing Personal Income Tax, a gradual increase ofValue Added Tax and reducing Capital Gain Tax . However, a limitation is that due to the institutional issues in Nigeria being ranked poorly by the WJP index,⁹ there is no guarantee of compliance to this new policy, and without enforcement there can be no effective implementation.  

Challenges 

Although taxation holds significant potential as a dynamic tool for achieving sustainable national development, Nigeria’s tax system has struggled to meet its objectives due to several challenges, including but not limited to ;

I. Multiplicity of taxes:  

Nigerian businesses face numerous amount of taxes, leading to confusion and increased compliance costs. This complexity creates an environment where businesses struggle to navigate the tax terrain effectively.  

2. Failure of full transparency on the part of government: 

The government makes use of the taxpayer money for different project under the guise of national development, however since there is no provision of what the money was used for, it brings low accountability and wastage into the picture  

3. Impact on foreign investments: 

The limitation in Nigeria’s tax administration has led to significant concerns in foreign investors and businesses, prompting many foreign companies to either exit Nigeria or reconsider their investment strategies. 

Conclusion 

Taxes are sustainable sources of income for government to finance development projects and   initiatives. It is due to the poor taxation administration that allowed for there to be gaps in the implementation of such an important aspect to the fiscal policy in Nigeria. The new Tax Reforms, has the potential to foster development, but due to the regulatory enforcement issues, this awaited development cannot be guaranteed. Nigeria is no way near achieve the Sustainable Development Goals(SDGs). Nevertheless, the creation of a better tax administration is a step towards achieving these goals.  

Recommendation 

1. Transparency Requirement 

It is crucial for enabling tax payers to hold their government accountable for how tax revenues are collected and spent, by disclosing financial details including financial statements and tax payments, makes it easier to identify and mitigate the non- compliance of tax regulations. 

2. Tax Reform for International Investment:  

The Tax reforms should enable foreign investors to bring more investment. It can be done by reducing high and deterrent taxes. 

3. Consolidation of Tax legal framework: 

The new tax reform should implement the policy of harmonizing the numerous tax legal framework together, to make for a effective and efficient administration. 

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About Author

 Obianuju Lucy Anigbogu is a legal researcher and First-Class LL.B. candidate at Afe Babalola University with a growing focus on international law,taxation, intellectual property, human rights, and alternative dispute resolution (ADR). Passionate about the intersection of law, technology, and sustainability, she is committed to advancing equitable legal frameworks and shaping forward-thinking global policies. 

1. Rotimi Oladele and Foluso O Aribaba,‘Tax Enforcement Tools and Tax Compliance in Ondo state, Nigeria’(2019)8(2)AJIS<here> accessed 17 February 2025. [↩]
2. DMO, ‘Nigeria’s Total Public Debt at September 30, 2024’,(Debt Management Office Debt,13 February 2025),< here> accessed 20 February 2025. [↩]
3. James Mirrlees, ‘An Exploration in the Theory of Optimum Income Taxation’(1971)38(2) RES 175-208< here> accessed 17 February 2025. [↩]
4.  )< here> accessed 18 February 2025. [↩]