Concerns as IMF advise FG to charge VAT on fuel products

Experts in the finance and development  sector have raised concerns over the recent advice by the International Monetary Fund (IMF) asking the federal government to charge Value Added Tax on petroleum products. The experts, who spoke to Daily Trust, described the advice as ill-timed. The IMF had said Nigeria might need to extend VAT to […]

Experts in the finance and development  sector have raised concerns over the recent advice by the International Monetary Fund (IMF) asking the federal government to charge Value Added Tax on petroleum products.

The experts, who spoke to Daily Trust, described the advice as ill-timed.

The IMF had said Nigeria might need to extend VAT to fuel products and introduce excise duties on telecommunications services to raise government revenue, fund development and social spending.

The recommendation was contained in the IMF’s 2026 Article IV consultation report on Nigeria, released on June 9, where the Washington-based lender said recent tax reforms may not be enough to sustain the government’s spending plans over the medium term.

The director of the Institute of Capital Markets Studies, Nasarawa University, Keffi, Prof. Uvhe Uwaleke, said one contentious recommendations by the IMF is the suggestion that additional tax policy measures may be required over the medium term, including possible increases in VAT, extension of VAT to fuel products, rationalisation of tax expenditures, reduction of exemptions and introduction of telecommunications excise duties.

Prof Uwaleke noted that although the objective of enhancing revenue mobilisation is understandable, the timing and context of such proposals raise legitimate concerns.

“Nigeria is currently experiencing one of the most severe cost-of-living crises in recent history. Households are already contending with elevated food prices, transportation costs, energy costs, housing expenses, and declining purchasing power. Increasing indirect taxes under such circumstances would likely exacerbate economic hardship, weaken consumer demand, and further strain household welfare,” he said.

Explaining further, he said, tax policy must not be evaluated solely through the lens of revenue generation but also through its broader social and economic consequences.

“Before contemplating additional tax burdens, greater efforts should be directed toward improving tax administration, widening the tax net, reducing leakages, enhancing compliance, and stimulating economic growth, which naturally expands the revenue base. The cheering news is that all these have been addressed in the ongoing tax reforms.

“The proposal becomes even more problematic when viewed against the backdrop of the Federal Government’s reported plans to secure a USD5 billion loan from an Abu Dhabi financial institution under terms that reportedly require collateral valued at about 133.3 per cent of the loan amount. Such financing arrangements raise serious questions regarding debt sustainability, asset security, and long-term fiscal prudence.

“While governments often require external financing to bridge fiscal gaps and fund development projects, borrowing should not come at the expense of excessive collateralization that potentially compromises strategic national assets or future fiscal flexibility.

“The IMF’s concerns regarding complex financing instruments and fiscal transparency become especially relevant in this context.

“Nigeria must avoid financing arrangements that may appear attractive in the short term but carry disproportionate long-term risks. Greater transparency regarding loan terms, collateral arrangements, repayment structures, and contingent liabilities is therefore essential,” he said.

Also speaking, Executive Director, Centre for Fiscal Transparency and Public Integrity (CEPTI), Dr. Umar Yakubu, said the IMF’s advice to the Nigerian government was targeted at raising revenues and not tackling Nigeria’s social challenges.

“The IMF has been coming at Nigeria for the past 40 years, and every time they make us implement any policy, all it does is to deepen us into further poverty. So we need to stop listening because our fundamentals are different.

“They are too focused on raising revenues, not necessarily about reducing wastage, but they don’t understand that our accountability mechanisms are not strong enough to support all the revenue generation, which has not translated to a reduction in the multidimensional poverty index.

“So if they’re saying tax should be a tool for inclusion, that makes sense. But if it’s for revenue generation, it doesn’t really add much to the economy.

“As you can see, since this government came to power, they have been implementing almost all the recommendations of the IMF.

“And you can see that our poverty has deepened, and the essence of governance is to reduce poverty,” he said.

What the IMF said

According to the IMF, “Further tax policy changes will likely be needed–such as increasing the VAT rate, extending VAT to fuel products, rationalising tax expenditures in particular VAT exemptions on extractive industries and some customs duties, and introducing telecom excises — to complement administrative gains,” the IMF said.

It said continued revenue mobilisation is essential because there is limited room to maintain the federal government’s planned increase in capital expenditure without additional sources of income.

“Staff’s projections caution that there is limited space to sustain the 2026 ramp-up of capital expenditure over the medium-term in the absence of further revenue gains,” the IMF said.

According to the Bretton Woods institution, the implementation of Nigeria’s new tax laws should gradually increase revenue collection, while the use of digital tools to track, verify and collect revenues could reduce leakages and corruption vulnerabilities.

The IMF said higher revenues would create fiscal space for development projects and social spending, but warned that the timing of any additional taxes should take into account the country’s worsening social conditions.

“The timing of reforms must consider the poverty and food insecurity situation and ensure that the cash transfer system is in place and funded,” the fund said.

Also, the IMF acknowledged that the proposed reforms come at a difficult time for many Nigerians despite improvements in macroeconomic stability over the past three years.

The international lender said that while strong reforms over the past three years have yielded improved macroeconomic outcomes and built resilience, conditions for many Nigerians remain difficult.

According to the fund, poverty has reached 63 per cent based on the national poverty line, while about 27 million Nigerians are estimated to have faced food insecurity in the latter part of 2025.

The IMF warned that higher global fuel, food and fertiliser prices could worsen living conditions even as they boost export earnings and government revenues.

“Higher global fuel, food and fertiliser prices will improve exports and fiscal revenues, but also give rise to inflationary pressures, potentially aggravating poverty and food insecurity,” the institution said.

The recommendation is likely to reopen debate over the cost of living in Nigeria as extending VAT to fuel products could push up the prices of petrol and diesel, while telecom excise duties may raise the cost of airtime, voice calls and internet subscriptions if operators pass the costs to subscribers.