The Big Picture
Nigeria's tax landscape is experiencing a tale of two stories this week. While VAT collections soared to record-breaking heights of N1.95 trillion in Q4 2024, health advocacy groups are pushing for a dramatic 100% tobacco tax increase that could save thousands of lives and generate billions more in revenue.
Record-Breaking VAT Performance Shows System Working
Nigeria's Value Added Tax collection reached an all-time high of N1.95 trillion in the fourth quarter of 2024, marking a robust 9.23% increase from Q3's N1.78 trillion, according to Tekedia's analysis of National Bureau of Statistics data. The breakdown tells an interesting story: domestic VAT payments contributed N917.40 billion, foreign non-import VAT brought in N554.68 billion, and import VAT added N474.75 billion.
The manufacturing sector dominated the VAT landscape, contributing 25.89% of total revenue, followed by information and communication at 16.18% and mining and quarrying at 15.52%. This performance reflects what analysts describe as improved tax compliance, economic activity expansion, and the inevitable influence of inflation on goods and services prices. Readers interested in understanding the fundamentals can learn more about Nigerian tax laws.
Health Groups Push for Aggressive Tobacco Tax Strategy
Meanwhile, the Corporate Accountability and Public Participation Africa (CAPPA) is making waves with its bold call for the federal government to implement a 100% tobacco tax regime. In a statement by Media and Communications Officer Robert Egbe, The Guardian Nigeria reports that such a policy could save thousands of lives annually while reducing healthcare and productivity losses by at least N526 billion.
The urgency behind CAPPA's push becomes clear when you look at the numbers: Nigerians consumed over 20 billion cigarettes annually as of 2018, with tobacco-related diseases claiming nearly 30,000 lives each year. Vanguard News highlighted the organization's deep concern over growing promotion and consumption of both traditional and emerging tobacco products, particularly among Nigerian youth.
The Revenue Reality Check
CAPPA's argument gains weight when considering the financial burden tobacco places on Nigeria's healthcare system. Referencing a Centre for the Study of the Economies of Africa (CSEA) study, the organization revealed that Nigeria spent N526.4 billion treating tobacco-induced illnesses in 2019 alone. Despite the federal government proposing a 50% tobacco tax hike in 2023, the existing mixed excise system remains unchanged.
Oil Sector Delivers Strong Tax Performance
Adding to the positive revenue story, Nigeria's oil tax collections surged 41.7% to N3.69 trillion in the first half of 2025, compared to N2.604 trillion in the same period last year, according to Economic Confidential's analysis of Federation Account Allocation Committee reports. This improvement stems from crude oil production reaching 1.8 million barrels per day , the highest in four years.
The oil tax collections include Petroleum Profits Tax, Hydrocarbon Tax, and Company Income Tax from oil and gas companies. June 2025 alone saw oil tax collections of N411.95 billion, up 13.5% from May's N362.96 billion, though still falling short of the monthly target of N600.17 billion.
Around the Tax World
VAT growth shows sectoral winners and losers... Extraterritorial organizations and bodies recorded the highest growth rate at 180.05% quarter-on-quarter, followed by agriculture, forestry, and fishing at 70.83%, while household activities contracted by 28.97% (Western Post).
Corporate profits feel the squeeze... UAC of Nigeria Plc reported a 22.9% decline in profit after tax to N7.36 billion in H1 2025, despite revenue jumping 32.6% to N110.41 billion, as finance costs doubled and investment returns plummeted (Punch Newspapers).
Digital economy captures more tax... The information and communication sector's 16.18% contribution to VAT revenue reflects Nigeria's increasingly globalized digital economy capturing significant revenue from imports and foreign services.
By the Numbers
Prime Number: N526.4 billion , the staggering amount Nigeria spent treating tobacco-induced illnesses in 2019 alone, underlining why CAPPA believes a 100% tobacco tax could be both a public health victory and a fiscal goldmine.
Market Analysis and Sector Implications
The contrasting tax stories reveal Nigeria's evolving fiscal landscape. The VAT success demonstrates that systematic reforms, improved compliance mechanisms, and economic expansion are paying dividends. Manufacturing's continued dominance suggests a healthy formal economy base, while the strong performance of information and communication sectors signals successful tax capture from Nigeria's digital transformation.
However, the tobacco tax debate highlights missed revenue opportunities. With over 90% of tobacco production occurring in developing countries like Nigeria while developed nations reap profits, a more aggressive tax stance could shift this dynamic while addressing public health concerns.
The oil sector's strong performance, reaching four-year production highs, provides crucial revenue stability. Yet the consistent shortfall against monthly targets (31.36% below target in June) suggests room for improvement in collection efficiency.
Future Outlook and Strategic Considerations
Looking ahead, several trends are shaping Nigeria's tax landscape. For insights on broader reforms, check out our overview of the tax reform workshop. The VAT momentum appears sustainable, supported by ongoing digitization efforts and expanded tax nets. The 62% year-on-year VAT surge demonstrates the system's growing maturity.
The tobacco tax debate will likely intensify, especially as health advocacy groups gain momentum and the government seeks additional revenue sources. International precedents show that aggressive tobacco taxation can simultaneously improve public health outcomes and generate substantial revenue.
Oil tax collections, while strong, remain vulnerable to production volatility and global price fluctuations. The current production levels of 1.8 million barrels per day represent significant progress but maintaining this momentum requires continued investment in infrastructure and security.
Key Takeaways and Action Items
For tax professionals and business leaders, these developments signal several critical considerations:
Immediate Actions:
- Review VAT compliance procedures to capitalize on the expanded enforcement environment. Consider leveraging our Free Nigerian Tax Calculator to estimate potential changes in your tax obligations.
- Assess tobacco-related business exposure ahead of potential tax increases
- Optimize oil and gas tax planning strategies while collection rates remain strong
Strategic Planning:
- Prepare for continued VAT rate optimization and expanded coverage
- Monitor tobacco tax policy developments for supply chain and pricing impacts
- Leverage digital economy tax frameworks for competitive advantage
Long-term Positioning:
- Align with Nigeria's broader fiscal reform agenda emphasizing compliance and transparency
- Consider health-conscious policy trends in strategic planning
- Build capacity for evolving tax administration systems
The current tax landscape reflects Nigeria's maturing fiscal system, where policy makers are balancing revenue optimization with public health objectives. As the government continues expanding its tax net while addressing social priorities, businesses must remain agile and compliant in this dynamic environment.
Prepared by MyTax - mytax.com.ng