Taxing the poor while they starve: Nigeria’s misguided fiscal approach

Nigeria stands at a devastating crossroads. As of 2025, an estimated 139 million Nigerians live in poverty, a staggering increase from 87 million in 2023. Poor households now spend up to 70% of their income on food, with the cost of a basic food basket rising fivefold between 2019 and 2024. Yet, in the face of this unprecedented economic catastrophe, the Tinubu administration’s response has been to implement one of the most extensive tax reforms in Nigeria’s history while simultaneously pursuing aggressive deficit financing through borrowing.

This approach represents a fundamental misunderstanding of economic development. Rather than creating wealth for Nigerians first, which would naturally expand the tax base and increase government revenue, the administration has chosen to squeeze more money from an already impoverished population while mortgaging the nation’s future through debt.

The Tax Reform Agenda: Squeezing Blood from Stone

On June 26, 2025, President Bola Ahmed Tinubu signed into law four comprehensive tax reform bills that significantly expanded Nigeria’s tax net. The reforms broadened what constitutes taxable income, explicitly bringing digital assets, virtual currencies, prizes, winnings, honoraria, grants, and awards into the tax net, while introducing a new 4% Development Levy on assessable profits.

While proponents argue these reforms will modernize Nigeria’s tax system, they fundamentally miss the point: you cannot tax prosperity into existence. The government is essentially attempting to extract revenue from a population that is getting poorer by the day, with 75.5% of Nigeria’s rural population now living in poverty.

The tragedy is compounded by timing. These tax increases arrive precisely when approximately 33.1 million Nigerians are projected to face food insecurity in 2025, driven by inflation, economic hardship, and violence in food-producing regions. The global advisory firm PricewaterhouseCoopers warned that inflation, combined with inadequate social protection, could push up to 13 million more Nigerians into poverty this year.

Deficit Financing: Borrowing Away the Future

The government’s approach to covering its budget gaps is equally problematic. Nigeria’s 2025 budget reveals a staggering deficit of N13.08 trillion, representing approximately 31% of total government revenue and 1.52% of GDP. Most alarmingly, this N13 trillion deficit will be financed through borrowing, which will add to Nigeria’s already substantial debt burden, with public debt potentially exceeding N180 trillion by the end of 2025.

The budget’s projected deficit will be funded through debt instruments (69%), loans (28%), and asset sales (2%). This represents a dangerous dependence on borrowing that threatens to create a debt spiral from which Nigeria may struggle to escape.

The consequences are already visible. About 35.4% of the 2025 budget goes to servicing debt, with roughly 65% of the entire budget financing debt repayment, personnel costs, and overheads. This leaves precious little for the productive investments that could actually grow the economy and lift Nigerians out of poverty.

The Folly of Revenue Without Growth

The fundamental error in the government’s fiscal policy is the belief that increased taxation and deficit spending can generate prosperity. This approach ignores basic economic principles and human incentives. When you tax a struggling population more heavily while simultaneously borrowing to fund government operations, you create a vicious cycle:

Reduced purchasing power: Higher taxes leave citizens with less money to spend, reducing demand for goods and services and stifling private sector growth.

Discouraged investment: When businesses see government borrowing crowd out private sector access to credit and increased taxes reduce profit margins, they postpone or cancel investment plans.

Capital flight: Investors, both domestic and foreign, flee to more business-friendly environments, taking their wealth-creating capacity with them.

Shrinking tax base: As poverty increases and businesses struggle, the actual tax base shrinks, requiring even higher tax rates on the remaining taxpayers to meet revenue targets.

Debt trap: Borrowing to cover deficits creates interest obligations that consume an ever-larger portion of future budgets, leaving less for development spending.

The Alternative Path: Wealth Creation First

A more sensible approach would reverse this equation entirely. Instead of taxing first and hoping for growth later, the government should focus on creating an environment where Nigerians can build wealth. As their prosperity increases, tax revenues would naturally rise without requiring punitive tax rates or aggressive expansion of the tax net.

This wealth-first approach would involve several key elements:

Investment in productive capacity: Rather than borrowing to fund consumption and recurrent expenditure, direct resources toward agriculture, manufacturing, and infrastructure that enable businesses to thrive.

Reducing the cost of doing business: Nigeria has one of the most hostile business environments in Africa. Simplifying regulations, improving power supply, and addressing insecurity would unleash entrepreneurial energy.

Supporting SMEs: Small and medium enterprises are the backbone of job creation and economic growth, yet they struggle with access to capital, infrastructure, and markets.

Agricultural revolution: With the majority of Nigerians dependent on agriculture and food prices driving inflation, massive investment in agricultural productivity would simultaneously reduce poverty, create wealth, and stabilize prices.

Human capital development: Investing in education, skills training, and healthcare creates a more productive workforce capable of generating higher incomes.

Atiku’s $10 Billion SME Stimulus: A Model of Wealth-First Economics

Former Vice President Atiku Abubakar’s proposed Economic Stimulus Fund demonstrates what a wealth-creation-first approach could look like. Atiku proposed unveiling an Economic Stimulus Fund with an initial investment capacity of approximately $10 billion within the first 100 days in office to support private sector investments in infrastructure and prioritize support to agriculture, manufacturing, and MSMEs across all economic sectors.

This approach recognizes a fundamental truth that the current administration has missed: MSMEs offer the greatest opportunities for achieving inclusive growth. By directing capital toward productive enterprises rather than government consumption, such a fund would create jobs, increase incomes, and expand the economy’s productive capacity.

The Economic Stimulus Fund would have a ripple effect, stimulating local economies, generating employment, and helping Nigerians better manage the cost-of-living crisis, accompanied by a “skills-to-job” programme aimed at reducing youth unemployment.

The contrast with the current approach could not be starker. While the Tinubu administration borrows to fund government operations and imposes new taxes on struggling citizens, Atiku’s proposal would have directed stimulus funds toward wealth-creating enterprises. While Tinubu believes that for the government to generate more revenue, he has to raise taxes, Atiku believes that the government first has to invest in people.

Consider the multiplier effects: A manufacturer who receives a soft loan from the stimulus fund can purchase equipment, hire workers, buy raw materials from farmers, and produce goods for export. The workers spend their wages at local shops. The farmers invest in better seeds and equipment. The manufacturer pays taxes on profits, but these are taxes on genuine wealth creation, not extractions from poverty.

Compare this to the current approach, where the government borrows money to pay salaries and service debt, then raises taxes on the same struggling population. No new wealth is created; money is merely shuffled around while the debt burden grows.

The Infrastructure Development Multiplier

Atiku’s broader economic vision included additional wealth-creating mechanisms. He proposed establishing a $20 billion consortium of private sector institutions to create an Infrastructure Debt Fund with an initial investment capacity of approximately $20 billion to primarily mobilize domestic and international private resources for financing and delivery of large infrastructure projects.

This approach recognizes that infrastructure is not merely a government expense—it is a wealth multiplier. Good roads reduce transportation costs for businesses and farmers. A reliable power supply enables manufacturing and services. Modern rail lines expand markets and reduce logistics costs. When designed correctly, infrastructure investments don’t merely spend money; they create conditions for exponential wealth creation.

Atiku proposed establishing an Infrastructure Development Unit directly under the president’s office, tasked with overseeing and expediting infrastructure projects, coordinating efforts across various government agencies to streamline and accelerate infrastructure initiatives, especially those involving private sector partnerships.

The Proven Track Record

Skeptics might dismiss such proposals as campaign rhetoric, but history provides evidence of their effectiveness. During the Obasanjo administration, when Atiku led the country’s economic team, Nigeria demonstrated fiscal responsibility by adhering to the provisions of the Fiscal Responsibility Act, which put inflation in check and even shored up the value of the Naira. Nigeria’s credit ratings increased significantly, opening the way for increased foreign investments, which eventually led to an increase in the value of the Naira from N135 to the dollar in 2006 to N120 to the dollar by 2007.

These results were achieved not through aggressive taxation and deficit financing, but through creating an enabling environment for wealth creation, attracting investment, and managing the economy prudently.

The Untapped Potential

What makes the current approach even more frustrating is that Nigeria has vast untapped revenue potential that doesn’t require taxing impoverished citizens or borrowing. Expert estimates suggest Nigeria could generate close to N100 trillion from various non-tax sources. There are approximately 50,000 abandoned federal projects valued at over N10 trillion, Federal Government landed property estimated at N5 trillion, and the Ministry of Finance Incorporated holds N30 trillion worth of Federal Government assets.

These assets could be monetized, reformed, or put to productive use without imposing a single additional kobo in taxes on struggling Nigerians. Yet the government has chosen instead to pursue the politically easier path of taxation and borrowing.

The Path Forward: Putting Nigerians First

Nigeria’s fiscal policy must undergo a fundamental reorientation. The goal should not be maximizing government revenue extraction in the short term, but rather creating conditions for widespread wealth creation that naturally expands the tax base and increases revenue over time.

This requires:

1. Immediate suspension of new taxes: Put a moratorium on implementing tax increases until Nigerians’ purchasing power has been restored and the economy is growing robustly.
2. Redirect borrowing toward productive investment: If the government must borrow, every kobo should go toward infrastructure, agricultural development, and support for productive enterprises, not government consumption.
3. Implement a genuine SME stimulus program: Following Atiku’s model, establish a well-structured fund that provides soft loans and support to MSMEs in productive sectors.
4. Monetize existing government assets: Rather than borrowing or raising taxes, put the estimated N100 trillion in idle government assets to work.
5. Focus on reducing the cost of doing business: Tackle the infrastructure deficit, insecurity, and regulatory burden that stifles enterprise.
6. Expand social protection: In the short term, vulnerable Nigerians need support to survive the current crisis, not additional tax burdens.
7. Measure success by wealth creation, not revenue collection: Shift the focus from how much the government can extract to how much wealth Nigerians are creating.

Conclusion: A Choice Between Two Visions

Nigeria faces a stark choice between two competing visions of economic development. The current path, aggressive taxation combined with massive deficit financing, extracts from poverty while mortgaging the future. It may fill government coffers in the short term, but it impoverishes the population and creates a debt trap that will burden generations.

The alternative, which is wealth creation first, requires patience and faith in Nigerian entrepreneurship. It means the government accepting smaller revenues in the short term while creating conditions for explosive long-term growth. It means measuring success not by how much money flows through government accounts, but by how many Nigerians escape poverty, how many businesses are thriving, and how much wealth the nation creates.

As the World Bank’s Country Director noted, “The challenge is clear: to translate the gains from the stabilisation reforms into better living standards for all”. But this translation will never occur if the government continues to prioritize revenue extraction over wealth creation.

Atiku’s $10 billion SME stimulus proposal points toward a better way, one that recognizes that government revenue is ultimately a function of national prosperity. Create wealth for Nigerians first, and the tax revenues will follow naturally. Continue down the current path of increased taxation and deficit financing while 139 million Nigerians languish in poverty, and no amount of tax reform or government borrowing will rescue the economy from collapse.

The choice is clear. The question is whether Nigeria’s leaders have the vision and courage to choose wisely, before it’s too late.

Oshobi is head of strategy and planning at the Narrative Force.