FG misses Q1 tax target by N2.2tn

Nigeria’s tax revenue collection fell short of its first-quarter budget target by N2.24tn in 2026 amid the rollout of sweeping tax reforms and the transition from the Federal Inland Revenue Service to the Nigeria Revenue Service under the new tax laws.

Documents presented by the NRS at the Federation Account Allocation Committee meetings and obtained by The PUNCH on Tuesday showed that the agency generated a cumulative gross revenue of N7.44tn between January and March 2026, against a projected target of N9.68tn, representing a shortfall of N2.24tn and an overall performance rate of 76.87 per cent.

The figures come months after the implementation of the new tax regime that took effect on January 1, 2026, which formally transformed the FIRS into the Nigeria Revenue Service. The latest performance marked a weaker outing compared to the corresponding period of 2025, when the then-FIRS exceeded its first-quarter target.

FAAC documents from April 2025 showed that the FIRS generated N6.04tn in cumulative revenue between January and March 2025, surpassing its target of N5.82tn by N218.02bn and posting a performance rate of 103.74 per cent.

This indicates that while total tax revenue rose year-on-year by N1.40tn or 23.16 per cent from N6.04tn in the first quarter of 2025 to N7.44tn in the same period of 2026, the growth was still insufficient to meet the significantly higher revenue expectations embedded in the 2026 fiscal framework.

An analysis of the cumulative figures showed that the largest weakness came from Companies Income Tax and related non-oil taxes.

The NRS recorded cumulative collections of N3.75tn from Companies Income Tax, Capital Gains Tax, and Stamp Duties in the first quarter of 2026 against a target of N5.05tn, leaving a deficit of N1.30tn and a performance rate of 74.25 per cent.

This was despite the category generating N2.24tn in the corresponding period of 2025 and outperforming its target then by N218.35bn. Companies’ Income Tax on upstream activities also weakened in 2026. The category generated N349.95bn in the first quarter against a target of N523bn, creating a deficit of N173.05bn and a performance rate of 66.91 per cent.

By comparison, the category had exceeded its first-quarter target in 2025, generating N523.99bn against a target of N490bn. Oil-related taxes, however, recorded stronger growth year-on-year.

Cumulative collections from Petroleum Profits Tax and Hydrocarbon Tax rose to N1.62tn in the first quarter of 2026 from N1.13tn in the corresponding period of 2025, representing an increase of N492.80bn or 43.66 per cent.

The category exceeded its prorated first-quarter target of N1.30tn by N318.23bn and achieved a performance rate of 124.42 per cent. Value Added Tax collections remained relatively resilient despite missing quarterly targets.

The NRS generated N2.42tn from VAT in the first quarter of 2026 against a target of N2.49tn, resulting in a shortfall of N73.71bn and a performance rate of 97.04 per cent. This compares with N2.06tn generated in the same period of 2025, implying a year-on-year increase of N352.08bn or 17.06 per cent.

Petroleum royalties and other oil and gas revenues also underperformed significantly. The category generated N1.28tn cumulatively in the first quarter of 2026 against a target of N2.12tn, leaving a deficit of N840.93bn and a performance rate of 60.30 per cent.

Within the category, petroleum royalties alone recorded a cumulative shortfall of N909.25bn after generating N1.12tn against a target of N2.03tn. The documents also showed that mineral royalties and other mineral revenues failed to record any inflow in the first quarter despite a combined quarterly target of N24bn.

NRS cautions states

The Nigeria Revenue Service has warned states, ministries, departments, and agencies that unremitted taxes could now trigger direct deductions from their Federation Account Allocation Committee allocations under the new tax regime.

The warning was issued on Tuesday by the Executive Director of the Government and Large Taxpayer Directorate at the Nigeria Revenue Service, Amina Ado, during a national workshop on strengthening tax compliance under the new tax regime held in Abuja.

Ado said the Nigerian Tax Administration Act had embedded enforcement mechanisms directly into the fiscal system, making compliance compulsory for government institutions at all levels. “Unremitted revenue can be deducted from allocations,” she warned.

She added, “Section 80 empowers the Accountant General of the Federation to deduct all unremitted revenues due from any MDA or government from its budgetary allocation and remit such deductions to the relevant tax authority, whether a federal or a state tax authority, after a specific due process has been followed.”

According to her, withholding and remittance obligations should now be treated as “allocation protection activities” because governments depended heavily on FAAC distributions funded by taxes remitted into the federation account.

She said, “If a federal, state, or local government treats that withholding tax as someone else’s responsibility, the law provides a mechanism for that neglect to return immediately through deductions from allocations by the Accountant General of the Federation.”

The NRS executive said the agency was targeting about N40tn in tax revenue for the federation and warned that compliance gaps among public institutions were threatening the target.

Ado disclosed that field monitoring and audit activities by the NRS had uncovered structural leakages in the deduction and remittance of Value Added Tax and Withholding Tax by some government institutions.

“Our field monitoring and audit activities have revealed that while many sub-national entities are exemplary in their civic duties, there are still some significant structural leakages, especially in the prompt deduction and delay in remittance of Value Added Tax and Withholding Tax,” she stated.

She added that the imbalance was distorting Nigeria’s fiscal federalism because some states and agencies contributed significantly to the national revenue pool while others mainly participated in the sharing process.

The NRS director stressed that federal, state, and local governments were among the largest purchasers of goods and services in the economy, making their compliance critical to the integrity of the tax system.

She explained that under Section 155 of the Nigerian Tax Act, all levels of government and their agencies were mandated to collect or withhold VAT on taxable supplies made to them and remit such taxes to the NRS on or before the 14th day of the following month.

According to her, remittances must also be accompanied by schedules showing contractor and supplier details. Ado further stated that all ministries, departments, agencies, and local governments were now required under the Nigeria Tax Administration Act to register for tax and obtain Tax Identification Numbers.

She said tax identification had become tied to procurement and compliance processes across government institutions. “A tax ID must be stated on all documents,” she said, adding that Section 72 of the Nigerian Tax Administration Act made tax clearance certificates mandatory before any contractor could enter into agreements with federal, state, or local government institutions.

The NRS official argued that tax compliance should no longer be viewed merely as a finance issue but as a development imperative tied to roads, healthcare, education, and security. “Weak revenue collection constrains growth-enhancing expenditure, and it limits the ability of the government to provide the basics for Nigerians,” she said.

She also linked compliance to trust in government, warning that taxpayers would become discouraged if governments themselves failed to obey tax laws. “When taxpayers believe the government is fair, accountable, and delivers services, tax morale rises, and so does compliance. If the government itself is seen as a defaulter, compliance collapses into cynicism, with the consequences being poverty, insecurity, and underdevelopment,” she said.

Ado noted that the 2025 tax reforms had also strengthened coordination among revenue agencies through the Joint Revenue Board of Nigeria and created the Office of the Tax Ombud to improve accountability and trust in the tax system.

She urged Accountant-Generals, finance commissioners, and government agencies to institutionalise monthly reconciliation meetings with the NRS to track taxes withheld, remitted, and outstanding before liabilities escalated into deductions from allocations.

Also, the Chairman of the NRS, Dr Zacch Adedeji, represented by the Executive Director, Finance and Corporate Services, Muhammad Lawal, said the service’s core mandate was to sustainably finance FAAC and provide reliable revenue for the three tiers of government.

He said the NRS was intensifying compliance efforts across federal, state, and local government institutions because the federation account remained “the financial lifeblood” of government operations and national development.

According to him, the agency’s operational focus was now directed at improving compliance and collection efficiency across government business transactions involving the three tiers of government.

Adedeji said, “The stakes are higher this year as the NRS is faced with the Herculean task of raising about N40tn in tax revenue for the Federation.”

He said meeting the target would require stronger collaboration between the NRS and subnational governments, improved capacity building, and stricter compliance by Ministries, Departments, and Agencies and Government-Owned Enterprises.

The NRS chairman stated that the workshop was organised as a tactical response to persistent compliance bottlenecks and was designed to create awareness among MDAs and GOEs on their statutory obligations regarding tax deduction and remittance.

He said the agency was seeking to shift from an enforcement-driven approach to a collaborative and voluntary compliance framework. Adedeji said, “We have reports about the imbalance in the compliance existing among states and GOEs, which does great damage to institutional fairness, undermines the broader compliance culture, and unfairly burdens compliant states.

“There must be a change in this story going forward, as every level of government has to do its part responsibly to contribute to the national revenue pool that we all draw from.”

He added that the NRS would begin recognising the most tax-compliant states from 2026 across multiple performance indicators. “Excellence deserves recognition, and we look forward to honouring our top performers at the end of the year,” he said.

Call for collaboration

Also speaking, the Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, represented by his Chief of Staff, Tolu Adegbie, said the new tax regime formed part of the Federal Government’s broader structural reform programme aimed at creating a more stable and equitable revenue system.

He said the reforms came at a critical time as Nigeria balanced major economic changes, including tax reforms, exchange rate liberalisation, fuel subsidy removal, and inflation management, alongside mounting socio-economic pressures.

Oyedele said, “The opportunity is to reform our tax space, expand the tax net without increasing the tax burden, encourage voluntary compliance, and use technology to plug leakages.”

According to him, the new tax framework was designed to reduce dependence on volatile revenue sources while strengthening sustainable domestic revenue mobilisation.

He said taxes represented the “social contract in action” through which citizens’ contributions were converted into roads, healthcare, education and security. The minister added that achieving sustainable fiscal reforms would require stronger collaboration between the Federal Government, states, local governments and public enterprises.

Oyedele also warned that fiscal federalism could not succeed without shared responsibility among all tiers of government.

The Accountant-General of the Federation, Dr Shamseldeen Ogunjimi, said the success of the new tax regime would depend heavily on collaboration between federal and subnational governments.

He said Nigeria’s ongoing reforms presented an opportunity to reposition the country’s fiscal framework in line with global best practices. The Accountant-General added that stronger intergovernmental cooperation could help expand the tax net, reduce leakages and improve revenue performance without imposing excessive burdens on citizens and businesses.

“By strengthening institutional cooperation and sharing best practices, we can significantly expand the tax net, reduce leakages, and improve revenue performance across all tiers of government without placing undue burden on citizens and businesses,” he said.

Ogunjimi further stressed the importance of technology in tax administration, saying digitalisation had become critical to improving compliance, efficiency and transparency.

He also linked tax compliance to public trust, arguing that citizens were more willing to pay taxes when the government demonstrated transparency, accountability and visible development outcomes.

Meanwhile, the Chairman of the Forum of Finance Commissioners and Ekiti State Commissioner for Finance, Akintunde Oyebode, said that although the tax reforms generated controversy initially, they ultimately produced more effective laws capable of improving revenue generation and strengthening state capacity.

“Our development ambitions as a country are very clear. We talk about power. We talk about security. We talk about human capital development, healthcare, education, giving every Nigerian the chance to succeed, jobs, etc. All of these require state capacity, and state capacity does not exist where revenues are not available,” he said.

Oyebode called for better data sharing, interoperable tax databases, and closer cooperation between the NRS and state revenue authorities, especially in taxing Nigeria’s large informal sector.

According to him, compliance obligations should not apply only to states, as federal MDAs must also comply with the new tax laws. (Punch)