Nigeria’s value-added tax (VAT) revenue is expected to maintain an upward trajectory as improving consumer demand and rising price pressures support nominal spending, analysts at Quest Merchant Bank have said.
The outlook comes after data from the National Bureau of Statistics showed that VAT collections recorded a slight quarter-on-quarter decline in the final three months of 2025, even though full-year receipts surpassed government projections.
According to the data, gross VAT revenue fell by 4 percent from the previous quarter to N2.2 trillion in the fourth quarter of 2025. The decline was largely attributed to weaker inflows from foreign currency-denominated payments.
Despite the temporary dip, analysts at Quest Merchant Bank expect VAT revenues to continue growing in the coming months.
“Looking ahead, we anticipate sustained growth in VAT receipts, supported by a gradual recovery in household consumption and continued gains from improved tax compliance and the ongoing digitisation of tax administration,” the bank said in a note.
The analysts added that rising headline inflation, partly driven by geopolitical tensions, could increase price pressures and boost nominal domestic spending, thereby supporting near-term growth in government revenue.
On a year-on-year basis, VAT collections increased by 13 percent, bringing total receipts for 2025 to N8.6 trillion. This figure significantly exceeded the Federal Government’s target of N7.0 trillion for the year.
The strong performance reflects improving tax efficiency and resilient consumption within Africa’s largest economy.
According to Quest Merchant Bank, the quarterly slowdown was largely due to a drop in non-traditional remittance channels, particularly foreign currency payments.
The relative strength of the naira during the fourth quarter also reduced the local currency value of these inflows, which weighed on overall VAT performance.
However, domestic VAT payments remained strong during the period. Local collections, which account for slightly more than half of total VAT revenue, rose by 3 percent quarter-on-quarter and surged by 26 percent year-on-year to N1.2 trillion.
The growth was supported by steady activity across several key sectors of the economy.
The manufacturing sector remained the largest contributor to VAT revenue, generating N292.1 billion in the fourth quarter. This accounted for roughly a quarter of domestic VAT receipts and about 13 percent of total collections.
Meanwhile, the information and communication sector recorded strong expansion, with VAT receipts rising by 47 percent year-on-year, reflecting continued growth in Nigeria’s digital services economy.
VAT revenue linked to imports also increased, rising 12 percent from the previous quarter to N535.7 billion. The increase was driven by seasonal demand for imported goods despite the appreciation of the local currency.
Analysts say that with improving compliance, digitalisation of tax administration and sustained consumer spending, VAT receipts could remain a key pillar of government revenue growth in the near term.
