Toluwani Oluwatola (Guest writer)
President Bola Ahmed Tinubu’s signing of four landmark tax reform bills in June 2025, marks a pivotal moment for Nigeria. Among other provisions, the new laws aim to raise the country’s tax-to-GDP ratio to 18% by 2026, potentially unlocking significantly more resources for public investment. Notably, the proportion of Value Added Tax (VAT) allocated to states has increased from 50% to 55%, thereby expanding the fiscal space at the subnational level.
Given the ambitious targets set by the new laws and the thorough approach taken by the Presidential Committee on Fiscal Policy and Tax Reforms in Nigeria in developing them, the legislation is expected to significantly enhance government revenue at all levels.
The real question, however, is whether those fiscal gains will be judiciously applied to improve the lives of ordinary Nigerians. As Thomas Jefferson once stated, “the laying of taxes is the power, and the general welfare the purpose for which the power is to be exercised. They are not to lay taxes ad libitum, for any purpose they please; but only to pay the debts or provide for the welfare of the Union.”
Currently, nowhere is this notion of welfare more important than in human capital development, especially health. Nigeria’s health sector has made notable progress, particularly with the ongoing reforms under the National Health Sector Renewal Investment Initiative (NHSRII). Yet, significant gaps remain on the country’s journey toward Universal Health Coverage (UHC). While there is no one-size-fits-all path to UHC, sustained public financing and strong primary healthcare (PHC) systems are critical.
Nigeria’s public health spending per capita stands at just $11.2, with wide subnational variation, falling short of the recommended US$17–27 per capita for health systems strengthening, and an additional US$64 per capita recommended by the Lancet Nigeria Commission to drastically reduce maternal and child mortality for the period between 2021 and 2030.
Because health is on the concurrent legislative list, all levels of government share the responsibility of improving health outcomes. This is why the “Health Sector Compact” underpinning the NHSRII had to be signed by all levels, a commitment to an “all-of government” approach to aligning investments across federal, state, and local levels. Now, with an expanded fiscal base within reach, the 2025 tax reforms offer a rare opportunity to reverse Nigeria’s persistently low spending on health. But success hinges on how federal, state, and local governments respond.
El Salvador provides a compelling example of what is possible when such opportunities are seized, even though it is a much smaller country than Nigeria. Following the end of its civil war in 1992, El Salvador doubled its tax-to-GDP ratio from 8% to 16% by 2015 and deliberately channeled a larger share of resources into social programmes, particularly health care, surpassing the Latin American regional average. The results were significant, out-of-pocket expenditure fell from 60% to less than 30% of total health spending, life expectancy increased, and under-five mortality dropped sharply from 53 per 1000 live births in 1992 to 10 per 1,000 live births by 2023.
Nigeria is a much larger and more complex country than El Salvador, but the principle still applies; when governments align fiscal reform with social investment, health outcomes can improve dramatically.
There are three key imperatives for ensuring the tax reforms deliver meaningful gains for Nigeria’s health sector:
1. Prioritise health in budgets and improve budget execution
Despite the urgent needs of the health sector, governments have historically underprioritised health in budget allocations. Even where allocations appear adequate, actual spending is often undermined by poor budget performance. At the subnational level, rising internally generated revenue and federal transfers have not consistently translated into increased investment in health. In states like Kaduna and Kano that have met or exceeded the 15% Abuja Declaration benchmark, suboptimal budget execution has constrained impact.
With additional revenue expected to be generated from the tax reforms, state governments have a unique opportunity to make bold commitments: setting minimum benchmarks for health allocations; ensuring timely and full releases of funds; and strengthening their public financial management systems to maximise impact. Equally important is directing funds to interventions that deliver demonstrable improvements in access, equity, and quality of care.
2. Strengthen publicly funded health coverage mechanisms
Nigeria has laid the foundation for publicly funded health coverage in the past decade through key policy instruments: the National Health Act, which introduced the Basic Health Care Provision Fund and the passage of state legislations that created state equity funds — a counterpart funding mechanism that dedicates part of the state consolidated revenue fund to paying premiums for the poor and vulnerable — and the establishment of the Vulnerable Group Fund by the National Health Insurance Authority Act.
While these mechanisms have contributed to commendable progress in expanding health insurance coverage, their full potential has been hampered by limited fiscal space and poor cash backing.
Overall, their contribution to financial protection in the country remains limited as evidenced in the 2024 State of the Health of the Nation Report which stated that only 30% of insured Nigerians have their premiums paid for by public or philanthropic funds.
The subnational picture is widely variable, ranging from 78% in Delta State to just 5% in Akwa Ibom State, with 75% of states recording below the national average. With the additional revenues expected through the tax reforms, state governments have an unprecedented opportunity to leverage their state equity funds to expand the functionality and reach of publicly funded health coverage through state equity funds.
These investments would help close both the coverage gap and the service delivery gap by boosting demand through financial protection and strengthening service provision through direct facility financing.
3. Build advocacy to ensure health gains from the tax reforms
The translation of tax reform into health sector gains will not happen automatically. Public health professionals, advocates, civil society, the media and the public must play a leading role in ensuring health remains front and centre in government priorities. Sustained advocacy is needed to demonstrate the economic and social returns of investing in health, from improved productivity to reduced poverty and enhanced national stability.
The 2025 tax reforms offer a historic opportunity to improve the health and well-being of millions of Nigerians. But legislation alone is not enough. Real transformation will require political will across all tiers of government, increased public demand for accountability, and a fundamental shift in how human capital is prioritised in national and subnational budgets. Also, the fiscal space created by these tax reforms will not remain open forever. Rising debt obligations, competing priorities, and political shifts could quickly absorb new revenues. Governments must act decisively now to channel these resources into health, before this rare window of opportunity closes.
In the end, Nigerians will not judge the tax reforms by fiscal targets or macroeconomic indicators. They will judge them by whether their children can access quality health care at nearby clinics, whether essential medicines are affordable, and whether the health system delivers when they need it most.