The International Monetary Fund (IMF) has stated that Nigeria and other developing economies will benefit more from a tougher international tax regime. According to the IMF's October World Economic Outlook analytical chapter, changes in international tax rules are reshaping competition for multinational investment and profits. The chapter examined how these changes impact global growth prospects amid rising geopolitical tensions. The full report will be released on October 13 at the 2026 Annual Meetings of the IMF and the World Bank in Bangkok, Thailand.
Nigeria loses an estimated $18 billion yearly to tax-related illicit financial flows, including profit shifting. This challenge is partly blamed for the country's revenue crisis. The IMF noted that intangible assets such as data, patents, software, and trademarks have made it easier for multinational companies to report profits in low-tax jurisdictions. However, stronger anti-avoidance measures are beginning to change this trend, with multinational companies increasingly reporting profits in the countries where they invest.
The IMF found that competition over headline corporate tax rates has eased since the mid-2010s. This easing is due to stronger rules aimed at curbing base erosion and profit shifting. As a result, reported profits now respond less to differences in tax rates, while actual investment responds more strongly. The Fund stated that "tax competition has not disappeared, but its character appears to be changing."
The IMF analyzed the impact of tax rates on foreign direct investment (FDI) inflows. A one percentage-point increase in a country's corporate income tax rate relative to other countries was associated with a cumulative decline in FDI inflows of about 0.5 per cent of gross domestic product (GDP) over three years. Corporate tax cuts in major economies could reduce output in other countries. This suggests that tax competition may shift economic gains between countries rather than generate new gains globally.
The impact of tax cuts depends on how they are financed, according to the IMF. Financing tax cuts through borrowing could push up real interest rates and limit investment gains. On the other hand, spending cuts or higher taxes elsewhere could reduce resources available for public investment. The IMF emphasized that emerging markets and developing economies could benefit more from stronger anti-avoidance measures.
These economies rely more heavily on corporate income tax to finance infrastructure, education, healthcare, and other public services. Stronger measures to prevent profit shifting could help such economies protect revenues and preserve fiscal space for development spending. The findings are particularly relevant to Nigeria, where improving tax compliance and raising non-oil revenue remain central to ongoing fiscal reforms.
For Nigeria, stronger enforcement of corporate tax rules could potentially help limit revenue leakages. This would ensure that economic activity taking place within the country contributes more fully to public finances. The IMF's findings highlight the need for Nigeria and other developing economies to implement stronger anti-avoidance measures to protect their revenues and promote sustainable economic growth.
Key points
- The IMF recommends stronger anti-avoidance measures to help developing economies like Nigeria protect revenues and preserve fiscal space for development spending.
