Market News

By : Isaac Chibuife

More than others, Nigeria and other emerging markets would benefit from tighter international rules against tax avoidance, with a stop to profit shifting expected to protect government revenues and fiscal space, the International Monetary Fund (IMF) has observed.

The IMF said this in its October World Economic Outlook analytical chapter, which examined how changes in international tax rules are reshaping competition for multinational investment and profits.

The full report, scheduled for release on October 13 at the 2026 Annual Meetings of the IMF and the World Bank, scheduled to be held in Bangkok, Thailand, from October 12 to 18, will examine global growth prospects in light of ranging geopolitical tensions.

Nigeria is said to have lost an estimated $18 billion yearly to tax-related illicit financial flows, including profit shifting, a challenge partly blamed for the country’s revenue crisis.

The IMF said intangible assets, including data, patents, software and trademarks, have made it easier for multinational companies to report profits in low-tax jurisdictions, even when the underlying economic activity took place elsewhere.

It, however, noted that stronger anti-avoidance measures were beginning to change the trend, with multinational companies increasingly reporting profits in the countries where they invest.

The Fund also said competition over headline corporate tax rates had eased since the mid-2010s, alongside stronger rules aimed at curbing base erosion and profit shifting.

Reported profits now respond less to differences in tax rates, while actual investment responds more strongly, it said. “Tax competition has not disappeared, but its character appears to be changing,” the IMF said.

On investment, the Fund found that a one percentage-point increase in a country’s corporate income tax rate relative to other countries was associated with a cumulative decline in foreign direct investment (FDI) inflows of about 0.5 per cent of gross domestic product (GDP) over three years.

It also found that corporate tax cuts in major economies could reduce output in other countries, suggesting that tax competition may shift economic gains between countries rather than generate new gains globally.

The impact, however, depends on how tax cuts are financed, the IMF said.

According to the Fund, financing tax cuts through borrowing could push up real interest rates and limit investment gains, while spending cuts or higher taxes elsewhere could reduce resources available for public investment.

Emerging markets and developing economies could benefit more from stronger anti-avoidance measures because they rely more heavily on corporate income tax to finance infrastructure, education, healthcare and other public services, the IMF said.

Stronger measures to prevent profit shifting could therefore 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 while ensuring that economic activity taking place within the country contributes more fully to public finances.