By MUDA YUSUF, Ph.D

Nigeria’s ongoing tax reform ranks among the most ambitious fiscal restructuring efforts in recent decades. Conceptually, it is a sound and progressive framework—aimed at strengthening revenue mobilisation, improving equity, simplifying the tax system, and aligning fiscal policy with economic diversification and growth objectives.

However, history offers a sobering lesson: good policy design does not guarantee good outcomes. The ultimate success or failure of Nigeria’s tax reform will depend far less on its legislative provisions and far more on how it is implemented. Without careful sequencing, political sensitivity, and economic realism, even well-intentioned reforms can trigger resistance, disrupt livelihoods, and further erode public trust.

This is the central concern of the Centre for the Promotion of Private Enterprise (CPPE).

Tax Reform Is a Process, Not an Event

Tax reform is not a one-off exercise; it is a dynamic process that must evolve with implementation feedback, economic conditions, and social realities. Nigeria’s current reform is unfolding under unusually delicate circumstances.

The economy is still absorbing the aftershocks of elevated inflation, weakened purchasing power, and the adjustment costs of fuel subsidy removal and foreign exchange reforms. Many households and businesses are experiencing reform fatigue. Compounding this is the approach of a politically sensitive pre-election period.

In this context, expecting full and simultaneous compliance across all sectors of the economy is unrealistic. A rigid, enforcement-heavy approach risks undermining reform credibility before its benefits have time to materialise.

What the Reform Gets Right

Despite public controversy, the tax reform framework contains several commendable and pro-welfare provisions.

Low-income earners are exempted from personal income tax, while VAT relief on basic goods and essential services—including education, healthcare, agriculture, and cultural activities—provides important social protection. Small businesses benefit from relief from company income tax and VAT obligations, easing compliance pressures on vulnerable enterprises.

On the growth side, targeted incentives for priority and job-creating sectors strengthen alignment between tax policy and Nigeria’s diversification agenda. The rationalisation of multiple taxes, repeal of obsolete laws, and improved coherence of the tax system also respond to long-standing private-sector demands and could enhance predictability and investor confidence if properly implemented.

Why Resistance Remains Strong

Public resistance to the reform is not merely a communication failure; it is rooted in lived experience. For many Nigerians, past reforms have translated into higher living costs and declining welfare, with little evidence that sacrifices result in improved public services.

A weak social contract continues to undermine confidence that additional tax revenues will be transparently and efficiently deployed. With businesses and households still recovering from recent macroeconomic shocks, tolerance for new compliance demands is understandably low. In this environment, trust is as critical as technical design.

The Informal Sector Reality Cannot Be Ignored

Any serious discussion of tax reform in Nigeria must confront the scale of the informal economy. With an estimated 40 million micro, small, and nano enterprises—over 80 percent operating informally—the informal sector is not peripheral; it is central to employment, income generation, and economic resilience.

Most informal operators lack structured record-keeping systems and have a limited understanding of tax concepts such as Tax Filing obligations, Company Income Tax [CIT], Value Added Tax [VAT], Personal Income Tax [PIT], Withholding Tax, etc. Businesses are largely cash-based, operate on thin margins, and often lack the literacy and digital capacity required for compliance. They also lack the capacity to digest the technical and somewhat complex issues around taxation.

Yet the new tax framework introduces mandatory filing requirements, defined record-keeping standards, penalties for non-compliance, and presumptive taxation where records are inadequate. Without careful sequencing, these provisions risk criminalising informality rather than encouraging gradual and voluntary formalisation.

Policy Flashpoints Fueling Anxiety

Several specific provisions and regulations have intensified concerns among small businesses and households.

The mandatory reporting of quarterly bank transactions of N25 million and above to the tax authority has raised anxiety among SMEs that handle pass-through or custodial funds that do not constitute income. High-turnover, low-margin businesses risk undue scrutiny and costly compliance disputes.

The proposed increase in capital gains tax from 10 percent to 30 percent—despite assurances around thresholds—has unsettled investors in the stock market and real estate at a time when confidence remains fragile. Similarly, the N500,000 annual rent relief cap is misaligned with prevailing urban housing costs and risks further squeezing middle-class disposable income.

Concerns are further heightened by the wide enforcement powers granted to tax authorities and the severity of penalties and sanctions embedded in the tax laws.

Why Revenue Efficiency Should Guide Enforcement

CPPE strongly advocates a strategic implementation framework anchored on revenue efficiency rather than blanket enforcement. Empirical evidence consistently shows that a small proportion of taxpayers account for the bulk of tax revenue.

Roughly 20 percent of businesses generate close to 90 percent of tax receipts, while about 20 percent of taxpayers contribute over 80 percent of personal income tax. Concentrating enforcement on large corporations, established SMEs, and high-net-worth individuals will deliver substantial revenue gains without destabilising livelihoods or deepening social resistance.

Formal First, Informal Later

In the short to medium term, tax authorities should prioritise the formal sector, where compliance capacity already exists. The informal sector should be integrated gradually through incentives, sustained tax education, simplified compliance tools, and digital onboarding support.

Shifting the emphasis from penalties to compliance-building will produce more durable outcomes. The objective should be to grow the tax net organically, not force it prematurely.

Political Timing Matters

With 2026 shaping up as a pre-election year, political and social caution is imperative. Aggressive, broad-based enforcement risks social discontent, political backlash, and potential reform reversal. Stability, trust-building, and reform credibility must take precedence over short-term enforcement optics.

A Reform That Must Grow With the Economy

Tax reform is essential for Nigeria’s fiscal sustainability, but the implementation strategy will ultimately determine success or failure. A phased, pragmatic, and socially sensitive approach—anchored on trust, economic realities, and political timing—offers the most credible pathway to sustainable revenue growth, expanded compliance, and long-term legitimacy.

•Dr Muda Yusuf is the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE).

Update news