Nigerian consumers may face higher banking and service charges as financial institutions adjust to the compliance demands of the country’s tax regime, raising concerns that the burden of reform could ultimately be passed down the value chain.

All of these costs are going to be passed on to the customer, by either the bank that is on-lending to them or whatever the case may be,” Albert Folorunsho, managing consultant at Pedabo, said.

His warning reflects a growing concern among analysts and operators that, while the reforms aim to improve revenue collection and incentivise investment, they also introduce new compliance obligations that entail operational costs for businesses.

Companies are now required to embed tax considerations more directly into their operations, from transaction processing to reporting and documentation.

The system is supported by expanded digital reporting requirements, stricter audit mechanisms, and clearer rules around tax treatment for various transactions, particularly in finance and structured lending.

Folorunsho noted that the shift effectively changes how businesses interact with the tax system. Rather than treating tax as a periodic obligation, firms must now integrate compliance into everyday decision-making, which increases administrative overhead and system costs.

For banks and financial intermediaries, this means upgrading systems, improving reporting frameworks, and ensuring transactions comply with evolving tax rules, all of which entail costs.

Nigeria’s broader tax reform push is driven by the need to improve revenue mobilisation. The country’s tax-to-GDP ratio has risen to about 13.5 percent as of late 2025, up from below 10 percent in previous years, with a target of 18 percent by 2027.

Despite the improvement, it remains below the 15 percent benchmark widely cited as necessary to fund core government functions.

Compared to regional peers, Nigeria still lags. Ghana’s tax-to-GDP ratio stands at about 16 percent, Kenya’s is close to 15 percent. In comparison, Senegal’s is estimated at roughly 20 percent, highlighting the pressure on authorities to strengthen collections without introducing new headline taxes.

Beyond institutional costs, the reforms also introduce new layers of clarity and complexity for individuals navigating the system. Authorities have had to address widespread misconceptions about what is taxable, particularly fears that bank balances or transfers could be subject to tax.

“Tax is not on your account balance. The basis of calculating tax is not bank accounts,” Folorunsho said.

“Taxable income excludes bank account balances; turnover defines small business status,” added Olarinde Olufemi, a member of the UN Subcommittee on Environmental Tax.

Officials have also clarified that monetary gifts are not taxable where no service has been rendered. “A gift is what you receive without any consideration. If you have just received a gift, it is not liable to tax,” Folorunsho explained, noting that only income tied to economic activity is subject to taxation.

While these clarifications are aimed at easing public concern, they also highlight the communication challenge facing authorities as the reforms take effect.

For businesses, particularly in the financial sector, the transition is more immediate. Institutions must interpret evolving rules, adapt systems, and ensure compliance even as detailed guidance continues to emerge.

“Over 30 draft guidance notes are being finalised to simplify compliance under the new law,” Olufemi said, noting that delays in issuing these guidelines have increased pressure on taxpayers.

The evolving nature of the rules has left some firms navigating uncertainty, balancing the need to comply with incomplete guidance against the risk of sanctions.

This uncertainty, combined with rising compliance costs, creates a ripple effect that extends beyond corporate balance sheets. As banks and service providers adjust pricing to reflect higher operational costs, consumers may face increased fees for services ranging from lending to transactions.

With Nigeria pursuing an ambitious revenue target and seeking to close long-standing gaps in tax collection, the reforms represent a significant shift in fiscal strategy. Rather than relying on higher tax rates, the government is focusing on efficiency, compliance, and broader participation.

However, as the system becomes more embedded in daily economic activity, the distinction between who is taxed and who ultimately pays becomes less clear.

For now, the emerging consensus among experts is that while the reforms may strengthen the tax system and support long-term investment, the immediate cost of adjustment is likely to be shared and, in many cases, transferred to the end consumer. (BusinessDay)

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