Technological readiness and inclusivity
Fiscalization, e-invoicing, and other forms of real-time digital tax data reporting are best practices in line with international trends in e-tax. However, Nigeria has a notable digital divide in tax literacy and uptake between urban and rural populations, particularly among SMEs. Rural businesses and sectors may lack infrastructure, digital tools, or human capacity to comply with digital reporting obligations. Without a phased approach with grace periods, subsidies, and training, these SMEs may face the unintended consequence of being pushed further into the informal economy as a result of the reform.
4iv.Weak enforcement and audit capacity
Enforcement remains one of the common pitfalls of many tax reforms worldwide. In Nigeria, this is particularly true given the country’s limited audit capacity. Nigeria’s audit teams are often understaffed and face significant capacity and skill gaps. With increased complexity and expectation of compliance under the new digitally structured tax regime, scaling enforcement by leveraging technology to track noncompliance runs the risk of deepening intimidation and other corrupt activities without strengthening transparency and ethical oversight.
4v. Limited public awareness and civic engagement
The enactment of such wide-ranging and deeply impactful laws must be accompanied by robust public sensitisation and transparency measures to ensure broad buy-in from the affected communities, but this appears to be insufficiently considered or prioritised. Public engagement is key to inclusive economic development. Most Nigerians, especially those in the informal sector, which makes up a significant portion of the economy, may not be aware of the new laws, their benefits, or how to comply with them.
If this lack of awareness persists, it will be challenging to achieve the desired outcomes of increased revenue and compliance. Tax compliance remains a major concern in Nigeria, with trust issues stemming from perceived inefficiencies, waste, and corruption in government spending.
4vi. Inter-tier collaboration challenges
The concept of the Joint Revenue Board (JRB) and Joint Taxpayers’ Affairs is a laudable and much-needed move to bridge the coordination gap. However, it will be limited by the complexities of Nigeria’s intergovernmental relations. Nigerian states may lack the political maturity, efficient administrative systems, data infrastructure, or mutual trust to collaborate effectively on data sharing, policy setting, and dispute resolution, which will be the lifeblood of the JRB and OTO.
In short, the architecture and content of the tax reform are solid. It is the implementation that will test the country’s will, capacity, and responsiveness. The coming months will reveal whether Nigeria has turned a corner or merely repackaged its old challenges in new legislative wrapping paper.
Implications for businesses and citizens
The impact of Nigeria’s new tax laws extends beyond the aggregate of increased revenues or cost savings for individual companies or citizens. They also have real effects on Nigeria’s economic productivity, citizen trust, and socioeconomic justice.
5i. Implications for micro, small, and medium enterprises (MSMEs)
In terms of benefits for businesses, MSMEs can look forward to relief on income tax payments. However, the biggest challenge for MSMEs here is whether the eligible businesses are even aware of, registered, and run their operations in a manner that allows them to take advantage of these benefits.
Business owners, especially the more than 50 million MSMEs operating within the informal economy, are often viewed with suspicion and fear of harassment from revenue agents or audit raids. To change the business culture around taxation in the country, the NRS, alongside state revenue agencies, must play the long game to shift the perception of the relationship with citizens and businesses from one of an adversarial cop to one of empathy and as a critical social investment.
5ii. For large corporations and multinationals
Corporate income tax rates for businesses will see some gradual reduction in the medium to long term. However, some of the stricter changes, such as transfer pricing rules, e-invoicing, and collection of new sector-specific development levies, increase the compliance burden for multinationals and large corporations. In response, these companies are likely to experience higher demand for tax advisory services, increased updates to ERP and other technology systems, and a larger in-house tax function. In terms of investment, the reforms will likely be met with a sigh of relief for some clarity in policy, but also a wait-and-see approach to stability and real application.
5iii. Social equity and cost of living
From the lens of fiscal justice, many of the tax reforms, including progressive income tax reliefs for low-income earners, tax exemption on property acquisition for those under 18 or over 70, zero-rating of VAT on basic items, and rent relief, are steps in the right direction to alleviate the burden on people with low incomes. However, a key to the success of these aspects of the reforms lies in their implementation.
If vendors continue to mark up zero-rated VAT items or if agencies responsible for regulating prices at markets are corrupt or in denial, then the reforms have contributed to the inflation problem instead of addressing the issue of equity. Similarly, rent relief at a fixed maximum of N500,000 annually does not have a significant impact in cities like Lagos or Abuja, where most rental rates are significantly higher than this. To achieve a meaningful impact on equity, tax relief must be combined with measures that enforce regulatory price caps and provide social protection.
5iv. Public accountability and civic perception
At the heart of taxation is more than just an economic or fiscal tool, but also a social contract. Currently, the primary constraint on compliance in Nigeria is the perception that taxes are unfairly collected or spent. These reforms will likely be met with enthusiasm by the public if and only if the government can demonstrate real progress and improvements in infrastructure, public goods, healthcare, education, social welfare, and other areas of expenditure.
In a time of heightened insecurity, the government must demonstrate that these tax revenues are being used effectively and for the better, or at the very least, in ways that the people can directly feel, touch, and see in their daily lives. Transparent and public-facing tax utilisation, as well as a rapid response to citizen engagement, are critical to gaining the much-needed buy-in that will encourage positive compliance and cooperation.
Case examples
Analysis and theory are well and good, but it is in practice that the rubber hits the road. The case examples in this section of the article illustrate some of the opportunities and challenges in implementing Nigeria’s new tax system, highlighting both successes and failures.
6i. Lagos state’s digital tax experience – promise and pitfalls Businesses, especially microenterprises, often bemoan poor orientation and support, software integration issues with the federal tax system, system downtime, and general data inaccuracy. Informal operators in markets, transport unions, and similar organisations also either opt out entirely due to literacy, cultural, or mistrust issues, or they find ways to circumvent the process.
To be continued tomorrow.
Dr.Oluwadele is an Author, Chartered Account-ant, Certified Fraud Examiner and Public Policy Scholar based in Canada. He can be reached via:[email protected]
The State of Lagos, Nigeria’s commercial capital, has led the charge for digital tax administration in the country for over a decade, developing some of the continent’s most cutting-edge digital tax solutions and consistently piloting new methods. Through the LIRS e-Tax platform, Lagos introduced digital solutions for tax remittance automation, Tax Identification Number (TIN) generation, payment tracking, and other services. While these e-tax platforms undoubtedly improved data tracking and tax collection in the sector, their implementation was not without its issues.
