Price stability has become the first casualty of Nigeria’s new tax template, not because the reform imposes a new burden, but because fear and unaddressed misinterpretation have raced ahead the curve, turning uncertainty and anxiety into higher prices, ISAAC CHIBUIFE reports.
Less than two weeks into the implementation of Nigeria’s sweeping tax reforms, the country is witnessing signs of unintended consequences as businesses and traders begin to exploit the regulatory transition to impose arbitrary price increases, triggering widespread public outrage and raising fresh concerns about the reforms’ short-term impact on Nigerians.
What was designed as a comprehensive policy overhaul to streamline revenue collection and promote fiscal equity has instead become a target for controversy, with citizens reporting unjustified surcharges on everything – from food items to fuel.
The ambitious legislation, designed by the Presidential Fiscal Policy and Tax Reforms Committee, took effect on January 1 with a promise to usher in a new era of tax harmonisation, expand exemptions for low-income earners and small businesses and reduce corporate tax rates by as much as 30 per cent.
Yet, the early days of implementation have been marked by confusion, exploitation and a growing disconnect between policy intent and market reality.
Across Nigeria’s commercial landscape, traders and service providers have seized the tax reforms as justification for price increases that bear little relation to their actual tax obligations. A visit by The Guardian to some places in Lagos showed that price increases have come in the form of value-added tax (VAT) charges.
A resident in the Cele area of Isolo, who simply identified herself as Muna, said she was made to pay an extra 400 naira for using an agency bank operator POS, besides the normal N200 service charge for withdrawing 20,000. She said that due to the urgency of the withdrawal, she had no choice but to pay the exorbitant fee.
On social media platform X, thousands of Nigerians have documented encounters with vendors demanding additional payments under the guise of tax compliance, even when the businesses fall well below thresholds that would require new obligations.
In Lagos, a shopper identified on X as @ADE1_UTD recounted an encounter at a neighbourhood shop where a seller attempted to charge an additional N300 on a N700 purchase.
“Everything I bought cost N700, but she asked me to transfer 1000 naira, because of ‘tax’. I was shocked. What level of greed is that?” he wrote.
The incident reflected a broader pattern documented across the country. Another X user, simply identified as Dioslev, expressed alarm over vendors demanding an additional 10 per cent VAT on purchases, warning of economic collapse.
“So basically, if I buy something of N1,000,000, the vendor can ask me to pay N100,000 additional money as VAT. What will it lead to? A reduction in purchases? This country will crumble on all sides economically.”
Specific price surges catalogued by affected consumers paint a troubling picture. A trader in Oshodi market, Folashade Bello, detailed increases, including chicken rising from N6,000 to N6,600 per kilogramme; POS charges climbing from N100 to N150 for a N5,000 withdrawal and an extra N500 tacked onto N10,000 fuel purchases.
In upscale establishments, diners have reported surcharges running into tens of thousands of naira, with one viral video showing a restaurant bill inflated by N23,000 under the guise of “new government tax policy”.
The exploitation extends beyond retail transactions. Video footage circulated by bloggers showed a woman lamenting vendors who have added between N200,000 and N300,000 to multimillion-naira purchases and labelling the surcharge as new VAT, despite the lack of clear justification under the new framework.
“A lot of businesses will bump up their prices using taxes and VAT as excuses. They have absolutely no reason to do so, but they want to use every situation to make more money”, Bello pointed out.
Between exemptions and taxing the rich
While everyday Nigerians grapple with inflated prices at the market level, investment professionals are raising concerns about the reforms’ impact on capital formation and investor confidence, particularly regarding provisions on capital gains taxation.
Chief Investment Officer at VNL Capital Asset Management, Ifeanyi Ubah, acknowledged the reforms’ strengths in promoting financial inclusion, noting that exemptions for low-income earners would protect many Nigerians.
However, he warned that provisions targeting high-net-worth individuals and institutional investors could prove counterproductive.
“For the average investor that pays their taxes in foreign countries like the United States, which charges similar capital gain taxes, they will be expecting a similar level of institutional structure, which Nigeria does not necessarily provide,” Ubah explained in an interview.
“So given that Nigeria is coming with a higher-level risk and the returns are not as astronomical, particularly in our stock market, taking a 30 per cent haircut on that particular investment is something that would deter not only stock market investors but even private equity investors,” he added.
Ubah’s concerns are underscored by market data. The Nigerian Exchange Limited (NGX) all-share index, despite reaching all-time highs in 2025 with a 50 per cent annual gain, suffered a catastrophic N6.5 trillion loss in November 2025 as uncertainty over capital gains taxation triggered panic selling. The selloff demonstrated investors’ sensitivity to the new tax even as the presidential committee insisted the market’s subsequent recovery validated the soundness of the reform.
“If you take how much the tax authorities made from last year, they made almost eight trillion, but given the reaction of the capital gain taxes, there was a loss in the capital market for about six trillion that we could quantify. But we are not even talking about other investors that might have neglected to invest because of it,” Ubah noted.
The investment officer also pointed to corporate behaviour as evidence of business leaders’ wariness.
“You see major corporate actions like the likes of Heirs Investment closing some deals very early. Tony Elumelu has been closing up on some deals and some of the reports say that some of the deals have been moved forward because of this new tax law. The devil you know is better than the devil you don’t know,” he said.
Professional firms identify critical gaps
There are implementation concerns that are equally fuelling misconceptions. KPMG Nigeria has published a comprehensive review identifying what it characterises as errors, inconsistencies, gaps and omissions in the new tax framework that could undermine reform objectives and worsen the misconceptions.
Its analysis, released last week, flagged several areas of particular concern. Chief among them is the treatment of capital gains without inflation adjustment, a glaring omission in an economy where inflation averaged 18 per cent between 2022 and 2025, according to the firm. Under current provisions, taxpayers face taxation on nominal gains that may represent real losses once inflation is factored in.
KPMG recommended introducing a cost indexation allowance to adjust asset values for inflation, a standard feature in many jurisdictions. The firm also raised concerns about Section 47’s treatment of indirect transfers of shares by non-residents, warning that unclear thresholds and reporting requirements could deter foreign investment at a time when Nigeria’s foreign direct investment remains below pre-2019 levels.
On foreign exchange deductions, KPMG identified a potentially crippling provision in Section 24 that restricts deductions of foreign-currency expenses to the official rates. Given that businesses frequently pay higher parallel market rates due to foreign exchange (FX) scarcity, the provision effectively makes legitimate business costs non-deductible, creating what amounts to double taxation on FX premiums.
Similarly problematic is Section 21(p), which disallows deductions for expenses on which VAT has not been charged. KPMG argued this penalises compliant taxpayers for their suppliers’ non-compliance, creating perverse incentives and administrative nightmares.
“Without amendments, businesses face higher costs, investors may withdraw, and markets could stay volatile. Success of reforms depends on clarity, international alignment, and swift adoption of fixes,” KPMG’s review noted.
Promoters continue with assurances
The Presidential Fiscal Policy and Tax Reforms Committee has responded to KPMG’s critique, characterising much of it as a misunderstanding of policy intent or disagreement framed as a technical error.
In a detailed rebuttal, the Committee argued that KPMG’s analysis “reflected a misunderstanding of the policy intent, a mischaracterisation of deliberate policy choices, and, in several instances, repetitions and presentation of opinion and preferences as facts”.
On capital gains taxation, the Committee insisted the framework is more nuanced than critics suggest.
“Contrary to the presumption that the new tax provisions on chargeable gains would trigger a sell-off on the stock market, the fact is that the applicable tax rate on share gains is not a flat 30 per cent.
“The tax framework is structured from zero per cent to a maximum of 30 per cent, which is set to reduce to 25 per cent. Furthermore, a significant majority of investors (99 per cent) are entitled to unconditional exemption, with others qualifying subject to reinvestment,” it stated.
It pointed to the market’s recovery and all-time highs as evidence that investors understand the reforms will enhance corporate fundamentals.
It added: “The sell-off narrative is unsubstantiated as any disposals in December 2025 would have benefited from the re-investment exemption or enhanced deductions under the new law.”
Regarding the controversial FX deduction limitation that KPMG flagged, the Committee characterised it as intentional policy alignment.
“The new law disallows tax deduction for the difference where a business buys foreign exchange in the parallel market at a premium over the official rate. This is a critical fiscal policy choice designed to complement monetary policy, strengthen, and stabilise the naira,” it added.
The Committee defended the VAT compliance-linked deductibility provision as a necessary anti-avoidance measure, saying “it removes the advantage that some taxpayers previously enjoyed by patronising suppliers who evade VAT”.
On the broader question of implementation challenges, the Committee acknowledged that “in any comprehensive overhaul of a nation’s tax framework, clerical inconsistencies or cross-referencing gaps may occur, and these are already being identified within the government.”
Poor implementation burden
The divergence between policy intent and market reality highlights the enormous challenge facing Nigeria’s tax authorities as they attempt to implement the most ambitious but controversial fiscal reform in decades while managing public expectations and business compliance.
A social media analyst, Mind-Shift Initiative, warned of cascading price effects regardless of actual tax liability.
“Something you used to buy for N5,000 will now cost N7,000 because of tax. Even sellers of tax-exempt goods will raise prices and blame taxes,” it stated.
A personal finance coach, JP Attueyi, explained the transmission mechanism: “Every tax that is put on a business is indirectly a tax on you. A petty trader must sell more items to get the money to pay an accountant every month if she does not increase her price. So naturally, she will increase the price of her goods. Guess whose cost just went up? You,” he said.
The risk of what another analyst termed “second-hand inflation” from unethical tax practices has prompted calls for immediate government intervention.
The reforms are being implemented against a challenging economic backdrop. Inflation remains elevated despite recent moderation, while the naira continues to face pressure, just as business confidence remains fragile following years of policy uncertainty and economic volatility.
