Nigeria is once again seeking to repair its fragile revenue system, but the risks this time are significantly higher than in previous reform efforts. SAMI TUNJI examines how the far-reaching new tax laws will test the country’s revenue strategy, compelling a critical balance between ambition, effective implementation, and public trust in a low-income, high-inflation economy

Nigeria has often promised to fix its revenue problem. What is different this time is not the promise but the scale of the gamble. In less than two weeks, four sweeping tax laws signed by President Bola Tinubu on 26 June 2025, will move from statute books into real economic life. From 1 January 2026, the Nigeria Tax Act, the Nigeria Tax Administration Act, the Nigeria Revenue Service (Establishment) Act, and the Joint Revenue Board (Establishment) Act will collectively redefine who pays tax, how taxes are collected, and how the proceeds are shared across the federation.

According to the OECD, Nigeria has one of the lowest tax-to-GDP ratios in Africa, at just 7.9 per cent in 2022, far below the continental average of 16 per cent.

That weakness has forced successive administrations to lean on oil receipts and heavy borrowing to fund budgets. However, Bola Tinubu’s government is betting that these reforms will broaden the tax base, plug leakages, increase compliance, and reduce dependence on volatile oil markets.

For a country whose public finances have long been constrained by weak non-oil revenue, the reforms represent a decisive test of Nigeria’s revenue strategy. The government is betting that a broader tax base, stronger enforcement, and digital integration can lift revenue without crushing an economy already strained by inflation and low purchasing power. Critics fear the opposite: that poor execution could deepen informality, undermine trust, and deliver less revenue than promised. As implementation draws near, Nigeria stands at a fiscal crossroads where ambition, capacity, and credibility must align.

Rewriting the rules of compliance

At the heart of the reform package is a fundamental shift in how tax compliance is conceived. For decades, Nigeria’s tax system has relied on self-declaration, manual processes, and fragmented administration. This created a system where evasion was easy, enforcement was selective, and the burden fell disproportionately on a narrow segment of formal businesses and salaried workers. The new laws attempt to reverse that dynamic by embedding taxation into the structure of economic activity itself.

Under the Nigeria Tax Administration Act, every taxable person must be registered and identifiable by a Tax Identification Number linked to key financial and commercial activities. Opening a bank account, registering a company, maintaining insurance policies, or investing in securities now comes with automatic tax visibility. In practical terms, participation in the formal economy increasingly entails engagement with the tax system.

Large companies face an even more stringent regime. From 2026, firms with a turnover above N5bn are required to adopt real-time electronic invoicing, with Value Added Tax invoices validated and transmitted electronically to the Nigeria Revenue Service. This system is designed to allow tax authorities to match sales data with bank inflows and tax filings, reducing reliance on post facto audits and narrowing the scope for under-reporting.

Institutionally, the reforms dismantle old structures and replace them with a more centralised and coordinated framework. The Federal Inland Revenue Service gives way to the Nigeria Revenue Service, while a Joint Revenue Board is established to align federal and state tax authorities, harmonise databases, and conduct joint audits. Penalties for non-compliance have been significantly increased, with late filing attracting escalating monthly fines and sanctions imposed on firms that transact with unregistered entities.

Supporters of the reforms argue that this architecture addresses long-standing weaknesses. The President of the Nigerian Economic Society, Professor Adeola Adenikinju, believes the design could finally impose order on Nigeria’s tax system. He said that, from an economic standpoint, the reforms would widen tax brackets and bring previously excluded taxpayers into the net.

“I think overall, our tax system will become more organised. I think the tax brackets will be widened,” Adenikinju told The PUNCH during a telephone conversation.

According to him, the structure is deliberately tilted to favour Small and Medium-sized Enterprises and smaller players, particularly in the informal sector, while ultimately boosting overall tax revenue.


Yet the transition from theory to practice is fraught with challenges. Many small and medium-sized businesses lack the technological infrastructure to comply immediately with e-invoicing requirements. State tax authorities vary widely in their digital capacity and administrative efficiency. Legal experts have also pointed to transitional ambiguities, warning that confusion over effective dates and compliance obligations could undermine confidence.

If the systems fail under the pressure of January filings, the credibility of the entire reform effort could be damaged. In a low-trust environment, early experiences matter. A compliance regime built on automation and data integration depends not only on enforcement but also on reliable technology and responsive taxpayer services. Without these, resistance rather than compliance could become the dominant response.

Who bears the burden, and who gets relief?

Beyond compliance mechanics, the reforms carry significant implications for households, workers, and investors. This is where Nigeria’s revenue strategy faces its most delicate test. Inflation remains elevated, real wages are under pressure, and public trust in government spending is thin. Any perception that tax reform is simply an extraction exercise risks political and social backlash.

The laws attempt to soften this risk through targeted reliefs. A new N800,000 annual tax-free income threshold removes many low-income workers from the personal income tax net. In an economy where average wages are modest and informal employment is widespread, this threshold represents a meaningful shift. It signals an effort to align taxation more closely with the ability to pay rather than simply widening the net indiscriminately.

Rent relief is another notable provision. Tenants are allowed to deduct up to 20 per cent of annual rent, capped at N500,000, from taxable income. In urban centres where housing costs consume a large share of earnings,, this relief could have tangible effects if applied fairly. It also reflects an acknowledgement that cost-of-living pressures must be taken into account in tax design.

At the same time, the reforms expand the tax base in other directions. Digital and virtual assets are now clearly within the capital gains tax framework, recognising the growing role of crypto assets and online investments in Nigeria’s economy. Individuals will pay capital gains tax under the personal income tax schedule rather than a flat rate, integrating digital wealth into the broader tax system.

Savings and investment instruments are also affected. Interest on short-term securities such as treasury bills and commercial paper will be subject to a 10 per cent withholding tax at source, although Federal Government bonds remain exempt.

This change may alter the attractiveness of short-term instruments that households and businesses have used as hedges against inflation.

The capital gains tax provisions have generated controversy, particularly around securities transactions. In an insight released on 31 October 2025, Agusto & Co warned that reintroducing capital gains tax on securities could conflict with efforts to attract investment, arguing that the tax could counteract high interest rates and dampen market sentiment. The firm cautioned that the combined effect might encourage profit-taking ahead of implementation deadlines.

Responding to these concerns, Taiwo Oyedele, chairman of the Presidential Fiscal Policy and Tax Reforms Committee, defended the policy, arguing that the absence of a capital gains tax does not define competitiveness. He pointed out that advanced capital markets, such as those in the United States, the United Kingdom and South Africa, apply capital gains tax while remaining attractive to investors. According to him, the tax applies only when thresholds are exceeded without reinvestment, and he said claims that the tax targets foreign investors are misleading.

Value Added Tax has been the most politically sensitive component of the reform.

The government faced pressure over raising the VAT rate above 7.5 per cent, even as it expanded the list of zero-rated items to include basic foodstuffs, medicines, educational materials, electricity transmission and non-oil exports.

Input VAT recovery rules were also improved, particularly for service companies that previously struggled to claim refunds.

However, the decision not to raise VAT may lead to a short-term revenue loss, according to the Nigeria Economic Summit Group and the International Monetary Fund. The NESG warned that maintaining the current rate without adjustment could lead to revenue shortfalls.

During an interactive media session in Abuja, its chief executive, Dr Tayo Aduloju, said the reform process must balance simplification with revenue stability, cautioning that reducing the number of taxes without adjusting VAT could weaken the revenue base.

Speaking on the issue, Aduloju said, “Without those rate hikes, it means that the government might lose some revenue.”

The International Monetary Fund echoed this concern in its most recent Article IV Consultation Report on Nigeria. While acknowledging that the reforms represent a major step forward in modernising VAT and company income tax regimes, the IMF estimated that maintaining the current VAT rate could reduce consolidated government revenue by up to 0.5 per cent of GDP. It noted that while delaying a VAT hike was reasonable given high poverty and food insecurity, the decision would require alternative financing options or stronger subnational revenue efforts.

Other levies have also attracted scrutiny. A proposed five per cent fuel surcharge, intended to fund road infrastructure, has been criticised as potentially burdensome for households already grappling with high transport costs. Oyedele has argued that the surcharge is designed as a dedicated infrastructure fund rather than a general tax increase, but scepticism remains.

Revenue hopes, informal risks and the federal bargain

The ultimate question is whether the reforms will deliver the revenue transformation the government expects, and the medium-term numbers suggest that the Federal Government is already anchoring its fiscal strategy on that assumption. Early indicators provide cautious optimism. In the first nine months of 2025, tax collections surpassed N22tn, putting the Federal Inland Revenue Service on track to exceed its full-year target of N25.2tn. That momentum is now explicitly built into the 2026–2028 Medium-Term Expenditure Framework and Fiscal Strategy Paper released by the Budget Office of the Federation, which projects a steady and material rise in non-oil tax receipts over the next three years as the new tax laws take effect.

According to the MTEF/FSP, the Federal Government’s share of non-oil taxes is expected to rise from N8.45tn under the 2025 National Assembly-approved framework to N8.88tn in the 2026 budget proposal, before climbing sharply to N10.9tn in 2027 and N13.79tn by 2028. This implies that within three years, non-oil tax inflows to the centre are projected to expand by more than 60 per cent, reflecting official confidence that compliance reforms, digital integration and base broadening will translate into real cash.

Development economist and chief executive of CSA Advisory, Dr Aliyu Ilias, expects revenue to rise as compliance improves. He argues that the scope for evasion will narrow significantly once the reforms take hold, bringing more individuals and companies into the tax net.

“Virtually everyone will be on that tax net. So, the government will make more revenue,” Ilias said. In his view, the primary uncertainty is not the design of the laws but the effectiveness of implementation.

Yet economists warn that revenue gains will not be immediate. Professor Femi Saibu of the University of Lagos points out that income tax revenues are typically realised after the end of the fiscal year, meaning collections expected in 2026 will largely materialise in 2027. More importantly, he highlights behavioural risks. According to him, poorly implemented reforms could undermine financial inclusion as individuals and businesses revert to cash transactions to avoid tax visibility.

Saibu further argues that when taxpayers perceive that a significant share of their earnings will be taken without visible public benefits, incentives to work, innovate and invest are weakened. In an economy where individuals already bear the cost of electricity, water and healthcare, the absence of visible returns from taxation can erode compliance. For him, trust is the linchpin of revenue mobilisation. Taxes must be transparently linked to development outcomes that citizens can see and evaluate.

The informal sector remains the largest unknown in the revenue equation. Dr Muda Yusuf, Director of the Centre for the Promotion of Private Enterprise, warns that many informal operators lack basic tax awareness and accounting practices. Some handle large transactions without incorporation or proper records, making them difficult to integrate smoothly into the tax system. He cautions that sudden enforcement could shock the sector, pushing activity further underground rather than into compliance.

For Yusuf, the challenge is not simply to tax the informal sector but to manage its transition into formality. This requires education, gradual integration and sensitivity to operational realities. Given that the informal sector accounts for over half of Nigeria’s economy, mismanaging this transition could undermine revenue projections and economic stability.

The reforms also reshape fiscal relations within the federation. From 2026, the VAT sharing formula will change significantly, reducing the Federal Government’s share to 10 per cent while increasing allocations to states and local governments to 55 per cent and 35 per cent respectively. Projections by the reform committee suggest this could deliver over N4tn to states in 2026 alone.

For subnational governments struggling with wage bills, infrastructure deficits and rising social demands, this represents a major opportunity. However, it also exposes long-standing governance weaknesses. BudgIT’s State of States reports have consistently shown that many states rely heavily on federal allocations and display weak internal revenue generation and fiscal discipline. Without improvements in transparency and accountability, higher VAT inflows risk being absorbed into recurrent spending rather than invested in development.

Speaking at the launch of the BudgIT State of States 2025 Report in Abuja, Taiwo Oyedele framed the issue starkly. With VAT reforms set to raise states’ shares significantly, he asked whether the additional funds would be spent or invested. The answer, he suggested, would determine whether the reforms translate into tangible improvements in citizens’ lives or merely expand fiscal space without development impact.