Failed past reforms, declining welfare, responsible for strong tax resistance

By : Tobi Awodipe

Date: 4 January 2026 9:40pm WAT

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TAX REFORM

TAX REFORM

JUST before the new tax reform law kicked off last Thursday, January 1, it has been met with stiff resistance from different quarters, with many calling for its suspension.

Chief Executive Officer (CEO), Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said this public resistance is not merely a communication failure but rooted more in lived experience. For many Nigerians, he said, past reforms have translated into higher living costs and declining welfare, with little evidence that sacrifices result in improved public services.

Speaking through a statement, he noted that 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, he said, tolerance for new compliance demands is understandably low. On paper, he said, the reforms have 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, he added, “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.”

Pointing out that the economy is still absorbing the aftershocks of elevated inflation, weakened purchasing power and the adjustment costs of fuel subsidy removal and FX reforms, he said most households and businesses are experiencing reform fatigue. Compounding this, he said, is the approach of a politically sensitive pre-election period. Warning against forced compliance, he said a rigid, enforcement-heavy approach risks undermining reform credibility before its benefits have time to materialise.

He added that despite ongoing stiff resistance, the reforms have some benefits, including the fact that 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 social protection.

“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,” he said.

Stressing the need to restructure the informal sector, as over 90 per cent of jobs are in the informal economy, according to the last Nigeria Labour Force Survey by the National Bureau of Statistics (NBS), he said most informal operators lack structured record-keeping systems and have limited understanding of tax concepts.

These businesses, he said, are largely cash-based, operate on thin margins, lack the literacy and digital capacity required for compliance, as well as 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,” he decried.

Noting that some policy flashpoints are inducing anxiety amongst businesses and individuals, he said these include the mandatory reporting of quarterly bank transactions of ₦25 million and above to the tax authority and the proposed increase in capital gains tax from 10 to 30 per cent, which has unsettled investors.

“The ₦500,000 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,” he noted.

Calling for a strategic implementation framework anchored on revenue efficiency rather than blanket enforcement, he said evidence shows that a small proportion of taxpayers account for the bulk of tax revenue.

“Roughly 20 per cent of businesses generate close to 90 per cent of tax receipts, while about 20 per cent of taxpayers contribute over 80 per cent 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,” he said.

Urging the tax authorities to prioritise the formal sector, where compliance capacity already exists in the interim, he said the informal sector should be integrated gradually through incentives, sustained tax education, simplified compliance tools and digital onboarding support.

“Shifting 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,” he warned.

“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,” he said.

He further said while tax reform is essential for fiscal sustainability, he noted that implementation will determine its 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.

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