Tax Reform and Promise of Economic Renewal

Eromosele Abiodun posits that Nigeria’s new tax reform represents a decisive break from a history of fiscal fragility and policy inertia. By prioritising efficiency, equity and transparency, the reform lays the foundation for a more resilient and inclusive economy

In a chat with newsmen in Lagos last week, the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele described the Nigeria Tax Reform Law is the most important economic development in Nigeria since the Pension Reform Act signed into law by the Obasanjo government.

According to him, “Eminent Nigerians agree on this. Recently an elder stateman, Stanley Orosanye and a founder of one of the top three banks in Nigeria called me expressing their joy that president Bola Ahmed Tonubu had the political will to push the tax reforms through. This is a game changer for Nigeria!” Oyedele is right! For decades, Nigeria’s fiscal structure has remained a paradox. Africa’s largest economy, endowed with vast human and natural resources, has continued to operate with one of the lowest tax-to-GDP ratios in the world. Successive governments have relied heavily on crude oil revenues, leaving the country vulnerable to global commodity shocks and recurring fiscal crises.

The introduction of Nigeria’s new tax reform framework signals a deliberate shift away from this unsustainable model. Rather than imposing higher tax rates, the reform focuses on efficiency, equity, compliance, and economic stimulation. It seeks to rebuild the tax system as a tool for development, economic stabilisation and institutional trust. More importantly, the new tax reform reflects a growing consensus within policy circles that Nigeria can no longer fund its developmental aspirations through borrowing and volatile oil receipts. A functional, transparent and growth-friendly tax system has become imperative. If effectively implemented, the new tax reform could fundamentally alter the country’s economic trajectory.

Merits of Tax Reforms

At the core of the new tax reform is a pragmatic recognition that Nigeria’s tax challenge is not primarily about rates, but about structure and administration. One of the key merits of the reform is its emphasis on broadening the tax base while reducing the burden on compliant taxpayers. Historically, a narrow segment of salaried workers and registered companies has borne the brunt of taxation, while a large informal economy remained outside the system. The reform addresses this imbalance through simplified registration processes, digital tracking, and improved data integration across government agencies. Another notable strength is the drive towards harmonisation of taxes. The multiplicity of levies imposed by federal, state and local governments has long discouraged investment and fuelled disputes. By clarifying tax jurisdictions and streamlining collections, the reform reduces uncertainty and improves Nigeria’s attractiveness as an investment destination. Equally significant is the emphasis on automation and transparency. By deploying technology to minimise human interference, the reform curtails leakages and strengthens accountability. This is critical in rebuilding taxpayer confidence and ensuring that revenues collected are efficiently deployed for public good. In essence, the reform repositions taxation not as an adversarial obligation but as a cornerstone of national development.

Input VAT Credit Claims

One of the most impactful components of the reform is the restructuring of Input Value Added Tax (VAT) credit claims, a long-standing concern for businesses operating in Nigeria. Under the previous regime, many firms experienced difficulties in claiming legitimate VAT credits due to unclear guidelines, bureaucratic delays and administrative inefficiencies. This often translated into higher costs, reduced liquidity and, in some cases, outright non-compliance. The new framework introduces clearer rules and technology-driven processes that enable businesses to offset VAT paid on inputs against VAT charged on outputs more efficiently. Automated documentation and verification systems significantly reduce disputes and processing time. According to Oyedele, businesses will be able to claim about N3.4 trillion in input tax credits under Nigeria’s new tax laws. Input Value Added Tax (VAT) credit refers to the value-added tax paid by a business on goods and services used in its operations. Under the new law, companies can deduct this VAT from the amount they charge customers and remit to government, thereby reducing their overall tax burden and eliminating multiple taxation along the value chain. Oyedele explained: “The new law from January next year makes you eligible to claim input credit almost like receiving money back into your account. From next year, input VAT on assets, overheads, and services can be claimed. Input VAT on inventory, which is currently the only allowable claim, will also continue under the new law. Do you know how much this translates to? It is N3.4 trillion based on 2024 VAT collection. This is what government is giving back to businesses next year by way of input credit.” For manufacturers, exporters and service providers, this reform improves cash flow management and lowers the cost of production. It also enhances competitiveness, as businesses are no longer forced to absorb inefficiencies or pass them on to consumers. More importantly, a transparent VAT credit system reinforces voluntary compliance. When businesses trust the system to treat them fairly, compliance becomes a rational economic choice rather than a coerced obligation.

Gains for Small Businesses

Small and Medium Enterprises (SMEs) occupy a central position in Nigeria’s economy, accounting for the majority of employment and serving as engines of innovation and growth. However, they have historically been the most vulnerable to regulatory and tax-related pressures. Not anymore. The tax reform introduces graduated thresholds and simplified tax regimes that shield small businesses from excessive fiscal burdens. Micro-enterprises are exempted from certain taxes, while small businesses benefit from reduced rates and simplified filing requirements. This approach recognises the reality of Nigeria’s business environment, where many enterprises operate with limited capital and informal structures. By lowering the cost of compliance, the reform encourages businesses to formalise without fear of punitive enforcement. Formalisation comes with tangible benefits. Registered SMEs gain access to credit, government procurement opportunities and structured business support. Over time, this strengthens enterprise resilience and contributes to sustainable job creation. The adoption of digital tax platforms further enhances accessibility, enabling small businesses to file returns and make payments with minimal disruption. Collectively, these measures foster inclusive growth and strengthen the productive base of the economy.

Tax vs Pension Reforms

Nigeria’s tax reform bears strong parallels with the country’s landmark pension reforms, widely regarded as one of the most successful policy interventions in recent decades. Oyedele Concurs.  He emphasised that the reforms represent the most impactful legislation since the landmark pension reforms of the early 2000s.

Before the pension reform, retirement benefits were plagued by inefficiency, arrears and systemic abuse. The introduction of the contributory pension scheme transformed the system into a transparent, professionally managed and sustainable framework. Similarly, the tax reform seeks to institutionalise discipline, transparency and accountability in public finance. Both reforms rely on technology, clear rules and independent oversight to build trust and ensure continuity beyond political cycles. Just as pension contributors can track their savings and returns, taxpayers are increasingly able to monitor their obligations and see the impact of public spending. This transparency is crucial in fostering a culture of compliance. Furthermore, both reforms contribute to long-term economic stability. Pension funds have become a major source of domestic capital for infrastructure and capital markets. A robust tax system complements this by providing predictable public revenues and reducing reliance on debt. In this context, tax reform is not merely a revenue tool but an institutional reform with far-reaching macroeconomic implications.

Revenue Boost

The fiscal implications of the new tax reform are substantial. By expanding the tax net, improving compliance and reducing leakages, the federal government stands to significantly increase revenue without imposing additional burdens on productive sectors. Enhanced revenue capacity strengthens the government’s ability to finance infrastructure, social services and economic stabilisation programmes. This is particularly critical at a time when debt servicing costs continue to constrain fiscal space. A more reliable revenue base also reduces Nigeria’s vulnerability to oil price volatility, promoting fiscal sustainability and macroeconomic resilience. Over time, this improves investor confidence and credit ratings. Beyond infrastructure, increased revenues enable the government to expand social investment programmes, address inequality and support vulnerable populations. These outcomes are essential for maintaining social cohesion and political stability.

Break from History

Nigeria’s new tax reform represents a decisive break from a history of fiscal fragility and policy inertia. By prioritising efficiency, equity and transparency, the reform lays the foundation for a more resilient and inclusive economy. Its success, however, will depend on consistent implementation, institutional coordination and sustained political will. Stakeholder engagement, particularly with businesses and subnational governments, will be critical. If these conditions are met, the tax reform could become one of the most consequential economic policies of the decade—much like pension reform before it—positioning Nigeria for sustainable growth and long-term prosperity.