Centre says ambitious tax overhaul could falter without phased implementation, sensitivity to informal sector realities
The Centre for the Promotion of Private Enterprise (CPPE) has said Nigeria’s ongoing tax reform represents one of the most ambitious fiscal restructuring efforts in decades, but warned that its success will depend less on legislation and more on strategy, timing, and public trust.
In a policy position released on January 4, 2026, and signed by its Chief Executive Officer, Dr Muda Yusuf, the CPPE described the reform framework as conceptually sound and progressive, with clear objectives to strengthen revenue mobilisation, improve equity, simplify taxation, and align fiscal policy with economic diversification and growth.
However, the centre cautioned that Nigeria’s history shows that strong policy design does not automatically translate into positive outcomes, stressing that poor sequencing and rigid enforcement could undermine livelihoods, provoke resistance, and further weaken confidence in government.
According to CPPE, tax reform should be approached as a continuous process rather than a one-off event, particularly given Nigeria’s current economic context. The organisation noted that the economy is still grappling with elevated inflation, reduced purchasing power, and adjustment pressures from fuel subsidy removal and foreign exchange reforms.
It added that households and businesses are experiencing reform fatigue, while the approach of a politically sensitive pre-election period further complicates expectations of full and immediate compliance across the economy.
The centre argued that an enforcement-heavy approach at this stage risks damaging reform credibility before benefits are realised.
Despite public controversy, CPPE acknowledged that the tax reform contains several pro-welfare provisions. These include exemptions for low-income earners from personal income tax, VAT relief on basic goods and essential services such as education, healthcare, agriculture, and cultural activities, as well as tax relief for small businesses through exemptions from company income tax and VAT obligations.
On the growth front, CPPE noted that targeted incentives for priority and job-creating sectors align tax policy with Nigeria’s diversification agenda, while the rationalisation of multiple taxes and repeal of obsolete laws respond to long-standing private sector concerns and could improve predictability and investor confidence if properly executed.
However, the centre said public resistance to the reform is rooted in lived experience rather than poor communication alone. It noted that many Nigerians associate past reforms with rising living costs and declining welfare, without corresponding improvements in public services.
According to CPPE, a weak social contract continues to erode confidence that additional tax revenues will be transparently and efficiently deployed, particularly as businesses and households are still recovering from recent macroeconomic shocks.
The centre stressed that any meaningful tax reform must confront the realities of Nigeria’s informal economy, which it described as central rather than peripheral to employment and income generation.
It cited estimates showing that Nigeria has about 40 million micro, small, and nano enterprises, with over 80 percent operating informally and more than 90 percent of jobs located in the informal sector, based on the most recent National Bureau of Statistics labour force survey.
CPPE noted that most informal businesses lack structured record-keeping, operate on thin margins, are largely cash-based, and have limited literacy and digital capacity to comply with complex tax requirements. It warned that introducing mandatory filing obligations, strict record-keeping standards, penalties, and presumptive taxation without careful sequencing could criminalise informality rather than encourage gradual formalisation.
The organisation also identified specific policy provisions fuelling anxiety among businesses and households. These include mandatory reporting of quarterly bank transactions of ₦25 million and above, which CPPE said could expose SMEs handling custodial or pass-through funds to unnecessary scrutiny and compliance disputes.
It further highlighted concerns over the proposed increase in capital gains tax from 10 percent to 30 percent, noting that this has unsettled stock market and real estate investors at a time when confidence remains fragile. The centre also described the ₦500,000 annual rent relief cap as misaligned with prevailing urban housing costs, potentially squeezing middle-class disposable income.
CPPE said fears have been amplified by the breadth of enforcement powers granted to tax authorities and the severity of penalties embedded in the tax laws.
The centre advocated a revenue-efficiency-driven enforcement strategy, noting that empirical evidence shows a small proportion of taxpayers generate the bulk of revenue. It said roughly 20 percent of businesses account for close to 90 percent of tax receipts, while about 20 percent of taxpayers contribute over 80 percent of personal income tax.
According to CPPE, focusing enforcement on large corporations, established SMEs, and high-net-worth individuals would yield substantial revenue without destabilising livelihoods or deepening social resistance.
It advised tax authorities to prioritise the formal sector in the short to medium term, while integrating the informal sector gradually through incentives, tax education, simplified compliance tools, and digital onboarding support.
The centre stressed that shifting emphasis from penalties to compliance-building would produce more durable outcomes and allow the tax net to expand organically rather than through coercion.
CPPE also warned that political timing is critical, noting that with 2026 shaping up as a pre-election year, aggressive broad-based enforcement could trigger social discontent, political backlash, and potential reform reversal.
It concluded that while tax reform is essential for Nigeria’s fiscal sustainability, a phased, pragmatic, and socially sensitive implementation approach anchored on trust, economic realities, and political timing offers the most credible pathway to sustainable revenue growth, expanded compliance, and long-term legitimacy.
About the Author
