Tax reform without trust
By OYINDAMOLA OLOGUN
Nigeria’s tax reforms represent a step in the right direction, but laws alone cannot secure compliance. While legislation may compel obedience, only trust can inspire cooperation.
Nigeria’s recent tax reforms have sparked intense debate across social media platforms. Some believe everyone will suddenly start paying higher taxes. Others argue that small businesses are being unfairly targeted, while a few insist the reforms are merely another way to squeeze citizens without improving public services. The problem is not that Nigerians are asking questions; it is that many of the answers circulating are simply wrong. When tax laws are misunderstood, distrust grows.
Nigeria’s tax challenge has never been the absence of laws. The country has legislation, agencies, and penalties, yet tax compliance remains persistently low. Market traders avoid it, small businesses resist it, and even salaried workers often feel cheated by it. As a result, whenever new tax reform bills are introduced, reactions are usually mixed with cautious optimism and deep scepticism. The unspoken question many Nigerians are asking is not just what the new tax laws say, but whether this time will be different.
At the heart of that question lies a deeper issue: TRUST.
Understanding the New Tax Regime
Nigeria’s recent tax reforms are aimed at addressing long-standing structural weaknesses in the tax system. Broadly, the reforms seek to expand the tax base, improve efficiency, reduce leakages, and modernise administration through better coordination and technology. Given Nigeria’s heavy dependence on oil revenue, tax reform has become inevitable and aligns with global best practices on domestic resource mobilisation.
The new tax regime, effective from January 2026, is built around four key statutes: the Nigeria Tax Act 2025, the Nigeria Tax Administration Act 2025, the Nigeria Revenue Service (Establishment) Act 2025, and the Joint Revenue Board (Establishment) Act 2025. Together, these laws consolidate previously fragmented tax legislation and will govern Nigeria’s tax system going forward. Under the regime, all taxable persons: including individuals, companies, government agencies, and certain non-resident entities earning income from Nigeria are required to register with the relevant tax authority and obtain a Tax Identification Number (Tax ID).
Public debate intensified following the controversy surrounding popular content creator Peller, whose perceived tax exposure triggered heated discussions online. Some users on X viewed the reforms as a targeted attack on influencers and digital entrepreneurs, while others argued that enforcement was long overdue. Both positions, though emotionally charged, overlooked a basic legal reality: earning income has always attracted tax liability under Nigerian law. The reforms did not create this obligation; they merely clarified and strengthened administration. What the controversy revealed was not excessive taxation, but widespread misunderstanding of existing tax principles.
What the Reforms Actually Offer
Contrary to popular narratives, the new tax laws introduce over fifty exemptions and reliefs, largely targeted at low-income earners, average taxpayers, and small businesses. Two laws sit at the centre of this discussion: the Personal Income Tax Act (PITA) and the Companies Income Tax Act (CITA).
Under PITA, individuals including employees under PAYE and self-employed persons are taxed on income earned from all sources. The revised structure significantly reduces pressure on earnings. Minimum-wage earners are fully exempt, while annual gross income of up to ₦1.2 million attracts no tax. PAYE rates are reduced for individuals earning up to ₦20 million annually, and items such as gifts, pensions, gratuities, and qualifying compensation for loss of employment enjoy exemptions. Deductions are also allowed for pension contributions, health insurance, housing fund payments, life insurance premiums, mortgage interest, and rent relief.
The reforms therefore shift the focus from blanket taxation to ability-based contribution. What individuals should pay attention to is proper registration, accurate self-assessment, correct application of reliefs, and understanding the difference between lawful tax planning and illegal tax evasion. When these boundaries are clear, taxation appears less like a trap and more like a defined legal obligation.
CITA governs the taxation of companies operating in Nigeria and already recognises differences in company size. Small companies those with turnover not exceeding ₦100 million and fixed assets below ₦250 million pay 0% company income tax, are exempt from the 4% development levy, and enjoy relief from many withholding tax obligations. Companies above this threshold pay company income tax at 30%. Startups, agricultural businesses, and employers who increase wages or sustain employment benefit from targeted incentives designed to encourage growth rather than stifle it. Most enforcement issues in practice arise not from hostility, but from non-compliance driven by poor understanding.
Tax Compliance as Protection, Not Punishment
Section 24(f) of the 1999 Constitution imposes a duty on every citizen to declare income honestly and pay tax promptly. Beyond this constitutional obligation, the new regime reframes compliance as a form of protection.
Under the Nigeria Tax Administration Act 2025, taxpayers now enjoy clearer rights to object to assessments, seek advance rulings to clarify ambiguous positions, and access structured dispute-resolution mechanisms before enforcement actions occur. The establishment of the Office of the Tax Ombud reflects a shift towards accountability, mediation, and administrative fairness. Where disputes persist, taxpayers retain the right to approach the Tax Appeal Tribunal and, where necessary, pursue appeals up to the Supreme Court. Rather than trapping taxpayers, the system increasingly rewards transparency and early engagement.
The Real Problem: Trust Deficit, Not Tax Rates
Tax systems function best where compliance is largely voluntary. In many jurisdictions, taxpayers may complain, but they still comply because they believe the system works in their collective interest. Nigeria’s experience is different. A large informal sector, minimal record-keeping, and historical encounters with aggressive enforcement have normalised avoidance rather than compliance.
Poor infrastructure, unreliable public services, and weak accountability mechanisms make it difficult for citizens to see a direct link between taxes paid and benefits received. As a result, taxation often feels like forced extraction rather than civic contribution. This perception, whether accurate or not, continues to undermine reform efforts.
What Effective Tax Reform Should Look Like
For Nigeria’s tax reforms to succeed, they must go beyond legislative amendments. Transparency must be prioritized, with clear and accessible information on how tax revenues are used. Public engagement and education should explain not only how to pay tax, but why it matters and what citizens should expect in return. Accountability mechanisms must be strengthened so that misuse of public funds does not go unpunished. Finally, reforms must recognise the realities of the informal sector through simplified regimes and respectful engagement that encourage gradual formalisation.
Last line
Nigeria’s tax reforms represent a step in the right direction, but laws alone cannot secure compliance. While legislation may compel obedience, only trust can inspire cooperation. Until Nigerians begin to see taxation not merely as a legal obligation but as a shared civic investment with visible returns, compliance will remain fragile. True tax reform must therefore address not only rates and regulations, but the deeper question of trust between the state and its citizens. Without that trust, even the most ambitious reforms risk becoming another missed opportunity.
