By Olatunji David
Walk into any Nigerian market today and you will hear the same chorus of frustration. The pepper seller laments that transport costs have swallowed her profit. The mechanic complains about spare parts that are now almost unaffordable because of rising import duties. The barber, despite paying higher electricity tariffs, still relies heavily on his generator. The civil servant, already stretched by rent, food, and school fees, fears that his modest salary may shrink further with higher deductions.
Amid this harsh reality, the government has introduced a proposed tax reform, a law intended to diversify revenue sources and reduce Nigeria’s dangerous dependence on oil. Yet, to the average Nigerian, the word “tax” carries a familiar sting: another burden in a system that already seems unforgiving.
As both an economist and a businessman, I believe the question is not whether Nigeria needs a robust tax system, it certainly does. Rather, the challenge lies in how to design and enforce one without breaking the backs of the low and middle class, who are the true engines of survival in this economy.
Why Tax Matters
No nation develops without a working tax system. In advanced economies, taxes fund hospitals, schools, roads, policing, and social safety nets. In Nigeria, however, there is a deep disconnect between taxation and trust. Citizens rarely see the benefits of their contributions, leading to widespread evasion and resentment. If this new law is to work, it must be built on fairness, transparency, and visible results.
What the Reform Proposes
The draft bill introduces sweeping changes designed to modernize Nigeria’s fiscal structure:
- Personal Income Tax (PIT): Individuals earning ₦800,000 or less annually would be exempt, while others would be taxed progressively up to 25%.
- Expanded Exemptions: Compensation for job loss or injury would now be tax-free up to ₦50 million (up from ₦10 million).
- Value Added Tax (VAT): To increase gradually to 12.5% by 2026, though essential goods like food, tuition, medicine, and electricity remain zero-rated.
- Consolidated Development Levy: A flat 4% levy on company profits (excluding small businesses), replacing multiple existing levies.
- Minimum Effective Tax Rate: Large firms with turnover above ₦50 billion or multinationals with global turnover above €750 million must pay at least 15%.
- Capital Gains Tax (CGT): Aligned with corporate tax at 30% for companies, with individuals paying according to their income tax bracket. Indirect share transfers will now be captured.
- Digital Compliance: Mandatory e-invoicing, e-filing, and fiscalisation to expand the tax net.
- New Nigeria Revenue Service: To replace FIRS with broader enforcement powers.
These measures aim to align Nigeria with global standards while expanding the tax base, especially in the digital economy. But while policymakers assure citizens that exemptions will protect the vulnerable, critics fear that the combination of higher VAT and stricter compliance could tighten an already suffocating atmosphere.
The Real Impact on Ordinary Nigerians
On paper, the relief for low-income earners is significant. A civil servant earning ₦600,000 annually would now pay zero income tax, while those earning ₦5 million or more will contribute more. Small businesses could benefit from simplified levies and clearer input VAT recovery, though many may struggle with the upfront costs of digital compliance.
But the daily struggles of Nigerians go beyond tax. Rent remains extortionate, with landlords demanding one to two years’ payment in advance. Electricity is unreliable yet costly, forcing businesses and households into perpetual reliance on generators. Food inflation continues unchecked, driven by insecurity, transport bottlenecks, and poor storage facilities. Transport fares, fuel costs, and spare part prices rise endlessly.
If government ignores these realities while enforcing new taxes, the reform risks pushing millions of already weary citizens into deeper hardship.
What Government Must Do Differently
For this reform to succeed, government must ease pressure in other areas:
- Housing: Enforce rent regulation and allow monthly or quarterly payments.
- Electricity: Tariffs must reflect actual supply. Citizens cannot continue paying heavily for darkness. Affordable and stable power would reduce costs for small businesses and encourage growth.
- Spending Transparency: Citizens must see results. Tax money should reflect in repaired roads, improved schools, functional hospitals, and safer communities. Without visible impact, compliance will remain low.
- Grassroots Sensitisation: The National Orientation Agency (NOA) must step up. Beyond TV and radio, education must reach markets, shops, mosques, and churches, in local languages and practical terms. Tax education must also be integrated into the school curriculum, so future generations see tax as duty, not punishment.
The Role of Citizens
Nigerians, too, must adjust. In this season, prudence is essential: prioritize food, rent, healthcare, education, and electricity above luxuries. Savings, even small ones, through cooperatives or digital wallets, can cushion shocks. Every family should think entrepreneurially. Multiple income streams make tax obligations lighter. Communities should organize to press collectively for fair conditions, especially against exploitative landlords and service providers.
Tax should not be a noose around the neck of the Nigerian people. It should be a bridge between citizens and their government, a tool for building the society we desire. But this bridge can only stand if government ensures fairness, accountability, and transparency, while citizens uphold their responsibility with discipline.
The truth remains: no country grows without shared sacrifice. If both sides play their roles sincerely, taxation will cease to feel like a curse. Instead, it will be seen as an investment in a Nigeria where prosperity is not the privilege of a few, but the right of all.
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