The full rollout of Nigeria’s tax reform laws is forcing businesses across sectors to urgently review payroll systems, transaction taxes and internal compliance processes, as authorities signal zero tolerance for errors and delays.
With the Nigeria Tax Act and related legislation taking effect from January 1, 2026, analysts say companies can no longer rely on passive compliance, as penalties for missteps in payroll deductions, Value Added Tax (VAT) and Withholding Tax (WHT) have become significantly more severe.
One immediate impact of the reforms is on personal income tax. Under the new regime, individuals earning ₦800,000 or less annually are exempt from income tax, a move expected to modestly improve take-home pay for low-income earners. Higher earners, however, face a graduated tax structure that rises to 25 per cent on income above ₦50 million.
Tax professionals note that while workers earning below ₦25 million annually may see improved net pay, those above that threshold are likely to experience reduced take-home earnings, placing fresh pressure on employers to manage staff expectations and payroll adjustments.
Beyond payroll, transaction taxes have emerged as a major compliance risk. VAT must now be applied, collected and reported regardless of ongoing legal debates around certain provisions. The law also expands VAT credits, allowing companies to offset input VAT on services, fixed assets and overheads — not just goods purchased for resale or production.
This change, experts say, presents a cost-saving opportunity for businesses, provided their accounting and reporting systems are properly updated. Failure to do so could mean missing out on legitimate credits while still facing penalties for non-compliance.
Withholding Tax obligations have also tightened. Companies are required to deduct and remit WHT accurately and promptly, with penalties of up to 40 per cent of the unpaid amount for errors or omissions, alongside interest and possible criminal liability.
Another key compliance pressure point is vendor management. Businesses now risk penalties of up to ₦5 million if they transact with suppliers or contractors who do not have a valid Tax Identification Number (TIN). This requirement extends even to informal service providers, compelling organisations to overhaul vendor onboarding and reimbursement processes.
Legal and tax experts warn that the new framework significantly enhances the government’s ability to cross-check transactions through bank records, payment platforms and TIN-linked data, making poor record-keeping increasingly risky.
They advise companies to prioritise automation, particularly for payroll, VAT and WHT processes, to reduce human error and exposure to sanctions. Regular reconciliations, clear audit trails and timely responses to tax authorities are now considered essential safeguards.
Special caution has also been urged for operators in the petroleum and mining sectors, where late filings and payments attract some of the stiffest penalties, including daily fines, interest linked to benchmark rates and the risk of asset seizure or licence withdrawal.
As enforcement tightens, analysts say the success of the tax reforms will depend not only on revenue generation but also on how quickly businesses adapt their systems to the new rules. For many organisations, the reforms mark a decisive shift from routine compliance to continuous, technology-driven tax management.
