Tax reform: Rigid enforcement may undermine credibility, CPPE warns

The Centre for the Promotion of Private Enterprise (CPPE) has advised relevant tax authorities not to expect full and simultaneous compliance across all sectors of the economy with the new tax laws,  adding that imposing rigid enforcement may undermine the credibility of the reform before its benefits begin to materialise.

The Centre, in a statement signed by its Chief Executive Officer, Dr Muda Yusuf, on Sunday, noted that despite public controversy surrounding the  tax reform, its framework contains several commendable and pro-welfare provisions.

For instance, it noted that exempting low-income earners from personal income tax and VAT relief on basic goods and essential services, including education, healthcare, agriculture, and cultural activities, provided important social protection.

The Centre added that ensuring small businesses benefit from relief from company income tax and VAT obligations would, without doubt, also go a long way in easing compliance pressures on vulnerable enterprises.

On the growth side, CPPE noted that targeted incentives for priority and job-creating sectors, would also strengthen alignment between tax policy and Nigeria’s diversification agenda, adding that the rationalisation of multiple taxes, repeal of obsolete laws, and improved coherence of the tax system would also respond to long-standing private-sector demands and enhance predictability and investor confidence if properly implemented.

The Centre attributed the public resistance to the new tax law to ‘lived experience’, noting that past reforms had always translated into higher living costs and declining welfare, for the people, with little evidence that such sacrifices resulted in improved public services.

It called on the relevant authorities to ensure that the tax reform take into cognisance the scale of the informal economy.

“With an estimated 40 million micro, small, and nano enterprises, over 80 percent operating informally, the informal sector is not peripheral; it is central to employment, income generation, and economic resilience. Over 90% of jobs are in the informal economy, according to the last Nigeria Labour Force Survey by the National Bureau of Statistics (NBS),” it stated.

CPPE  also noted that most informal operators in Nigeria lack structured record-keeping systems, and had limited understanding of tax concepts such as Tax Filing obligations,  Company Income Tax [CIT], Value Added Tax [VAT], Personal Income Tax [PIT], Withholding Tax etc.

“Businesses are largely cash-based, operate on thin margins, and often lack the literacy and digital capacity required for compliance.  They also lack the capacity to digest the technical and somewhat complex issues around taxation. 

“Yet the new tax framework introduces mandatory filing requirements, defined record-keeping standards, penalties for non-compliance, and presumptive taxation where records are inadequate. Without careful sequencing, these provisions risk criminalising informality rather than encouraging gradual and voluntary formalization,” it argued.

It, therefore,  warned on the undue scrutiny and costly compliance disputes high turnover, but low-margin businesses may face, especially with the mandatory reporting of quarterly bank transactions of ₦25 million and above to the tax authority, which, it stated,  had raised anxiety among SMEs that handle pass-through or custodial funds that do not constitute income.

The Centre advocated a strategic implementation framework, anchored on revenue efficiency, rather than blanket enforcement.

“Roughly 20 percent of businesses generate close to 90 percent of tax receipts, while about 20 percent of taxpayers contribute over 80 percent of personal income tax. Concentrating enforcement on large corporations, established SMEs, and high-net-worth individuals will deliver substantial revenue gains without destabilising livelihoods or deepening social resistance,” the Centre stated.

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