The tax reforms may push more small businesses deeper into the informal economy as firms struggle with mandatory e-invoicing, automated bank-data sharing, and stricter enforcement rules.
The measures, anchored on the Nigeria Tax Administration Act (NTAA) and the transition to the Nigeria Revenue Service (NRS), begin rolling out in phases from 2026 and represent one of the biggest overhauls of the country’s tax system in decades.
While designed to widen the revenue base and improve compliance, economists and business groups warn that the reforms could unintentionally raise the cost of formalisation for already pressured micro and small enterprises.
“Tax reform is essential for Nigeria’s fiscal sustainability, but implementation strategy will ultimately determine success or failure,” Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), said in a statement titled Nigeria Tax Reform: Why Strategy, Timing and Trust Will Determine Success.
He warned that “a rigid, enforcement-heavy approach risks undermining reform credibility before its benefits have time to materialise,” particularly for cash-dependent and thin-margin businesses grappling with inflation, weak demand, and rising operating costs.
From 2026, medium and large businesses will be required to issue structured electronic invoices through the NRS Merchant Buyer Solution (MBS), with invoices needing digital validation before qualifying as tax-deductible documents.
The reforms also introduce a unified Taxpayer Identification Number (TIN) system linked to bank accounts, pension records, and insurance accounts, alongside tighter payroll reporting obligations for employers.
Banks and fintech firms will also be required to report transactions above regulatory thresholds to tax authorities, enabling automated monitoring of high-value inflows and outflows. Businesses that fail to comply with filing and reporting obligations risk instant penalties under the digital enforcement framework.
Taiwo Oyedele, chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, has defended the measures as necessary to modernise Nigeria’s fragmented tax architecture and improve fairness across the system.
“These reforms are designed to make taxation simpler, fairer and more predictable for Nigerians,” Oyedele said, adding that the digitisation drive is targeted primarily at high-net-worth individuals and large corporate tax evaders rather than vulnerable micro-enterprises.
Still, analysts say the structure of Nigeria’s economy makes the transition particularly delicate.
Nigeria’s informal economy accounts for between 57.4 percent and 58.2 percent of GDP and absorbs more than 80 percent of total employment, according to data compiled by Moniepoint.
The country also has an estimated 39.6 million micro, small, and medium enterprises (MSMEs), with micro-enterprises making up the overwhelming majority.
Data from SMEDAN and the National Bureau of Statistics show that more than 17 million small businesses operate without Corporate Affairs Commission registration, while less than 11 percent of informal micro-enterprises are registered with tax authorities.
Economists warn that if compliance costs rise too quickly, some firms may choose to remain informal rather than enter the formal tax net. The concern, they say, is less about deliberate tax evasion and more about survival in a system where digital compliance introduces new administrative and technology costs.
Biodun Adedipe, chief consultant at B. Adedipe Associates, said the reforms’ long-term value lies in simplifying Nigeria’s fragmented tax structure, but noted that implementation would determine their success.
“The reduction in the number of taxes from about 62 to nine is significant,” he said. “The structure is becoming clearer, but effectiveness will depend on how smoothly the transition is managed and whether businesses can comply without disruption.”
Small businesses already spend between 140 and 200 hours annually navigating tax filings and compliance obligations, according to PwC Nigeria’s MSME surveys.
Business groups say mandatory digital reporting, software upgrades, and automated invoicing systems could further increase operating costs for firms with weak technical capacity.
The Nigerian Association of Small and Medium Enterprises (NASME) has welcomed relief measures in the reforms, including the exemption of businesses with a turnover below N100 million from company income tax.
However, analysts question whether the threshold meaningfully protects the smallest operators, given that most micro-enterprises earn far less and remain outside formal registration entirely.
Some firms may respond by restructuring operations to remain below reporting thresholds or increasing reliance on cash transactions to reduce digital visibility. Others may shift toward informal labour arrangements to limit exposure to payroll audits and compliance requirements.
The government, however, argues that formalisation will improve access to credit, structured financing, and legal protections for businesses.
Officials say the reforms are intended to replace fragmented levies and opaque local taxes with a more transparent and predictable framework.