Follow Us on Google
By Chinwendu Obienyi
As Nigeria prepares to implement a new tax regime on January 1, 2026, uncertainty surrounding the reforms has triggered a quiet but widening freeze in spending, investment and expansion plans across the country’s small and medium-sized enterprises (SMEs).
While the federal government and tax authorities insist the reforms will simplify taxation, ease burdens and protect low-income earners, Daily Sun investigations can reveal that the lack of clarity around implementation has left millions of small businesses in a holding pattern, waiting for details before committing scarce capital even before the Christmas, Boxing Day and New Year celebrations.
The looming changes, captured in the newly enacted Nigeria Tax Act 2025, represent the most ambitious attempt to reorganize the country’s complex tax ecosystem in more than three decades. The framework consolidates dozens of federal tax laws, updates reporting thresholds, restructures personal and corporate income tax classifications, and promises relief for micro-businesses.
Describing the act as pro-poor and pro-investment and a key element of a broader fiscal consolidation plan, Chairman of the Presidential Fiscal Policy and Tax Reform Committee, Taiwo Oyedele, said the reforms are designed to “remove distortions, eliminate multiple taxation, and create a fairer system that does not punish poverty.”
Under the new rules, micro and small companies with turnover below certain thresholds are exempt from corporate income tax (CIT). The FG also said the reform will shield many low-income individuals from personal income tax (PIT) by raising exemptions and simplifying filing requirements.
In addition, the Federal Inland Revenue Service (FIRS)- which will soon be called the Nigeria Revenue Service (NRS), have asserted that only 5 per cent of Nigerians will pay income tax under the new architecture, a message designed to reassure workers, self-employed traders, and micro-enterprises.
Only recently did the agency clarify that the much debated 4 per cent development levy on imported goods was rather a streamlined consolidation of several existing levies and not an additional tax burden.
But for many SMEs, these transitions feel opaque and rushed, with communication gaps widening anxiety rather than confidence.
Across Lagos, Kano, Port Harcourt and Abuja, business owners noted that although they support reforms that could simplify compliance and reduce the burden of multiple taxation, they cannot risk making strategic decisions without knowing how the new rules will apply to them. According to them, their businesses had already been strained by inflation, naira volatility, high borrowing costs, and sluggish consumer demand. Hence, they have begun tightening cash-flow, postponing equipment purchases, delaying new branches, and slowing recruitment.
Many have not yet seen official guidelines, explanatory notes or sector-specific documentation. Several businesses still lack Tax Identification Numbers (TINs), updated accounting systems, or the technical capacity to meet new reporting requirements.
For retailers and wholesalers, the most immediate impact is a reduction in inventory stocking for the first quarter of 2026. Udeze Chinyere, a dealer in pipes at the Trade Fair Market in Lagos, who usually stocks heavily in December said her business will be about “keeping inventory leaner than usual.”
“There are too many unknowns such as profit margins, supplier pricing, and new reporting requirements. I cannot risk tying down capital when we do not even understand how the tax authorities will interpret the new rules. Also, I have two boys in my shop who are learning the trade and I plan to keep it that way to preserve cash flow”, She said. Tech and service-based SMEs are also hitting the brakes. A Lagos-based fintech that had planned to launch a new payments product in January has paused the rollout, citing uncertainty over tax treatment for digital revenues.
Manufacturers face even deeper concerns, as tax compliance interacts with supply chains, logistics, forex exposure, and financing, all sensitive areas already burdened by rising costs. “If a supplier is reclassified under the new thresholds, or if their cost structure changes, it affects everyone downstream. We need full clarity before locking in new contracts”, Okoya Popoola, a plastics distributor in Ibadan, lamented.
For an economy where SMEs contribute 48 per cent of GDP and over 80 per cent of employment, such a spending freeze carries broader macroeconomic implications.
Experts split on the new regime
What makes the situation more complicated is that even tax professionals and consultants remain divided over whether SMEs should be worried.
Reform advocates, including members of the Chartered Institute of Taxation of Nigeria (CITN), argue the act will bring long-awaited simplicity to Nigeria’s fragmented tax structure. They say consolidation will reduce confusion, encourage formalization, and improve the business environment.
But critics, including analysts in the private sector, trade associations, and research institutes, in several forums warn that the transition may create short-term shocks for small firms.
Fellow, Chartered Institute of Taxation of Nigeria (CITN), Olugbenga Obatola, in an interview with a news medium, said the new Nigerian Tax Reform Act will ease the tax burden on low-income earners to tax affluence.
According to him, the new tax regime is very progressive. “It shifts focus from taxing poverty to taxing affluence. Those earning less than N90,000 per month will no longer pay any tax. Those days where low-income earners were made to pay taxes in spite of earning little would be gone, as the new regime ensures that the system becomes fairer. If you are earning around N100,000 a month, by the time statutory deductions are made, your taxable income will fall within N800,000 per annum, which attracts zero per cent tax”, he explained.
Obatola further explained that taxpayers would be required to present verifiable documentation, such as rent receipts, before claiming reliefs, adding that this would improve accountability and bring landlords into the tax net. “A lot of landlords collect rent without paying tax. Once tenants present rent receipts for relief, landlords’ details will be traceable. This will help expand the tax net,” he added.
However, the Chairman, Alliance for Economic Research and Ethics LTD/GTE, Dele Oye, said the new regime could cripple the growth of investments and businesses in the country. While describing the tripling of CGT by 200 per cent as the most explosive provision of the act, Oye said this could reduce potential returns making Nigeria less attractive than its regional competitors.
His words, “As the January 1, 2026, implementation date approaches, a wave of apprehension is palpable across the Nigerian and international business communities. The Act’s core tenets, particularly the dramatic hike in Capital Gains Tax from 10 to 30 per cent, the imposition of a new 4 per cent Development Levy, and the ambiguous overhaul of the Free Trade Zone incentive regime, have been met with significant concern.
These measures, while designed to fill government coffers, are perceived by many as direct assaults on profitability, capital formation, and investment incentives. They raise fundamental questions about Nigeria’s strategic direction, forcing a crucial debate between Taxation for Revenue vs. Taxation for Growth. Is the nation building a foundation for long-term, private sector-led growth, or is it erecting fiscal barriers that will stifle innovation and drive capital to more hospitable shores?”.
Conclusion
With 23 days to implement, the government, policymakers must move quickly to rebuild confidence. Clear implementation guidelines, simplified SME-focused documentation, nationwide sensitisation, and practical support services, such as walk-in help desks at FIRS offices, could ease the transition.
Without targeted intervention, the current spending freeze could deepen into the first quarter of 2026, slowing economic activity at a time when Nigeria needs SME-led growth. The stakes are high at this stage and if the rollout is smooth, the new tax regime could strengthen the country’s revenue system, boost formalization, and support long-term economic stability. But if uncertainty persists, the country risks dampening private-sector confidence at a critical moment.
For now, small businesses remain in wait-and-see mode, hoping for clarity before the new rules take effect.
