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By Merit Ibe
As many Nigerians come to grips with the new tax regime, small and medium-scale enterprises (SMEs) face a critical test of preparedness. While the reforms aim to widen the tax net and simplify administration, they also introduce stricter compliance rules, digital filings and tougher penalties that could catch small businesses off guard.
Analysts have listed a set of pitfalls that SMEs must avoid. Chief among them is avoiding poor record-keeping, delayed adaptation and misreading new obligations as they may erode margins, disrupt cash flow and expose enterprises to sanctions.
These come as operating costs remain high across the economy.
Experts say the reforms are designed to shift Nigeria toward a more growth-friendly tax system that reduces pressure on small businesses while improving government revenue collection.
Under the new regime, small businesses are expected to enjoy lighter tax obligations compared with large corporations, creating a more level playing field in the economy.
The experts also called on the Nigerian Revenue Service (NRS), formerly Federal Inland Revenue Service (FIRS) to look into the proper management of the country’s informal sector amid the newly introduced tax laws for compliance.
They argued that any serious discussion on tax reform in the country without the informal sector at the front burners is tantamount to failure because the informal sector is the heart of Nigeria’s economy.
However, the experts have warned that only SMEs that keep proper financial records and file tax returns will be able to access the benefits built into the reforms.
The new tax framework is widely regarded as one of the most significant economic policy shifts in recent years, with the potential to support economic growth, job creation and business sustainability.
Economists believe the reforms will particularly help SMEs, which account for a large share of Nigeria’s employment and domestic production.
Yet, concerns have been raised about how the new system will affect businesses operating in the informal sector, which make up a large part of Nigeria’s commercial ecosystem.
Many of these informal businesses act as distributors, retailers and suppliers for major manufacturing companies, linking large firms to consumers across the country.
Director General, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said any serious discussion on tax reform in Nigeria must confront the scale of the informal economy.
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“With an estimated 40 million micro, small, and nano enterprises, over 80 per cent operating informally, the informal sector is not peripheral; it is central to employment, income generation, and economic resilience.”
The reforms may present challenges for informal-sector operators.
“Most informal operators lack structured record-keeping systems and have 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 formalisation.”
According to Yusuf, unless the government adopts a flexible and supportive approach, the new tax system could place unexpected pressure on these small traders and distributors.
He warned that any disruption to the informal sector could also affect manufacturers, since informal businesses are responsible for a significant share of product distribution across the country.
“When you introduce a tax system that people are not familiar with, it creates adjustment challenges,” Yusuf said, adding that government support will be critical to ensure a smooth transition.
Meanwhile, President of the Ondo State chapter of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Pastor Henry Adesaoye, said the reform was designed to ease the financial burden on ordinary Nigerians.
He noted that small and informal-sector businesses form the backbone of Nigeria’s economy and stand to gain from a more balanced tax framework.
David Etim, Team Lead for Project Implementation at the Calabar and Gulf of Guinea Municipal and Trade Centre Limited by Guarantee, said MSMEs with annual turnover or profits of up to N50 million would be exempt from corporate income tax.
He added that essential goods such as food items will remain tax-free, a move he described as encouraging for both businesses and consumers.
Also speaking, SMEs expert and Lagos Chamber of Commerce and Industry (LCCI) member, Daniel Dickson-Okezie, described the new tax regime as the most favourable Nigeria has had for small businesses.
He said the reforms will reduce the tax burden on SMEs, help them grow and bring more small businesses into the formal tax system, provided they improve their financial records and compliance.
However, Dickson-Okezie cautioned that corruption and weak implementation remain major risks, noting that Nigeria has good tax laws but struggles with enforcement, a problem that could limit the impact of the reforms if not properly addressed.
