As Nigeria presses ahead with one of the most far-reaching tax overhauls in decades, concerns are mounting that the reforms, if poorly sequenced and aggressively enforced, could end up weakening the economy they are meant to strengthen.
The Centre for the Promotion of Private Enterprise (CPPE) is now joined by a growing chorus of critics, including former Anambra State governor Peter Obi, who argue that taxing an economy dominated by the informal sector and hardship risks deepening poverty rather than unlocking growth.
In a statement issued on Sunday, CPPE’s Chief Executive Officer, Dr. Muda Yusuf, warned that Nigeria’s tax reform drive could undermine the informal sector if it fails to reflect the realities of how most Nigerians earn a living. While acknowledging that reform is necessary to shore up government revenue and improve fiscal sustainability, Yusuf stressed that Nigeria’s economic structure demands caution, inclusiveness, and careful sequencing.
Nigeria’s informal economy is not a fringe segment; it is the backbone of employment and income generation. Yusuf pointed out that the country has an estimated 40 million micro, small, and nano enterprises, with more than 80 percent operating outside the formal system. Data from the National Bureau of Statistics Labour Force Survey show that over 90 percent of jobs are in the informal economy, underscoring its centrality to social stability and household survival.
Against this backdrop, CPPE argues that reforms built around mandatory filing, defined record-keeping standards, strict penalties, and presumptive taxation risk alienating the very businesses policymakers hope to formalize. Most informal operators, Yusuf said, lack structured accounting systems and have a limited understanding of tax concepts such as company income tax, value-added tax, personal income tax, and withholding tax. Many operate largely in cash, on thin margins, with limited literacy and digital capacity, making compliance with technically complex tax rules both costly and intimidating.
The organization warned that without deliberate sequencing, taxpayer education, and transitional support, these measures could discourage voluntary compliance and push businesses further into the shadows. Instead of widening the tax net sustainably, the reforms could shrink it by driving economic activity away from visibility.
One provision that has triggered particular anxiety among small and medium-sized enterprises is the requirement for banks to report quarterly transactions of N25 million and above to tax authorities. CPPE noted that many SMEs handle pass-through or custodial funds that do not represent actual income. In such cases, high turnover does not equate to high profitability, yet these firms could be subjected to audits, disputes, and compliance costs that overwhelm their capacity.
Beyond SMEs, CPPE highlighted broader macroeconomic risks. The proposed increase in capital gains tax from 10 percent to 30 percent has unsettled investors in the stock market and real estate sector, even with assurances around thresholds. At a time when confidence remains fragile, Yusuf warned that such a sharp increase could dampen investment appetite and slow capital formation.
The organization also questioned the adequacy of the N500,000 annual rent relief cap, arguing that it no longer reflects the reality of housing costs in major urban centers. With rents surging across cities, CPPE said the cap offers limited relief and could further squeeze middle-class disposable income, with negative implications for consumption and economic momentum.
Concerns also extend to the wide enforcement powers granted to tax authorities and the severity of penalties embedded in the new tax laws. CPPE cautioned that excessive enforcement in an economy dominated by small and informal businesses could stifle enterprise growth and deepen distrust between taxpayers and the state. Yusuf argued that trust-building, clarity, and gradual integration into the formal economy should take precedence over punitive enforcement.
These concerns are not limited to the private sector advocacy community. Former Anambra State governor and presidential candidate Peter Obi has also decried the direction of Nigeria’s tax reforms, framing the debate in stark moral and economic terms.
“Prosperity cannot come by taxing poverty,” Obi said, urging the government to rethink its approach if it is serious about economic growth, national unity, and shared prosperity. He argued that taxation without growth risks turning fiscal policy into a tool that punishes survival rather than rewards productivity.
“The purpose of sound fiscal policy is not merely to raise revenue; it is to make the people wealthier so that the nation itself becomes stronger,” Obi said. “Yet today, Nigerians are asked to pay taxes without clarity, explanation, or visible benefit.”
Obi’s critique goes to the heart of a broader concern: that revenue mobilization is being prioritized over wealth creation. He argued that the foundation of a sustainable tax system lies in empowering small and medium-sized enterprises across communities. When businesses thrive, he said, jobs are created, incomes rise, and the tax base expands naturally.
“You cannot tax your way out of poverty — you must produce your way out of it,” Obi said, warning that overburdening struggling businesses and households could weaken social cohesion and undermine long-term growth.
The warnings come even as President Bola Tinubu has made clear that the reforms will proceed as planned. In December, the president reaffirmed the Federal Government’s commitment to implementing the new tax laws, despite calls for suspension or review. He said the reforms, signed into law on June 26, 2025, and taking effect from January 1, 2026, are central to rebuilding Nigeria’s fiscal framework and reducing reliance on borrowing.
The tax acts represent one of the most comprehensive overhauls of Nigeria’s tax system in decades, aimed at boosting non-oil revenue and improving compliance. However, critics argue that ambition alone will not guarantee success. Without sensitivity to Nigeria’s economic realities, clearer communication, and policies that prioritize growth and productivity, the reforms risk widening the gap between fiscal intent and economic outcome.
The message, which has been chorused by economists, is that a tax system divorced from the lived realities of citizens, especially those in the informal economy, may raise short-term revenue but undermine the long-term goal of economic growth.
