Tax Laws: Economist Advocates Phased Implementation To Protect Informal Sector

Following the commencement of the new tax reform laws on January 1, the Centre for the Promotion of Private Enterprise (CPPE) has urged the federal government to adopt a phased and strategic implementation, warning that an aggressive and enforcement driven approach could end up criminalising the informal sector and further weaken public trust.

The chief executive of the CPPE, Dr Muda Yusuf, in a policy statement titled, Nigeria’s Tax Reform: Why Strategy, Timing and Trust Will Determine Success, had acknowledged that the ongoing tax reform represented one of the most ambitious fiscal restructuring efforts in recent decades and is largely sound in concept.

He however, stressed that the success of the reform would depend more on how it is implemented than on the strength of its legislative provisions.

According to him, the government is attempting to roll out sweeping tax changes at a particularly fragile economic moment, with households and businesses still grappling with high inflation, weak purchasing power and the adjustment costs from fuel subsidy removal and foreign exchange reforms.

Yusuf warned that pushing for full and simultaneous compliance across all sectors under these conditions is unrealistic and risky. “Tax reform is not a one-off exercise; it is a dynamic process that must evolve with implementation feedback, economic conditions, and social realities.

“The economy is still absorbing the aftershocks of elevated inflation, weakened purchasing power, and the adjustment costs of fuel subsidy removal and foreign exchange reforms. Many households and businesses are experiencing reform fatigue. Compounding this is the approach of a politically sensitive pre-election period. A rigid, enforcement-heavy approach risks undermining reform credibility before its benefits have time to materialise.”

Aside this, he noted that a blanket implementation would be counter productive as it would criminalise the operations of most players in the informal sector. With an estimated 40 million micro, small and nano enterprises, and over 90 per cent of jobs located in the informal sector, the CPPE chief noted that the tax reform cannot ignore the limited capacity of these operators to comply with complex tax rules.

“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.”

Making a case for the reform, Yusuf noted that the framework contains several pro welfare and growth friendly provisions, including personal income tax exemptions for low income earners and value added tax relief on basic goods and essential services such as education, healthcare and agriculture. He also highlighted company income tax and VAT reliefs for small businesses, as well as the rationalisation of multiple taxes and repeal of obsolete laws, as steps that respond to long standing private sector concerns.

Despite these provisions, he said resistance to the reform remains strong because of past experiences where fiscal reforms translated into higher living costs without corresponding improvements in public services, noting that a weak social contract continues to undermine confidence in how additional tax revenues are used.

Yusuf also pointed to specific provisions fuelling anxiety among businesses and households, including the mandatory reporting of quarterly bank transactions of N25 million and above, which it said could expose high turnover, low margin businesses to undue scrutiny. It added that the proposed increase in capital gains tax to 30 per cent and the N500,000 annual rent relief cap have unsettled investors and middle income earners.

Thus, he called for an implementation strategy anchored on revenue efficiency rather than blanket enforcement, arguing that empirical evidence shows that a small proportion of taxpayers account for the bulk of tax revenue, suggesting that enforcement efforts should focus first on large corporations, established SMEs and high net worth individuals.