By Rukayat Moisemhe
Lagos, Jan. 4, 2025 – Nigeria’s ambitious tax reform agenda, while legislatively sound, faces a critical implementation crossroads. According to the Centre for the Promotion of Private Enterprise (CPPE), the ultimate success of these reforms will hinge not on the strength of the laws passed, but on three delicate, human-centric factors: implementation strategy, economic timing, and the fragile commodity of public trust.
Dr. Muda Yusuf, Founder and CEO of CPPE, issued this stark assessment, framing the current reforms as among the most progressive fiscal restructuring efforts in recent decades. However, he delivered a crucial caveat: “Good policy design does not automatically translate into positive outcomes. History has shown that poorly sequenced and rigid implementation can undermine even the most well-intentioned reforms.”
The Peril of “Reform Fatigue” in a Fragile Economy
Yusuf contextualized the challenge, noting that reforms are unfolding under particularly delicate circumstances. The economy is still grappling with elevated inflation, weakened purchasing power, and the lingering adjustment costs from the removal of fuel subsidies and foreign exchange reforms. Households and businesses are experiencing what he termed “reform fatigue.”
“In this context,” Yusuf warned, “expecting full and simultaneous compliance across all sectors is unrealistic. A rigid, enforcement-heavy approach risks undermining reform credibility before its benefits have time to materialise.” This is especially critical with a politically sensitive pre-election period approaching in 2026, where public sentiment can quickly crystallize into political resistance.
The Core Conflict: Progressive Policy vs. Eroded Public Trust
The CPPE analysis acknowledges the reform framework’s pro-welfare provisions, such as exempting low-income earners from personal income tax and providing VAT relief on basic goods, education, and healthcare. It also praises the rationalization of multiple taxes and incentives for job-creating sectors.
Yet, the central obstacle is a profound crisis of trust. Yusuf explained that public resistance is “rooted in lived experience.” Many Nigerians associate past reforms with rising living costs and declining welfare, without seeing corresponding improvements in public services like roads, security, or power. A weak social contract—the citizen’s belief that taxes paid will result in services rendered—continues to undermine confidence. This creates a vicious cycle: low trust breeds low compliance, which limits revenue, which constrains service delivery, further eroding trust.
The Informal Economy: A Reality That Demands a Nuanced Approach
A critical flashpoint is Nigeria’s vast informal sector, an ecosystem that cannot be ignored or bullied into compliance. With an estimated 40 million micro, small, and nano enterprises—over 80% operating informally and accounting for more than 90% of jobs—the standard enforcement playbook is ineffective and potentially destructive.
“Most informal operators lack proper record-keeping, tax knowledge, digital capacity, and compliance structures,” Yusuf noted. “Enforcement-heavy measures could criminalise informality rather than encourage gradual formalisation.” This highlights a fundamental strategic choice: is the goal immediate revenue extraction or long-term economic integration and growth of the tax base?
Policy Flashpoints and the Case for Strategic Prioritization
The CPPE identified specific measures fueling public and business anxiety:
- Mandatory reporting of bank transactions above N25 million: This could ensnare high-turnover, low-margin businesses (e.g., commodity traders) in undue scrutiny.
- Proposed increase in Capital Gains Tax from 10% to 30%: Seen as potentially discouraging investment in capital markets and property.
- The N500,000 annual rent relief cap: Considered misaligned with rental realities in major urban centers.
- Wide enforcement powers and severe penalties: Risk creating a climate of fear rather than voluntary compliance.
A Pragmatic Pathway Forward: Revenue Efficiency Over Blanket Enforcement
Instead of a scattergun approach, Yusuf advocated for a strategy of revenue efficiency. Empirical evidence shows a Pareto principle in effect: roughly 20% of taxpayers account for close to 90% of tax receipts. Therefore, a phased implementation should:
- Concentrate initial enforcement on large corporations, established SMEs, and high-net-worth individuals who already have compliance infrastructure. This delivers significant revenue without widespread socio-economic disruption.
- Treat the informal sector as a long-term project, using incentives, sustained education, and simplified digital tools (like flat-rate “tax tickets”) to encourage gradual formalization.
- Prioritize trust-building and transparency. Clearly communicating how new revenues are being spent—on visible projects—is as important as collecting the tax itself.
“With 2026 shaping up as a pre-election year, political and social caution is imperative,” Yusuf concluded. “Stability, trust-building, and reform credibility should take precedence over short-term enforcement optics.”
In essence, the CPPE’s message is that tax reform is a marathon, not a sprint. Its success will be measured not by the rigor of its penalties, but by its ability to foster voluntary compliance through perceived fairness, strategic pragmatism, and, ultimately, the restoration of a functional social contract between the Nigerian state and its people.
(Source: NAN News)
