Weak tax governance is emerging as a measurable earnings risk, with penalties, compliance adjustments, and disclosure gaps increasingly eating into company profits.
At a recent tax transformation forum, senior executives admitted that tax failures inside their organisations had quietly drained earnings for years before anyone noticed.
“For two years down the road, we are having to pay 10 percent of our profits as offset tax expenditure; we needed to focus on tax risk management,” said Adeniyi Adeyemi, Group Head, Tax, Sterling Financial Holdings Company
Adeyemi described a financial group with more than 160 branches where tax decisions were centralised in one office while individual branches interacted separately with tax authorities.
There was no clear escalation process. Reports were produced every month, but management was not asking the right questions.
The result was costly, penalties, interest, and avoidable exposures consumed close to 5 percent of profits annually. Before internal reforms, total exposure was nearing 10 percent.
Nigeria’s tax-to-GDP ratio has remained around 10 percent, according to data from the World Bank and the International Monetary Fund, significantly below global averages.
The revenue gap has increased pressure on authorities to strengthen compliance rather than introduce new taxes.
The new penalty rules mean companies can face as much as N5 million in fines for engaging with unregistered vendors, N100,000 for failing to file in the first month, and N50,000 for subsequent months.
Companies also risk a 100 percent surcharge on certain non-remittances. This means that if a company fails to remit taxes it has already deducted, such as Withholding tax (WHT) or VAT (Value Added Tax), regulators can charge an additional amount equal to the unpaid tax itself, effectively doubling the liability before interest is added.
Professional advisers, including PwC, say these penalties can quickly accumulate if internal systems are weak.
Read also: How Nigeria’s 2026 Tax Reform Targets the Gig Economy
At the same time, regulators are going digital.
In 2025, 1,368 organisations were flagged for alleged breaches of the Nigeria Data Protection Act 2023, according to Technology Times. Those flagged included 795 financial institutions and hundreds of firms in insurance and gaming.
That enforcement action was about data protection, not tax. But the message is clear: regulators are now using data and acting at scale.
The winners are companies that treat tax as a governance issue; the losers are those that treat it as paperwork.
At the forum, executives said many organisations still operate with “white paper” tax strategies, white paper are documents that exist but are not embedded in daily operations.
In many companies, procurement signs contracts without tax review, and finance processes transactions without checking classification risks; tax teams only see issues at the reporting stage, and boards receive historical payment summaries, not risk dashboards.
By the time penalties appear, the money is already gone.
Adeyemi described how internal reports focused only on what had been paid, not what could go wrong.
“Management doesn’t need a list of what we paid last month,” he said. “They need to know where the risks are.”
After restructuring its system, the financial group introduced mandatory tax sign-offs before major transactions, defined escalation channels, and created risk-focused reporting for the board.
That shift reduced exposures and stopped the profit leak.
Technology is making weak systems more dangerous; tax authorities increasingly use data matching, automated assessments, and electronic filings. When numbers do not align, systems flag them immediately.
“In a manual world, you could still adjust, while in a digital world, mismatches are visible instantly,” said Tania Davids, Africa Tax Transformation & Technology lead.
Many companies still rely on spreadsheets to consolidate tax data. That increases the risk of inconsistencies between operational records and submitted returns.
As enforcement becomes more automated, small errors can quickly translate into financial penalties.
Tax used to be about filing returns. Now it is about governance. If you don’t manage it properly, it will show up in your profits.
In today’s enforcement climate, strong tax governance is becoming a competitive advantage while weak tax governance is becoming a measurable loss.
