A new N5 million administrative penalty for awarding contracts to unregistered vendors is tightening compliance requirements for Nigerian businesses, raising concerns about how micro, small, and medium enterprises (MSMEs) will navigate the country’s expanding tax enforcement regime.
“The new penalty makes it more difficult for business owners not registered for tax purposes with the relevant tax authority to win contracts,” said Olamide Sulaiman, a Tax Consultant at Forvis Mazars. “Banks, investors, and public institutions generally prefer to transact with incorporated entities due to the credibility and continuity they offer,” he said.
Section 100(2) of the Nigeria Tax Administration Act (NTAA), 2025, states that “a statutory body or company who awards a contract to an unregistered person shall be liable to pay an administrative penalty of 5,000,000.” The law defines an “unregistered person” as any individual or business not registered with the tax authority and without a valid Tax Identification Number (TIN). This marks a significant shift from previous regulations, which penalised only the unregistered vendor; under the new regime, awarding companies face a heavy, non-deductible fine for non-compliance.
Experts say the law is designed to curb the pervasive informality in Nigeria’s business sector and improve tax compliance. By holding companies accountable for verifying their vendors’ registration status, authorities aim to broaden the tax base and encourage formalisation, particularly among micro and small enterprises that often operate outside regulatory oversight.
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In line with this, Shola Oni, Head of Finance Compliance and Administration at Major Energies Marketers’ Association of Nigeria (MEMAN), warns that organisations must now integrate mandatory TIN verification into procurement processes to avoid penalties. “Compliance today saves cost tomorrow,” he said in a LinkedIn post.
The policy is expected to hit Nigeria’s MSME sector hardest, given its informal nature. According to the SMEDAN/NBS Report, Nigeria hosts over 39 million MSMEs, accounting for 96 percent of all businesses and contributing 45–50 percent of the national GDP. Yet the sector is largely informal; the World Bank/IFC reports only 1.24 million formal enterprises compared with 38.4 million informal ones. Micro-enterprises dominate, making up 96.9 percent of MSMEs, with 96.2 percent structured as sole proprietorships, many without TINs.
Kolawole Ayoola, a tax manager at Wemabank, in a LinkedIn post, advised organisations to request and verify CAC and TIN documentation before engaging any vendor, integrate vendor verification as a mandatory step in procurement and onboarding, and sensitise procurement, finance, and audit teams to the new requirement to avoid exposure to penalties.
The timing is challenging for small businesses already struggling with high electricity costs and difficulty accessing finance. CAC registration fees start at N10,000 for business names, with N5,000 for annual returns, while small companies pay between N10,000 and N20,000 for incorporation, alongside charges for post-incorporation filings, share capital increases, and certification requests. While the penalty does not directly fine MSMEs, it limits their contract access as larger companies increasingly avoid unregistered vendors. FATE Institute data shows that over 95 percent of MSMEs collapse before their fifth year, highlighting the sector’s vulnerability.
The Corporate Affairs Commission (CAC) and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) have launched a nationwide initiative to offer free business registration for 250,000 micro, small, and medium enterprises (MSMEs). This program was announced in Abuja on September 26, 2025, during the signing of a Memorandum of Understanding between the two agencies. The initiative aims to facilitate the formalisation of businesses and eliminate cost barriers, aligning with the Federal Government’s Renewed Hope agenda.
