Benjamin Franklin, in a letter to his close friend Jean-Baptiste Le Roy in 1789, famously observed that “our Constitution is in actual operation; everything appears to promise that it will last; but in this world nothing can be said to be certain except death and taxes.” Taxation remains a compulsory levy imposed on citizens of every country. In Nigeria, Section 24(f) of the 1999 Constitution (as amended) obliges citizens to declare their income honestly to relevant government agencies and to pay taxes promptly.
The introduction of direct taxation in Nigeria was an initiative of the colonial administration and predates the formal amalgamation of the country. Direct taxation was first introduced in Northern Nigeria in 1906, extended to the Western Region in 1918, and later to the Eastern Region in 1928. These tax measures were met with strong resistance, most notably the Egba Uprising of 1918 and the Aba Women’s Riots of 1929. Despite these oppositions, the colonial government asserted its authority to impose taxes and proceeded with collection, primarily to generate revenue to fund administrative activities.
Following independence, Nigeria retained much of the colonial tax structure, with successive governments introducing reforms to reflect evolving economic and administrative realities. Notable examples include the Value Added Tax (VAT) Amendment Act 2007, which exempted basic food items from VAT; the Personal Income Tax (Amendment) Act 2011, which reviewed individual income tax rates and introduced the Consolidated Relief Allowance; and the Finance Acts (2019–2023), which granted tax exemptions to small companies and adjusted VAT and income tax provisions. Despite these reforms, Nigeria’s tax-to-GDP ratio remains among the lowest in Africa. An IMF study indicates that Nigeria has one of the most underutilised tax capacities on the continent, with an estimated $100 billion in untapped tax revenue.
Nigeria’s recent tax reform represents a structural shift in the country’s tax framework. The reform replaces multiple, overlapping tax statutes with a single, consolidated, and modernised legal framework, aimed at simplifying tax compliance and reducing legal fragmentation. This approach reflects long-standing principles of sound taxation. Adam Smith, widely regarded as the father of modern taxation, argued that an effective tax system must be fair, certain, convenient, and efficient, and that citizens should contribute to government revenue in proportion to the income they earn under the protection of the state.
The reform also introduces targeted exemptions and adjustments intended to redistribute the tax burden. Companies with annual earnings below ₦100 million are exempt from certain taxes, while VAT exemptions have been expanded to include transportation, rent, and utility expenses. These measures are designed to ease the burden on low-income earners and small businesses. At the same time, higher-income individuals and larger firms are expected to bear a greater share of the tax burden, signalling a shift towards a more progressive tax structure.
Meanwhile, the reform has attracted criticism, particularly regarding the discretionary powers granted to tax authorities. For instance, Section 47 authorises the relevant tax authority to disregard arrangements considered to be tax avoidance schemes designed to secure tax advantages. Tax avoidance, however, refers to the use of lawful means to minimise tax liability. Treating such arrangements as illegitimate may create room for arbitrary or inconsistent application of the tax law.
The law also empowers the tax authority to raise administrative assessments against taxpayers who fail to file tax returns. Critics argue that the breadth of these discretionary powers may be prone to abuse. Given Nigeria’s history of heavy-handed enforcement and persistent public mistrust of regulatory institutions, these provisions have contributed to scepticism about the reform. If not adequately guided by clear safeguards and oversight mechanisms, such discretion could inadvertently encourage rent-seeking and corruption.
In a system where influential individuals have historically found ways to circumvent tax obligations, the success of the reform will ultimately depend on effective and transparent implementation. The reform has the potential either to significantly increase government revenue or to create opportunities for administrative abuse. Its true impact will become clearer with time.
Oke Godwin Olaoluwa (O.G.O); Ogo4real2009@gmail.com
