In the case of Nigeria, the new tax legislation introduced in the country forms a major departure in fiscal policy, which focuses on ensuring a wider tax base, enhanced compliance, and improved revenue collection from non-oil sources. While from a policy perspective these objectives seem logical from within the sustainable fiscal framework, there remains another question, which may seem broader and more complex, depending upon one’s perspective. This question is whether the new legislation about taxes in Nigeria is equitable, progressive, and supportive of the well-being of the population. This is a question that also has direct implications for economists, policymakers, and fiscal administrators.
First, there is a concern that the tax system does not take into consideration cost-of-living indices effectively. Even though taxpayers are supposed to discharge their obligations to pay income tax, the tax system is dominated by nominal income rates, with minimal indices applied. The effect of operating within a high-inflation economy, where the cost of food, housing, transport, and electricity has significantly gone up, means that nominal income is poor, considering the real income of taxpayers. It therefore means that whereas the income tax was supposed to be progressive, it turns out to be regressive.
Closely aligned to this perspective is the issue of multi-level taxation through income and consumption channels. Households in Nigeria are subject to PAYE contributions, withholding taxes, value-added taxes, excise duties, and other transaction taxes through banking, telecommunication, and other forms of consumerism. Though these may be separately legitimate, their cumulative nature impacts negatively on those at the lower end, namely those who are paid wages and consumer spenders. In tax incidence, this is unbalanced, and in favour of those with the least ability to save and pay taxes, thus impinging on the role of taxation in distribution.
Another critical reservation lies in the treatment of withholding tax and the problem of economic double taxation. Although withholding taxes are legally framed as advance payments, weak refund systems, administrative complexity, and limited taxpayer awareness mean that many individuals are unable to fully credit withheld taxes against final liabilities. Consequently, income, particularly from interest, contracts, or secondary sources, is often taxed at source and then subjected to further assessment. This creates economic double taxation in practice, violating the principles of neutrality and certainty and generating confusion and distrust among taxpayers.
The administrative complexity of the new tax law further compounds these challenges. The multiplicity of filing requirements, reporting thresholds, and sector-specific provisions renders the law difficult to interpret even for well-educated taxpayers. This complexity implicitly transfers the burden of interpretation and compliance onto individuals, increasing compliance costs and discouraging voluntary participation. From an optimal taxation perspective, a tax system that is not easily understood fails the canon of certainty and risks widening the gap between formal legal provisions and actual compliance behaviour.
Additionally, the tax law places a significant compliance burden on individuals with multiple income streams, including those partially operating within the informal sector. While broadening the tax net is a legitimate goal, doing so without commensurate access to social protection, simplified filing systems, or taxpayer support effectively formalises taxation without formalising welfare. This imbalance weakens the fiscal social contract and raises ethical concerns about fairness and reciprocity in public finance.
The provision for rent-related tax relief further illustrates the law’s limited sensitivity to real household expenditure patterns. The relief is nominal, capped, and contingent on formal documentation that excludes many renters in informal housing arrangements. In urban centres where rent constitutes a substantial share of income and often runs into millions of naira annually, a uniform cap provides little meaningful relief and fails to achieve vertical equity. Rather than mitigating housing-related financial stress, the provision appears largely symbolic.
Finally, there is the broader issue of tax burden shifting and incidence. Although statutory responsibility for certain taxes lies with employers, financial institutions, and service providers, economic theory and Nigerian market realities suggest that these costs are largely passed on to consumers through higher prices, fees, and reduced real wages. In an economy characterised by limited competition and high import dependence, such tax shifting is almost inevitable, further intensifying the burden on households and undermining welfare outcomes.
Taken together, these concerns suggest that while the new tax law may enhance revenue efficiency, it does so at the expense of equity, certainty, and convenience as articulated in Adam Smith’s canons of taxation. By insufficiently accounting for cost-of-living pressures, facilitating economic double taxation, imposing high compliance costs, and enabling the downward shifting of tax burdens, the law risks aggravating rather than alleviating the economic challenges faced by most Nigerians. From an economist’s perspective, sustainable tax reform must balance revenue objectives with distributive justice and administrative simplicity if it is to command legitimacy and support long-term economic development.
Chinasa Onwe is a research and teaching assistant at Lagos Business School (LBS). She writes extensively on policies that have macroeconomic impacts.
