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Tax reforms: Why businesses must prioritise payroll, VAT

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The full implementation of Nigeria’s Tax Reform Acts ushers in a new era with serious implications for the private and public sectors. This analysis by OLUWAKEMI ABIMBOLA details the operational priorities for businesses seeking to avoid punitive measures

A source of relief for salary earners, particularly those earning below N800,000 per annum, is the expectation that their take-home pay may increase, albeit modestly, at the end of January, thanks to the new tax regime.

Secondly, Value Added Tax and Withholding Taxes must be applied and reported regardless of ongoing legal contentions. These aspects of the law have become top priorities for businesses and corporations in the country.

Overall, the new tax laws, including the Nigeria Tax Administration Act, the Nigeria Revenue Service (Establishment) Act, the Joint Revenue Board (Establishment) Act, and the Nigeria Tax Act, are forcing organisations and businesses to move beyond passive compliance into rapid operational recalibration.

According to the NTA, individuals earning N800,000 or less per annum are now exempt from tax on their income and gains, while higher-income earners will be taxed at progressively higher rates, up to 25 per cent. Regarding VAT, the law reforms the regime to allow input VAT incurred on services and fixed assets to be claimed against output VAT, not just on goods for resale or production. Additionally, the NTA mandates the implementation of an electronic fiscalisation system (e-invoicing) for VAT collection and reporting.

On WHT, entities responsible for withholding taxes must deduct and remit them promptly. Failure to comply can result in a 40 per cent penalty on the non-deducted amount, in addition to interest and potential criminal liability.

Speaking on the tax reforms and their implications for businesses, Kenneth Erikume, Partner, Tax Reporting and Strategy, PwC, highlighted payroll and the automation of VAT and WHT collection as key issues during the 2026 Nigeria Economic Outlook organised by FirstBank on Tuesday in Lagos. He noted that businesses face significant penalties if they breach the laws.

He said, “The most urgent and pressing area is payroll, because by the end of the month, you are required to pay your staff. This means the logic and rules within your payroll system must be updated to reflect the new tax provisions. There is now an exemption up to N800,000, after which the applicable tax rates begin to apply. Any portion of income above N50m is taxed at 25 per cent, making the structure a graduated scale. What we have observed is that, assuming no significant reliefs are claimed, anyone earning below N25m will see an increase in take-home pay due to reduced taxes. Conversely, anyone earning above N25m will experience higher taxes, resulting in a reduction in take-home pay.

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“From a human capital perspective, this is not just a systems issue. You also need to consider how to manage this differential. Staff earning below N25m will retain the benefit, and that cannot be clawed back. However, for staff earning above N25m, the question becomes whether the company will absorb part of the increased tax burden through a payroll review aligned with this change. Fundamentally, payroll is the most urgent issue and must be addressed immediately.”

Erikume reiterated that transaction taxes, primarily WHT and VAT, were also priority areas for businesses. He said, “The most significant changes relate to VAT, and they present a major opportunity that companies need to be aware of and take advantage of. For every company in Nigeria today, costs can potentially be reduced by 7.5 per cent due to the expanded ability to claim VAT on expenses. Previously, this was limited mainly to manufacturers claiming VAT on goods purchased for resale or production. Now, all companies can claim VAT on costs related to fixed assets and overheads. When I conducted this analysis using PwC as an example, the annual benefit exceeded N500m. That value flows directly into the profit or loss account.

“However, systems must be updated to recognise this change. VAT on costs should no longer be expensed; instead, it should be recorded in the VAT account as an asset. When VAT is charged to customers, it can then be offset when filing VAT returns. This is the second urgent area and represents a significant benefit.”

The PwC partner also highlighted potential grey areas that may arise when dealing with vendors without a Tax Identification Number, noting how such transactions could lead to penalties.

“Beyond this, there are important process-related issues to address. One key rule states that if you transact with a party that does not have a TIN, you may be penalised up to N5m. This makes it necessary to update vendor validation processes to ensure that all suppliers provide a TIN during onboarding. A common question is what happens in situations involving roadside vendors, such as vehicle repairs, where staff seek reimbursement. In such cases, the vendor’s TIN must still be obtained; otherwise, the company is exposed to penalties. This effectively means organisations will need to prioritise artisans and vendors who have TINs over those who do not.

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“Finally, there are significant penalties related to WHT errors, including failure to deduct correctly or apply revised rates. In such cases, the government can impose penalties of up to 40 per cent simply due to incorrect deduction or remittance. For this reason, processes affected by these new laws should be automated wherever possible,” Erikume said.

Offering a solution, the tax expert said that automation is key, particularly in areas with hefty sanctions. He said, “Automation is critical in areas where penalties are high. Getting it right the first time, without errors, is essential, and reliance on manual processes increases risk. This requires close collaboration between finance and IT teams to ensure that modern, reliable systems are used.

“As a final point, it is important to ensure that any logic being implemented is based on the final version of the law passed by the National Assembly, as multiple versions have circulated. Always confirm that you are working with the final version.”

Corporate and tech lawyer Nneoma Agwu-Okoro, breaking down business requirements regarding VAT and WHT in her Legal Bytes newsletter, emphasised that “every transaction subject to VAT must be calculated, collected, and remitted on time. Similarly, withholding taxes on payments to contractors, suppliers, or service providers must be properly deducted and remitted. Fintechs with high-volume transactions must implement automated systems to handle VAT and WHT, reducing the risk of penalties and cumulative liabilities that could outweigh actual profits.”

She also urged businesses to be proactive in bringing all their operations, even low-margin activities, into strict compliance with the tax reform acts. She said, “Businesses should maintain monthly reconciliations, backup documentation, and clear audit trails. The new system allows authorities to cross-check bank accounts, payment platforms, and TIN-linked records. Proactive review of profitability, expenses, and tax obligations ensures compliance even in low-margin operations.”

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From PwC’s Nigerian Tax Reforms, 2025 Tax Insight Series and Sectoral Analysis, below are some actionable insights that businesses and individuals must implement to avoid breaching the law:

PwC said, “All taxable persons and entities must register for tax and obtain a TIN to avoid substantial initial and recurring penalties. Awarding contracts to unregistered persons now attracts a significant N5 million penalty. Ensure all tax returns are filed accurately and on time. Delays or inaccuracies trigger escalating monthly penalties, which can quickly accumulate to substantial amounts.

“Companies and individuals must keep and provide adequate records. Failure to do so results in immediate penalties and can hinder the ability to defend against further assessments or audits. Grant access for tax automation and use the prescribed fiscalisation systems for VAT and other taxes. Non-compliance leads to high daily penalties and additional interest on tax due. Respond promptly to all tax authority requests for information. Non-compliance now attracts significant daily penalties.”

Special attention is required for petroleum and mineral operators. “Operators in these sectors face some of the highest penalties for late filing and payment, including daily fines, interest at premium rates, and the risk of asset distraint or licence cancellation. Ensure all sector-specific obligations are met without delay. Interest accrual is substantial, interest on unpaid taxes is not a flat rate but is tied to prevailing financial benchmarks (CBN MPR or SOFR) plus a spread, compounding the cost of late payment.

This can significantly increase total liabilities over time.

“Taxpayers should implement robust compliance systems, including calendar reminders for all filing and payment deadlines, regular internal audits, and prompt responses to tax authority communications.”

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Revenue boom: World Bank faults states’ spending priorities, read full details

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The World Bank has criticised the spending priorities of Nigerian state governments, warning that increased revenues following recent economic reforms have not translated into proportionate investments in education, healthcare and social protection.

The global lender observed that although states had increased spending on essential public services, investments in transport infrastructure had grown considerably faster, even in states with poor human development indicators.

A Senior Economist at the World Bank Nigeria Office, Gloria Joseph-Raji, raised the concerns on Tuesday in Abuja during the launch of BudgIT’s 2026 State of States Report, themed ‘From Allocation to Impact: Rethinking State Spending Priorities.’

She said, “Spending on education, health, and social protection has also risen substantially, but it has not kept pace with the rapid growth in transport infrastructure spending, even in states with weaker human capital outcomes.”

Joseph-Raji explained that the bank’s October Nigeria Development Update, which examined budget implementation reports from all 36 states, found that governments had expanded transport infrastructure and reduced their debt burdens, particularly domestic debt, following increased fiscal allocations.

She attributed the revenue growth to petrol subsidy removal, exchange rate unification and improvements in tax administration since 2023, alongside federal intervention funds and the settlement of longstanding obligations to states.

According to her, the additional resources have enabled states to meet salary obligations and created opportunities for improved public service delivery.

However, she warned that excessive dependence on Federation Account allocations continued to expose state finances to fluctuations in federally shared revenue.

“In 2025, federation transfers accounted for more than three-quarters of revenue in all but a handful of states,” she said.

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She disclosed that federation transfers accounted for 73 per cent of aggregate state revenues between 2021 and 2025, excluding Lagos, while internally generated revenue was sufficient to cover recurrent expenditure in only two states.

Joseph-Raji noted that states received 26.72 per cent of net Federation Account revenues and now received 55 per cent of Value Added Tax revenue under the revised sharing formula.

Meanwhile, BudgIT’s Country Director, Vahyala Kwaga, disclosed that aggregate revenue across the 34 states covered in its comparative analysis rose from N4.99tn in 2022 to N15.53tn in 2025, representing an increase of N10.54tn.

He said FAAC allocations increased by more than 232 per cent, from N3.43tn to N11.38tn during the period.

Despite the revenue growth, Kwaga disclosed that the states had spent only N8.60tn, representing 24.4 per cent of their combined N35.22tn approved budgets, by June 2026.

“We must also examine how effectively they deploy the resources available to them, what they prioritise and whether their spending is delivering the outcomes that citizens need,” he said.

He explained that BudgIT had revised its assessment methodology to place greater emphasis on spending in education, healthcare, agriculture, water and sanitation, alongside revenue performance and debt sustainability.

Presenting the report, BudgIT’s Head of Research and Policy Advisory, Adejoke Akinbode, disclosed that total debt across the 35 states assessed increased by 10.41 per cent, from N10.57tn in 2024 to N11.67tn in 2025.

She identified Lagos as the most indebted state, with N2.9tn, while Osun spent N100.17bn servicing debt, equivalent to 28.6 per cent of its revenue.

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Akinbode said Lagos ranked first in overall fiscal sustainability, followed by Enugu, Bayelsa, Delta and Kebbi, while Cross River ranked last. Rivers was excluded because of inadequate fiscal data.

She urged states to reduce administrative costs, strengthen revenue collection and link borrowing to productive investments.

In her keynote address, an economist and lecturer at Amadeus University, Abia State, Dr Iboro Nelson, argued that rising government revenues had failed to compensate households for the economic hardship associated with recent reforms.

She disclosed that states collectively budgeted N1.32tn for healthcare in 2024 but spent N816.64bn, while education expenditure stood at N1.61tn against N2.41tn budgeted.

According to her, average annual spending per resident amounted to N3,483 on healthcare and N6,981 on education, equivalent to approximately N290 and N582 monthly, respectively.

“This is actually not fiscal space, but fiscal illusion,” she said.

Nelson blamed weak budget implementation, unrealistic expenditure projections, overlapping projects and excessive recurrent costs for the limited developmental impact of rising allocations.

Also speaking, a Programme Manager at the Ford Foundation’s West Africa Office, Joy Ehinor-Esezobor, urged governments to measure fiscal success by improvements in citizens’ lives rather than revenue growth or rankings.

“The ultimate measure of success should not simply be a better fiscal ranking, but better services and improved living conditions,” she said.

The programme is seeking to establish a framework for developing Nigeria’s underutilised small hydropower resources through private investment and public-private partnerships.

Source: punchng.com

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Otti woos US investors to Abia

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Governor Alex Otti of Abia State has concluded plans to bring investors, business leaders, policymakers, development partners, diplomatic representatives and entrepreneurs to the state to explore investment opportunities and strengthen commercial relations between Africa and the United States.

In a statement he signed and issued to newsmen on Sunday, the Chief of Staff to the Governor, Pastor Caleb Ajagba, disclosed that the Abia State Government had unveiled plans to attract American and other international investors to the state through the 2026 edition of the African Diaspora Conference and Expo, AFRICANDO, scheduled for this month.

Ajagba said, “AFRICANDO is a platform for translating international economic engagement into concrete investments and commercial partnerships. The state government is working with the organisers to ensure that the conference goes beyond speeches and networking to facilitate transactions, business agreements and sustainable investment.”

According to him, the 2026 edition, with the theme, “Deepening U.S.–Africa Commercial Ties in the Era of AfCFTA,” would connect investment opportunities in Abia and other African markets with American capital, technology, expertise and international distribution networks.

He added, “The African Continental Free Trade Area, AfCFTA, presents opportunities for African businesses to expand beyond their domestic markets, while international partnerships could help them improve production capacity and competitiveness.

“Abia is strategically positioned to benefit from the initiative because of its manufacturing and entrepreneurial base, particularly in Aba, which is known for indigenous manufacturing, commerce and craftsmanship.”

Ajagba added that Otti’s administration “is investing in infrastructure, strengthening public institutions and improving the business environment to position the state as a destination for private investment.”

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He explained that international delegates and prospective investors would be encouraged not only to attend conference sessions but also to visit strategic economic locations, manufacturing clusters, enterprises and government-backed projects to assess investment opportunities firsthand.

He said the approach was intended to give participants a practical understanding of the state’s economic potential and create opportunities for direct engagement with local businesses and relevant government agencies.

“AFRICANDO 2026 is not exclusively an Abia event. It is an international economic platform being hosted in Abia State,” he continued.

He listed agriculture and agro-processing, manufacturing, consumer goods, energy, financial services, healthcare, transportation and logistics, science and technology, artificial intelligence and emerging technologies among the sectors expected to receive attention.

A major feature of the conference, he said, would be a structured Deal Room and Investment Marketplace, where investment-ready projects from Abia and participating businesses would be presented to prospective investors.

Source: punchng.com

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Personal loans hit new high N1.99tn

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Nigerians’ outstanding personal loans increased by an estimated N58.5bn in the second quarter of 2026, reaching N1.99tn at the end of June, as households faced persistent inflationary pressures and high borrowing costs.

An analysis by The PUNCH of the Central Bank of Nigeria’s Second Quarter 2026 Economic Report showed that personal loans rose by 3.03 per cent from approximately N1.93tn recorded at the end of March.

The development came as total consumer credit increased by 3.26 per cent to N3.17tn from N3.07tn in the preceding quarter, representing an increase of about N100bn within three months.

The CBN stated, “Consumer credit outstanding increased by 3.26 per cent to N3.17tn, from N3.07tn in the preceding quarter. The increase reflected growth in both retail and personal loans, which rose by 4.10 per cent and 3.03 per cent, respectively.”

According to the report, personal loans accounted for 62.87 per cent of total consumer credit, while retail loans constituted the remaining 37.13 per cent.

This means that nearly N63 out of every N100 owed by consumers to financial institutions was classified as personal borrowing, highlighting its dominance in the consumer credit market.

Retail loans also increased by approximately N46.5bn to N1.18tn at the end of June, compared with an estimated N1.13tn in March, representing quarterly growth of 4.10 per cent.

Although retail loans recorded a faster percentage increase, personal loans contributed more to the outstanding stock of consumer credit.

The increase in personal borrowing occurred amid renewed inflationary pressures, which continued to affect household purchasing power.

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The CBN reported that headline inflation rose to 15.91 per cent in June 2026 from 15.38 per cent in March, reflecting increases in the prices of essential goods and services.

The report attributed the development largely to higher energy and commodity prices associated with geopolitical tensions in the Middle East, which increased production and transportation costs.

These conditions placed additional pressure on household expenditure, particularly for consumers whose incomes had not increased sufficiently to offset rising prices.

However, the report did not establish whether the increase in personal loans was driven primarily by household financial difficulties, consumption needs or improved access to credit.

The growth in consumer borrowing also occurred despite elevated lending rates in the banking sector.

 

 

According to the CBN, the average prime lending rate declined marginally to 19.01 per cent in Q2 from 19.37 per cent in the preceding quarter.

In contrast, the maximum lending rate increased slightly to 34.37 per cent from 34.34 per cent, indicating that borrowing remained expensive for some categories of bank customers.

Although these rates reflect broader banking sector lending conditions rather than specific personal loan charges, they provide an indication of the financing environment confronting borrowers.

A recent report ‘Enhancing Financial Inclusion & Advancement’ noted that four in every 10 Nigerians borrowing from formal financial institutions now take loans mainly for consumption and coping needs, as rising financial pressures increasingly push credit away from productive activities.

The ‘2026 Access to Financial Services in Nigeria Survey’ revealed that 40.8 per cent of formal borrowers used loans for coping and consumption, up sharply from 31.7 per cent in 2023.

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The 9.1 percentage-point increase made coping and consumption the largest purpose of formal credit, overtaking productive enterprise borrowing, which fell from 40.2 per cent to 34.3 per cent during the same period.

Borrowing for household assets also declined from 25.2 per cent to 23.4 per cent. The report warned, “Coping/consumption purposes rose from 31.7 per cent to 40.8 per cent; productive purpose fell from 40.2 per cent to 34.3 per cent. We need to ensure that credit builds productive capacity and does not produce distress.”

Formal credit use increased from six per cent of adults in 2023 to 10 per cent in 2026, with about 11.9 million Nigerians borrowing from regulated providers. When informal sources were included, 36 per cent of adults had access to some form of credit.

Credit use among informally employed Nigerians tripled from five per cent to 15 per cent, while borrowing among people aged 18 to 35 rose from four per cent to 10 per cent. Business owners recorded an increase from four per cent to 10 per cent, while farmers rose from two per cent to six per cent.

Source: punchng.com

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