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How to Resolve Tax Problems in Nigeria

Tax problems in Nigeria can be resolved through compliance with tax laws, proper record-keeping, effective communication with tax authorities, and the application of appropriate legal procedures. Taxation is recognized as one of the primary sources of government revenue in Nigeria. The revenue generated is utilized for the provision of essential public services, including infrastructure, healthcare, education, security, and other developmental projects. Consequently, individuals and businesses that earn taxable income are expected to comply with the relevant tax laws and regulations.

2025 TAX ACTS: WHAT YOU NEED TO KNOW The President assented to the four tax bills recently, which were previously drafted by the Presidential Committee on Tax Reforms. The bills presented to the National Assembly, which are now Acts, include the Nigeria Tax Act 2025, which repeals existing tax laws (Finance Act, Company Income Tax Act, Personal Income Tax Act, and Value Added Tax Act). The Act does not affect the Deduct at Source WHT regulation. The Nigeria Revenue Service (Establishment) Act 2025, which aims to replace the Federal Inland Revenue Service (FIRS) and fairly reflect the structural function of revenue collection for the federation; the Joint Revenue Board (Establishment) Act, which aims to give an institutional framework for the harmonization of revenue administration in the country; and the Nigeria Tax Administration Act to guide the assessment, collection, and accounting for revenue due to the federal, state, and local governments. WHAT YOU SHOULD KNOW: 1. Reduced Company Income Tax: In the bid to increase productivity and encourage corporate bodies amidst rising inflation and the naira losing against the USD, the Act reduces the CIT from 30% to 25% and removes the minimum tax for companies with adjusted losses at the end of the financial year. 2. Capital Allowance can now be claimed on intangible assets: Digital intangible assets now make up a chunk of companies' non-current assets. The First Schedule of the NTA includes the capital expenditure (qualifying software expenditure) incurred on the acquisition of software or other such capital outlays on electronic applications. 3. Introduction of 15% Minimum Effective Tax Rate: Aligning with the global minimum tax principle, a 15% ETR is introduced for companies with an aggregate revenue of N20bn (this is subject to changes) or companies that are a part of a multinational enterprise, i.e., if a qualifying company estimates its tax liability in an assessment year, and it falls below 15% of accessible profit, then a “top-up” tax will be included. This is in tandem with OECD’s Pillar 2. 4. Revised Personal Income Tax Rate: The fourth schedule of the NTA taxes the net income (net allowable deductions as stated in section 30 of the NTA) of earners below 800k at 0%. Apparently, workers earning minimum wage might still pay PIT if their net income exceeds 800k, as this act reduces the tax burden on low-income earners. The revised progressive rate means individuals earning up to N50m annually will pay up to 25% tax. 5. Introduction of a Tax Ombudsman: The new tax regime will see the birth of an ombud who will act as an arbiter between the tax authority and the taxpayer. This is in tandem with global best practices on tax justice; it will ultimately reduce the friction between both parties. 6. Small Business Redefined: Section 203 of the NTA defines “small business” as a business that earns gross turnover of N50,000,000.00 or less per annum with total fixed assets not exceeding N250,000,000.00, provided that any business providing professional services shall not be classified as a small business. 7. Introduction of Development Levy: Companies, other than small businesses, will pay a levy of 4% of their assessable profits (i.e., tax profits before deducting tax depreciation and capital allowances and losses). The Development Levy merges the Tertiary Education Tax (TET), the Information Technology Levy (IT), the National Agency for Science and Engineering Infrastructure (NASENI) levy, and the Police Trust Fund (PTF) levy. 8. Introduction of a Unified Tax ID: The Nigeria Tax Administration Act, 2024 reintroduces Tax IDs, which will be unified, for residents who derive income from Nigeria, non-residents who supply taxable supplies into Nigeria. These IDs shall be issued upon request by NRS, but on information available to NRS, it may register an individual for a Tax ID, then notify the person afterward. 9. Increased penalties for non-compliance: The new laws increase the penalty for failure to file returns to NGN100,000 (previously NGN50,000) in the first month and NGN50,000 (previously NGN25,000) for every month the failure continues; introduction of new penalties such as a penalty of NGN5 million for awarding contracts to individuals or entities that are not registered for tax. 10. Repealing of Pioneer Status Incentives: The Acts replace the “pioneer” tax holiday incentive with an “Economic Development Incentive” (or EDI). This incentive introduces a tax credit of 5% per annum for 5 years on qualifying capital expenditure purchased by eligible companies in priority sectors within 5 years, effective from the production date. If a company has unused tax credits or qualifying capital expenses, it can carry them forward for another 5 years. Any credits still unused after this timeline will expire. 11. Removal of Consolidated Relief Allowance: The famous CRA that was introduced in previous legislation has been replaced with a rent relief of 20% of gross salary (capped at 500k); as controversial as it seems, the revised progressive tax rate offsets any negative effects on low-income earners who enjoyed CRA. 12. Introduction of Penalty for a Taxable Person: Section 100 of the Tax Administration Act introduces an administrative penalty of N50,000 for the first month and N25,000 for subsequent months for taxable persons who refuse to register for a tax ID. 13. Stricter tax compliance regulation for NGOs: The new Act intensifies the regulations on NGOs, section 11 of the Tax Administration Act mandating all companies, including those granted exemption from incorporation must file an annual return. NGOs are also mandated by section 51 of the Tax Administrative Act to deduct at the source a WHT on service invoices, with penalty implications if not complied with. But still exempt from capital gain taxes on gains on disposal of chargeable assets, provided the assets were purchased for the approved activity of the organization. 14. Increased Compensation for Personal Injury: The Act increased the tax-exempted amount for loss of office employment from N10,000,000 to N50,000,000, and in case the sum exceeds the 50 million threshold, the excess will be considered a chargeable gain and the tax accrued on it should be deducted by the payer and remitted within the time frame specific to PAYE. This is done in relation to the current economic reality of the country and social welfare. 15. Taxation of Companies in Free Zone Areas: The second schedule of the Nigeria Tax Act still exempts the total production of an “export processing zone entity,” i.e., the companies approved and licensed under the Nigeria Export Processing Zone Act. Provided they only sell 25% of their total production within the country, but if the sales within the country exceed 25% on assessment, the entirety of the domestic sales will be taxed. This 25% maximum domestic sale benchmark is to be reduced to 0% by 2028. Unless the president publishes in a gazette an order extending this term beyond 2028, but it cannot extend beyond 2036. The essence of Nigeria’s 2024 Tax Reform Acts is to simplify the tax system, enhance equity, and boost economic growth. By exempting low-income earners and small businesses from taxes, zero-rating VAT on essentials, reducing corporate tax rates, and streamlining administration, the acts aim to create a fairer, more efficient, and globally competitive tax framework, effective implementation of these reforms would be bumpy i the first years, but in the long run increases the Nation’s Tax-Gdp ratio.

However, tax-related challenges continue to be experienced by many taxpayers. These challenges are often caused by inadequate knowledge of tax obligations, poor financial documentation, incorrect tax assessments, delayed tax payments, and failure to comply with statutory requirements. As a result, penalties, interest charges, tax disputes, and legal actions may be imposed on defaulting taxpayers. Fortunately, most tax problems can be prevented or resolved through timely compliance, proper documentation, and adherence to established legal procedures.

Understanding Tax Problems in Nigeria

Tax problems arise whenever tax obligations are not properly fulfilled or when disagreements occur between taxpayers and tax authorities regarding tax liabilities. Such problems may involve unpaid taxes, inaccurate tax calculations, late filing of tax returns, tax audits, penalties, multiple taxation, or disputes over tax assessments. If these issues are not addressed promptly, significant financial and legal consequences may be experienced by both individuals and businesses.

Tax administration in Nigeria is carried out by different government agencies. Federal taxes are administered by the Nigeria Revenue Service(NRS), while state taxes are managed by the respective State Internal Revenue Services. In addition, certain taxes and levies are collected by local government authorities. Although substantial improvements have been introduced through digital tax administration and ongoing tax reforms, many taxpayers still experience compliance difficulties due to limited awareness of tax regulations and procedures. Therefore, a proper understanding of tax responsibilities remains essential.

Common Causes of Tax Problems

Several factors have been identified as major contributors to tax problems in Nigeria.

Poor Record-Keeping

Poor record-keeping is one of the most common causes of tax disputes. When accurate financial records are not maintained, the correct amount of tax payable cannot easily be determined. Consequently, mistakes may occur during tax calculations and reporting, thereby increasing the likelihood of disagreements with tax authorities.

Limited Knowledge of Tax Laws

Inadequate knowledge of tax regulations also contributes significantly to tax-related challenges. Filing deadlines, applicable taxes, available reliefs, and statutory compliance requirements are often not fully understood by many business owners and self-employed individuals. As a result, tax obligations may not be fulfilled correctly or within the prescribed time.

Late Payment of Taxes

Delayed payment of taxes frequently leads to the imposition of penalties and the accumulation of interest charges. In some situations, tax obligations may be intentionally ignored. In other instances, payment deadlines may simply be missed because of poor financial planning or administrative oversight. Regardless of the reason, additional liabilities are usually imposed whenever taxes remain unpaid.

Errors in Tax Returns

Mistakes made during the preparation of tax returns may result in incorrect tax assessments. Errors involving income declarations, allowable expenses, deductions, or tax computations may trigger tax audits and create disputes with the relevant tax authorities. Consequently, additional documentation may be required before such issues can be resolved.

Multiple Taxation

Multiple taxation continues to pose a significant challenge to businesses operating in Nigeria. Similar taxes or levies may be imposed by different government agencies on the same taxpayer, thereby creating unnecessary financial burdens and administrative difficulties. Consequently, business operations may be negatively affected, particularly among small and medium-sized enterprises.

Effective Ways to Resolve Tax Problems in Nigeria

1. Verify the Tax Assessment

The first step that should be taken when a tax issue arises is the careful review of the tax assessment or demand notice issued by the relevant tax authority. The information contained in the assessment should be compared with available financial records to determine whether the stated liability is accurate.

Where discrepancies are identified, appropriate supporting documents should be gathered and submitted for verification. Through proper examination and clarification, incorrect assessments can be amended, and unnecessary disputes can be avoided.

2. Maintain Proper Financial Records

Effective record-keeping is regarded as one of the most reliable methods of preventing and resolving tax problems. Financial documents such as invoices, receipts, sales records, purchase records, payroll information, bank statements, and previous tax returns should be properly maintained.

When complete and accurate records are available, tax obligations can easily be verified during audits or assessments. Furthermore, misunderstandings between taxpayers and tax authorities can be significantly reduced because sufficient evidence can be presented whenever required.

3. Communicate Promptly with Tax Authorities

Tax notices and requests from tax authorities should never be ignored. Instead, prompt communication should be established with the relevant tax office to obtain clarification and provide any required information.

Through constructive engagement with tax officials, misunderstandings can be resolved, errors can be corrected, and mutually acceptable solutions can often be reached. Consequently, unnecessary penalties and legal complications may be avoided.

4. Submit a Formal Tax Objection

Where a taxpayer disagrees with a tax assessment, a formal objection may be submitted in accordance with Nigerian tax laws. The reasons for disputing the assessment should be clearly stated, and relevant supporting evidence should accompany the objection.

Once the objection has been reviewed, appropriate adjustments may be made where the taxpayer’s claims are found to be valid. As a result, disputes can be resolved through a transparent and structured legal process.

5. Settle Outstanding Tax Liabilities

Where tax liabilities are confirmed to be accurate, outstanding taxes should be settled without unnecessary delay. Early payment is encouraged because the accumulation of penalties and interest charges can thereby be minimized.

Where immediate payment is not financially possible, alternative arrangements such as installment payment plans may be negotiated with the relevant tax authority. This approach enables taxpayers to meet their obligations while reducing financial pressure.

6. Seek Professional Tax Advice

Because tax regulations can be highly complex, professional assistance may be required, particularly by companies with sophisticated financial operations. Guidance can be provided by accountants, tax consultants, and legal professionals to ensure that tax obligations are properly understood and fulfilled.

Professional tax advice can reduce filing errors, improve compliance, prevent future disputes, and assist taxpayers in identifying available tax incentives and lawful tax planning opportunities.

7. Utilize the Tax Appeal Tribunal

Where disputes cannot be resolved through communication and negotiation, the Tax Appeal Tribunal may be approached. The Tribunal provides an independent platform through which disagreements between taxpayers and tax authorities are reviewed in accordance with applicable tax laws.

Where additional legal clarification becomes necessary, further appeals may be made before the appropriate courts. Consequently, taxpayers are provided with recognized legal channels for resolving unresolved tax disputes.

Preventing Future Tax Problems

Future tax problems can largely be prevented through proper planning, continuous compliance, and effective financial management. Tax returns should be accurately prepared and submitted within the prescribed deadlines. Likewise, tax payments should always be made promptly to avoid unnecessary penalties and interest.

Furthermore, accurate financial records should be maintained, while changes in tax regulations should be monitored regularly. Internal reviews should also be conducted before tax returns are submitted to ensure that errors are identified and corrected at an early stage.

Additionally, accounting software and professional accounting services should be utilized where appropriate to improve the accuracy of financial reporting. Regular tax education should also be encouraged to increase awareness of tax responsibilities and compliance obligations.

Challenges Facing Tax Administration in Nigeria

Despite ongoing reforms, several challenges continue to affect effective tax administration in Nigeria. These challenges include limited taxpayer awareness, multiple taxation, tax evasion, corruption, weak enforcement of tax laws, and the large informal sector.

Furthermore, limited access to digital tax services in certain locations continues to hinder compliance for some taxpayers. As a result, challenges are still experienced during tax registration, filing, and payment processes.

Therefore, stronger government policies, improved taxpayer education, increased transparency, and continued investment in digital tax infrastructure are required to strengthen tax administration. Through these measures, greater compliance and more efficient tax management can be achieved.

Recommendations

Several measures should be implemented to reduce tax problems and improve compliance in Nigeria.

First, taxpayer education should be strengthened through regular awareness campaigns and training programmes. Second, tax procedures should be simplified to make compliance easier for individuals and businesses. Third, digital filing and payment systems should continue to be improved to enhance efficiency and accessibility.

Furthermore, collaboration among federal, state, and local tax authorities should be strengthened to reduce multiple taxation and administrative duplication. Finally, taxpayers should be encouraged to maintain proper financial records and obtain professional tax advice whenever necessary.

Through the implementation of these recommendations, tax disputes can be minimized, voluntary compliance can be improved, and a more efficient tax system can be achieved.

Conclusion

Tax problems in Nigeria can be effectively resolved through a combination of legal compliance, accurate record-keeping, timely filing of tax returns, prompt payment of taxes, and open communication with tax authorities. Whenever tax disputes arise, appropriate supporting documentation should be provided, while the legal procedures established under Nigerian tax laws should be followed.

Furthermore, professional guidance should be obtained where necessary to ensure that tax obligations are properly managed and compliance requirements are fully satisfied. Through expert assistance, tax disputes can be resolved more efficiently, compliance can be strengthened, and future tax challenges can be prevented.

At SOW Professionals Ltd, professional tax support is provided to individuals and businesses seeking guidance on tax compliance, tax dispute resolution, tax planning, and regulatory requirements. By following the appropriate procedures and obtaining expert assistance, taxpayers can reduce tax-related risks, avoid unnecessary penalties, and contribute to the development of a more efficient, transparent, and sustainable tax system in Nigeria.

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