When another party’s default becomes your liability, the issue is no longer merely cautionary. It becomes a matter of statutory exposure. That is the practical effect of section 100(2) of the Nigeria Tax Administration Act 2025 (NTAA).

With the Tax Reform Acts signed into law by Bola Ahmed Tinubu on 26 June 2025, Nigeria’s tax administration framework has undergone its most extensive reform in decades. The reforms took effect on 1 January 2026.

Buried within the enforcement provisions of the NTAA is a clause that has received relatively little commentary. Yet, it carries major consequences for businesses, government agencies, and professional advisers.

Section 100(2) imposes a direct administrative penalty on any entity that awards a contract to an unregistered taxable person. The liability arises even where the contracting entity has committed no deliberate wrongdoing. It is therefore a true third-party liability provision.                                                                                   

This article examines the scope, legislative purpose, and practical implications of section 100(2) of the NTAA. It also considers the compliance obligations the provision creates for businesses, procurement teams, and legal advisers.

The Registration Obligation Under the NTAA

Section 4 of the NTAA establishes the foundational obligation. Every taxable person must register with the relevant tax authority and obtain a Taxpayer Identification Number (Tax ID).

The obligation extends to individuals, companies, government ministries, departments, agencies, and non-resident persons. It also applies to persons who supply taxable goods or services in Nigeria or derive income from Nigeria.

Section 100(1) of the NTAA sets out the penalty for non-compliance. A taxable person who fails or refuses to register is liable to:

• N50,000 for the first month in which the default occurs; and
• N25,000 for each subsequent month during which the failure continues.

Although these penalties may appear modest in isolation, they increase over time where non-compliance persists. However, the more consequential provision is section 100(2). That subsection extends liability beyond the defaulting taxpayer.

The Third-Party Liability Under Section 100(2)

Section 100(2) of the NTAA provides that any statutory body or company that awards a contract to an unregistered taxable person is liable to an administrative penalty of N5,000,000.

The provision is striking in its construction. It does not require proof of fraudulent intent or bad faith. The penalty arises simply from awarding a contract to an unregistered person.

The subsection also does not expressly recognise good faith as a defence. On its face, liability is triggered once the prohibited act occurs.

The disparity between sections 100(1) and 100(2) is significant. The unregistered person may face monthly penalties of N50,000 and N25,000. By contrast, the company engaging that person faces an immediate N5,000,000 penalty.

This distinction appears deliberate. It signals the legislature’s intention to place the burden of compliance verification on the party with greater commercial capacity to enforce it. In practical terms, businesses and government agencies are expected to verify tax registration before awarding contracts.

Legislative Intention: Formalisation and Tax Visibility

Section 100(2) cannot be understood in isolation. The provision forms part of a broader legislative effort to formalise economic activity and improve tax visibility across Nigeria.

Nigeria has long struggled with a large informal sector that operates outside the tax net. This has weakened revenue generation and limited the government’s ability to expand sustainable non-oil revenue.

To address this problem, the NTAA adopts an indirect enforcement model. Rather than targeting only the defaulting taxpayer, the law also imposes consequences on parties that transact with them.

The practical effect is clear. Businesses and government agencies now have a strong incentive to verify Tax IDs before awarding contracts. Failure to do so may attract substantial penalties.

As a result, unregistered persons may find it increasingly difficult to access formal procurement opportunities. This creates a strong commercial incentive to register and enter the tax system.

The approach aligns with the broader objectives of the NTAA. Section 1 seeks to establish uniform procedures for efficient tax administration, improved compliance, and enhanced revenue generation.

The Tax ID framework forms a central part of that objective. Section 8 of the NTAA further reinforces the policy by making a Tax ID a condition for contracts with federal and state ministries, departments, agencies, and local governments.

Who Is at Risk?

The reach of section 100(2) is broad. On its face, it applies to:

• Federal, state, and local government agencies;
• Private companies engaged in procurement activities;
• Organisations that contract vendors, suppliers, or service providers; and
• Businesses that engage informal operators without verifying tax status.

The use of the word “company” suggests a broad legislative intention. The provision is therefore not limited to large corporations alone.

Small and medium-sized enterprises (SMEs) may face particular exposure. Many SMEs routinely engage artisans, logistics providers, sole traders, and informal vendors. If those persons lack valid Tax IDs, the contracting business may become liable under section 100(2).

Scope and Ambiguities in Section 100(2)

Although the provision is clear in purpose, several practical questions remain unresolved.

What Qualifies as “Unregistered”?

The NTAA does not define “unregistered” in detail. The most obvious interpretation is the absence of a valid Tax ID.

However, complications may arise where a Tax ID has been suspended or cancelled under section 10 of the NTAA. It remains unclear whether such persons should also be treated as “unregistered” for the purpose of section 100(2).

These questions may ultimately require regulatory clarification or judicial interpretation.

Does the Provision Extend to Foreign Contractors?

Section 6 of the NTAA requires certain non-resident persons to register for tax purposes in Nigeria. This includes persons who supply taxable goods or services in Nigeria or derive income from Nigeria.

Where such foreign contractors fail to register, engaging them could potentially trigger section 100(2) liability.

However, enforcement mechanisms for foreign vendor verification remain underdeveloped. Businesses engaging international contractors should therefore proceed cautiously. At minimum, they should request Tax ID confirmation or obtain formal tax status declarations.

What Level of Verification Is Required?

The NTAA does not specify what constitutes sufficient due diligence.

It remains unclear whether merely requesting a Tax ID from a vendor is enough. A more prudent approach would involve independent verification through the Nigeria Revenue Service (NRS) or Joint Tax Board portal.

This issue is particularly important because vendors may present invalid or fictitious Tax IDs. Contracting parties that fail to verify them may still face exposure under section 100(2).

Due Diligence as a Legal Necessity

Before the NTAA, Tax ID verification was often treated as an administrative formality. Section 100(2) fundamentally changes that position.

Tax ID verification is no longer optional. It is now a legal and compliance requirement. Failure to comply may result in a N5,000,000 penalty.

Businesses should therefore strengthen their pre-contract compliance procedures. A robust vendor due diligence framework should include:

• Mandatory disclosure of Tax IDs during vendor onboarding;
• Independent verification of Tax ID validity;
• Contractual warranties confirming tax registration status; and
• Periodic re-verification for long-term contracts.

These measures will help reduce regulatory exposure under section 100(2).

 

Implications for Corporate Governance and Risk Management

Section 100(2) elevates tax compliance beyond the finance department. It is now a governance and enterprise risk management issue.

Board Oversight

Boards of directors should pay close attention to the provision. A single procurement decision may expose an organization to liability of N5,000,000.

Audit and risk committees should therefore ensure that tax compliance checks are integrated into procurement controls and internal audit systems.

Procurement Policies

Existing procurement policies should be reviewed and updated.

Tax ID verification should become a mandatory condition for vendor approval. The requirement should apply across all procurement categories, including goods, works, and services.

Vendor application forms, RFP documents, and standard contract templates should also reflect the new compliance requirements.

Compliance Culture

Policies alone will not be sufficient. Organizations must also develop a strong culture of compliance.

Procurement officers, finance teams, and contract managers should receive proper training on the NTAA requirements.

The message must be clear. Engaging an unregistered vendor is no longer a minor administrative oversight. It is now a statutory compliance failure with significant financial consequences.

Exposure of Directors and Principal Officers

Section 45 of the NTAA creates an additional layer of risk. In certain circumstances, managers and principal officers may become personally liable for company penalties.

Directors and senior executives should therefore treat compliance failures seriously. The consequences may extend beyond the organization itself.

Implications for Legal and Tax Practitioners

Section 100(2) creates both advisory obligations and professional opportunities for lawyers and tax practitioners.

Legal advisers can no longer limit contract reviews to commercial terms alone. Vendor tax status must now form part of legal due diligence.

Commercial agreements should therefore include:

• Tax ID representations and warranties;
• Obligations to maintain tax registration throughout the contract period; and
• Appropriate indemnity provisions.

Tax advisers also have an important role to play. They should assist clients in reviewing procurement systems, auditing supplier databases, and strengthening compliance frameworks.

The NTAA has changed the role of tax compliance within commercial transactions. Tax compliance is no longer merely a back-office function. It is now integrated into procurement, governance, and enterprise risk management.

Conclusion

Section 100(2) of the Nigeria Tax Administration Act 2025 represents a significant development in Nigeria’s tax administration framework.

The provision reflects a deliberate shift away from traditional taxpayer-centred enforcement. Instead, it creates a broader compliance ecosystem in which businesses and government agencies participate actively in tax oversight.

By imposing liability on entities that engage unregistered persons, the legislature seeks to improve tax visibility, strengthen formalisation, and expand the tax net.

The provision also highlights the growing intersection between tax compliance, procurement systems, and corporate governance.

Modern tax administration increasingly relies on indirect enforcement mechanisms embedded within commercial activity itself. Organisations that fail to adapt their internal systems may therefore face significant regulatory exposure under the NTAA.

At SOW Professional Services Ltd, we assist businesses and organisations in navigating the compliance demands of Nigeria’s evolving tax regime. Through our tax advisory, audit, and consulting services, we help clients review procurement frameworks, conduct vendor compliance audits, and embed tax due diligence into contracting processes.