Nigeria’s tax reform may strain Financial Inclusion gains

When Okonkwo Azuka, an Abuja-based furniture maker, got his first contract of the year, the work itself was not the problem; payment was.

Mr Azuka had agreed to build a set of mini sofas for about N500,000. As the customer prepared to pay, he began to entertain fears, eventually asking whether the payment would be made in cash.

He said he felt uneasy about receiving the funds through a bank transfer, worried that the new tax laws could expose him to deductions or charges he did not understand.

“I don’t want government taking something I don’t even know about,” he said, asking whether the customer would also “pay tax on top” of the agreed price.

There is no provision in the law for banks to automatically deduct personal income tax from one-off transfers. Still, the fear lingered. The job only moved forward after an unsuccessful attempt to reach a bank official for clarification.

New Law

The new tax reforms introduced by the federal government were designed to simplify revenue collection, broaden the tax base and strengthen government finances.

But early reactions from small business owners suggest the changes may be reshaping behaviour in the informal economy in ways that could test Nigeria’s fragile financial inclusion gains.

The reforms, which took effect this January, seek to eliminate multiple nuisance levies, reduce the burden on low-income earners and ensure that most small businesses pay no company income tax. Government officials say the changes are intended to make taxation fairer, more transparent and more efficient.

Yet, since implementation began, confusion and misinformation have spread quickly, particularly online. Some Nigerians now advise labelling bank transfers as “gifts” or “fees” to avoid perceived tax exposure, while others are increasingly avoiding bank transfers altogether.

The chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, has repeatedly said the laws were designed to ease, not increase, the burden on Nigerians. He has emphasised that the reforms do not permit banks to debit personal accounts for tax purposes.

“Let me be clear: nobody will debit your account. There is no scenario under the current laws or the upcoming ones where the government can simply take money from you because they think you should pay more tax,” Mr Oyedele said.

He added that even where tax liabilities exist, the law requires formal notices, assessments, the right to dispute and, ultimately, a court order.

“I’ve been involved in tax administration for nearly three decades, and I’ve never seen one instance where this power was used to take a single naira,” he said.

Under the new framework, individuals earning N800,000 or less annually, about N67 thousand per month, pay no personal income tax or capital gains tax. Also, businesses with annual turnover below N100 million are exempt from company income tax, while basic food items, education, healthcare and transport remain VAT-exempt.

Despite these provisions, fear appears to be shaping behaviour for many Nigerians.

Anxieties

In Abuja’s Lugbe area, Kehinde Lawal, a building contractor and materials supplier, said artisans he worked with had begun expressing uncertainties once bank transfers were mentioned. In one case, a bricklayer increased his labour fee by N30,000 on a N200,000 job, citing possible tax exposure once the money gets credited into his account.

“If they are not clear, I will protect myself,” the bricklayer said. “I cannot be losing money because I used the bank.”

Mr Lawal said the behaviour had become more common, especially among his regular workers, many of whom had previously accepted digital payments but had started raising concerns since last year, ahead of the tax implementation.

In Aba, Nigeria’s commercial tailoring hub, similar concerns are reshaping how artisans accept money.

Amanda Okpala, a self-employed fashion designer, said she had begun discouraging customers from paying by transfer, especially for large orders. She said that fellow tailors had warned her that frequent inflows could attract the attention of tax authorities, even if no one could explain exactly how.

“When the money enters your account, nobody tells you what happens next until you start getting debited,” she said. “That is what scares people.”

When a client placed an order worth N280,000 for wedding outfits, Ms Okpala asked that the payment be split or made partly in cash. The customer later walked away, preferring a fully cashless transaction elsewhere.

Financial inclusion experts say such behaviour reflects uncertainty rather than outright rejection of reform.

Akinlabi Adegoke, a financial inclusion expert, said the reforms risk slowing financial inclusion not because of their substance, but because of how they are perceived by low-income and informal workers.

He warned that once digital transactions begin to feel like a gateway to tax scrutiny, uncertainty and fear could push people back towards cash, especially in sectors where incomes are irregular and margins are thin.

“Over the last few years, many artisans and informal workers adopted digital payments because they felt safe, simple, and largely supportive of their daily livelihoods,” he said. “Once digital activity begins to feel like a direct gateway to tax scrutiny, anxiety naturally follows.”

In the informal economy, where incomes are irregular and margins are thin, even the perception of risk can alter behaviour.

According to him, financial inclusion is built slowly on trust and familiarity, and even the perception of risk is enough to change behaviour. He noted that what may be emerging is not resistance to reform, but a temporary withdrawal driven by uncertainty, which could undermine years of progress if communication gaps persist.

“Financial inclusion is built gradually, through trust and familiarity. If people begin to associate digital channels with uncertainty or punishment rather than opportunity, some will understandably retreat to cash,” he said, adding that this did not reflect resistance to reform but a desire for predictability and control.

Early signals

Nigeria’s financial inclusion drive has made progress but remains uneven.

According to the latest Access to Finance survey by Enhancing Financial Innovation and Access (EFInA), 64 per cent of Nigerian adults were formally financially included in 2023, up from 56 per cent in 2020. However, about 26 per cent, roughly one in four adults, remain excluded, with exclusion highest among low-income earners, rural residents and informal workers.

While account ownership has improved, usage remains weak, particularly for credit, insurance and savings. Digital payments have often been the first entry point into formal finance.

A 2025 report by Moniepoint found that Nigeria’s informal economy still operates largely on cash, with only one in four informal businesses reporting that digital payments account for at least 10 per cent of their revenue.

Mr Adegoke said what is emerging appears to be a pause rather than a reversal, but warned that uncertainty could harden into habit if not addressed.

“Yes, in the short term, that risk does exist,” he said. “What we might be seeing is not a rejection of financial inclusion, but a pause driven by uncertainty.”

“This is why communication is critical,” he added. “When people understand how policies apply to them, in language and channels they trust, confidence returns and participation follows.”

What the law says

Tax experts say some of the concerns influencing current behaviour appear to stem more from uncertainty than from the law itself.

Afeez Ismaila, a tax expert, said the reforms do not impose tax on every digital bank transfer, despite widespread rumours.

“Only income, profits, or chargeable gains for taxable activities are liable to tax, not every deposit,” he said, adding that personal accounts used strictly for non-business purposes are not taxed or forced to obtain a Tax Identification Number.

However, Mr Ismaila said some anxiety was understandable. The reforms expand registration requirements for business operators and introduce stronger digital reporting for businesses above certain thresholds.

“For many artisans and informal traders who have never been registered, that feels like a new burden,” he said, particularly amid fears, often misplaced, that accounts could be restricted for non-compliance.

He added that unclear implementation guidance, limited digital capacity and weak public trust in government spending had amplified fear.

“New digital visibility feels like surveillance before benefit,” he said.

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Government pushback

The federal government has maintained that the reforms are sound, despite public criticism.

On 6 January, Zacch Adedeji, the chairperson of the Nigeria Revenue Service (NRS), formerly the Federal Inland Revenue Service, attributed opposition to the new tax laws to misinformation and vested interests.

“Implementation has started. People have started to see the result, and they say they want to go on a protest,” he said during an interview on Arise Television.

Mr Adedeji warned that misinformation and calls for protest could undermine reforms designed to protect ordinary citizens and strengthen the economy. He ruled out any suspension of the laws, saying only amendments could be considered where legitimate concerns were identified.

He argued that the objective of the reforms was to create a more efficient, transparent and equitable tax system that would stimulate economic growth and protect the poor.