New tax rules force firms to defend tax positions

As Nigeria moves through phases of its tax reform implementation, a shift is quietly taking hold in how businesses approach compliance. Paying taxes is no longer enough. Companies are now expected to show, in clear terms, how those figures were arrived at.

The change is driven by the Nigeria Tax Act (NTA) 2025 and the Nigeria Tax Administration Act (NTAA), which introduce stricter disclosure rules, real-time digital monitoring, and reporting standards that place more weight on transparency and traceability.

Businesses are required to keep detailed records covering transaction intent, pricing structures, and legal tax positions, backed by reconciliation documents that align tax filings with financial statements.

In effect, the system is moving toward a model where the ability to explain and defend tax positions matters just as much as making the payments.

According to Andersen in its article Nigeria’s new tax framework: transparency gains vs sustainability challenges, this goes beyond routine compliance.

Companies are now expected to show that transactions actually took place as recorded, maintain structured tax position files, and ensure consistency across contracts, accounting records, and filings.

What used to be a periodic exercise is fast becoming an ongoing documentation process.

Section 30(1) of the NTAA requires companies to disclose tax planning arrangements that produce a tax advantage without waiting for a request from the authorities. These could include tax reliefs, deferred payments, or reduced tax liabilities.

Many of these are legitimate, but they must now be clearly explained and supported with evidence.

This changes how tax positions are judged. It is no longer enough for them to be legally sound. They also have to be easy to explain, properly documented, and consistent under review.

However, there are concerns about how ready the system is for this transition.

“The institutional framework for managing higher tax revenues has partially improved, but it is not yet fully ready. Digital tools and coordination/transparency mechanisms exist, but capacity, public trust, and full execution are still works in progress,” said Yvonne Afolabi, a tax expert.

The reforms are part of a broader push to strengthen non-oil revenue and expand the tax base. Nigeria’s tax-to-GDP ratio has risen to about 13.5 percent as of late 2025, up from below 10 percent in previous years, with a target of 18 percent by 2027.

The number of registered taxpayers is also rising. According to Taiwo Oyedele, the number of individuals registered for tax purposes nationwide has increased from barely 10 million before the reform to over 100 million.

Small and medium-sized enterprises sit at the centre of this shift. They account for more than 96 percent of businesses and contribute roughly half of the country’s GDP.

While the reforms offer some relief, including a zero percent corporate income tax rate for companies with annual turnover of N100 million or less, they also come with new compliance demands that may not be easy for smaller firms to meet.

The increased focus on transparency is already beginning to change behaviour. More disclosure means more visibility, and that naturally leads to closer scrutiny. Even compliant businesses may face deeper reviews simply because more information is now available.

For many companies, this creates a balance to manage. Better documentation can improve internal processes and align with global expectations on responsible tax practices.

At the same time, it requires more time, more systems, and in many cases, more cost.

“Our goal is to tax fairly, not more. Digital systems will make compliance easier, improve transparency, and reduce money lost through leakages,” Zacch Adedeji, executive chairman of the NRS, said on a TVC show.

There are also concerns about how the new rules will play out in practice. According to Andersen, much will depend on how tax authorities use the information they receive.

If disclosures are treated mainly as red flags that trigger aggressive enforcement, disputes could rise. If they are used to resolve issues more quickly and clearly, they could help build trust between businesses and regulators.

The shift reflects a broader global trend where tax transparency is increasingly tied to corporate accountability. Frameworks such as the Global Reporting Initiative (GRI) 207 encourage companies to explain how their tax practices fit into their wider economic and social contributions.

For now, the direction is clear. Nigeria is moving toward a more transparent and data-driven tax system. For businesses, that means compliance is no longer just about paying what is due, but about being able to show, at any point, how those numbers were arrived at.